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Yum China sees 'early signs of recovery'

Yum China's current situation might provide insight into how brands will progress here where the scourge of the pandemic recently began in earnest. (Logo provided: file)

March 23, 2020

Yum China Holdings, Inc. said that despite the "unprecedented scale and impact" of the pandemic across its locations in China, leadership at the company is "seeing early signs of recovery, as business gradually resumed and people returned to work in China." But the company added in a news release today that its restaurant traffic is still heavily impacted as people continue to implement social distancing measures. The company's report from China, where the outbreak began in late January in Hubei Province provides U.S. operators some insight into how things may progress here, where the pandemic last week began shutting down many restaurants' operations. 

Yum China is gradually re-opening stores across China when possible and appropriate to do so, on a partial or fully operational basis. Store closures peaked in February with approximately 35% of restaurants closed. For the restaurants that have remained open, some stores provide only delivery and takeaway services and/or have shortened operating hours. 

Almost all stores that remained open experienced significant declines in traffic. The company said in that Asian country, same-store sales declined 40% to 50% during the Chinese New Year holiday period, which started Jan. 25, compared to the same period the previous year. 

The company said now, approximately 95% of stores in China are either partially or fully open, with 10% to 20% of open stores providing only delivery and takeaway services, and some stores continuing shortened operating hours. 

Traffic at open stores is recovering slowly and remains well below pre-outbreak levels. The pace of recovery varies by region and is slower during weekends as people avoid going out. In recent days, same-store sales were down approximately 20%. Sales performance fluctuates as the recovery is uneven, and the situation continues to evolve.  

During the outbreak, food delivery was reported to be very popular across China, where Yum China said it started contactless delivery in late January, which proved popular with consumers there. In fact, the company said its delivery sales grew year over year, and its mix as a percentage of company sales approximately doubled during this period, perhaps indicating the potential for similarly situated U.S. brands. 

The company subsequently launched contactless pick-up and corporate catering services as highly sanitary options for consumers and corporate customers. Yum China even launched a community delivery service for quarantined communities, especially in heavily affected areas. 

Nonetheless, new store openings in China have been "paused" the company said, due to outbreak related traffic restrictions and reduced availability of construction workers. And, in response to sharply reduced sales, the company quickly implemented cost control measures and reduced inventory as well. 

In mainland China, Yum China operates KFC, Pizza Hut and Taco Bell, and owns the Little Sheep, COFFii & JOY and East Dawning concepts. All tolled, the company had 9,200 restaurants in over 1,300 cities in China at the end of December 2019.