Pizza Hut 2010 Annual Report Download - page 7

Our outstanding and experienced local team led by our Vice Chairman of Yum! Brands and Chairman and Chief
Executive Ofcer of Yum! Restaurants China, Sam Su, grew our prots a whopping 26% in 2010, prior to foreign
currency translation, on top of 24% growth in 2009 and 17% in 2008. You don’t need to be a math major (and
I’m not!) to easily calculate that our China operating prot has more than doubled in the last 3 years to $755
million, making it our Number 1 prot-producing Division in Yum! We expect it to become our rst $1 billion prot
business in the very near future.
Our recipe for success is continued protable new unit development and leveraging our existing assets with new
dayparts and sales layers to grow same store sales. In 2010, we once again opened over 500 new restaurants,
while delivering near-record margins of 22%. Our KFC business has been absolutely rock solid. We now have
over 3,200 KFCs in over 700 cities, with $1.4 million average unit volumes. KFC added 414 new locations in
2010 and we continue to see cash paybacks in less than 3 years on new restaurants. The good news is that
our growth and results were driven by increased trafc as KFC made good progress leveraging its assets with
24-hour operations, delivery service and continuing to build a solid breakfast business. We also have 520 casual
dining Pizza Huts in 130 cities that had a breakout year, generating double digit same store sales growth in every
quarter in 2010. Additionally, operating prot grew 50% and Pizza Hut Casual Dining now generates well over
$100 million in operating prot. With those tremendous results, our strategy is to scale up for signicant growth
ahead. We also continued to invest behind the development of our emerging brands. Pizza Hut Home Service
now has 120 units in eleven cities, making pizza available with very efcient, low-investment pizza carryout
units. We are even creating our own Chinese quick service restaurant chain, East Dawning, tailored to the local
favorites based on the amazing insight that Chinese people’s favorite cuisine is, believe it or not, Chinese food!
Consistent with this belief, we also own 27% of Little Sheep, the leading brand in the hot pot category, which has
about 500 units and is the largest casual dining category in China with tons of potential.
Our single biggest advantage is we have arguably the nest operating team in the world that knows how to
satisfy customers and make money. In fact, over 70% of our Restaurant General Managers have at least
a college education, and as I like to say, the rest of them are just plain smart! This tremendous store level
operating capability, combined with the fact that we’ve put in place a world class infrastructure, including our
own food distribution system and one of the largest real estate and construction teams anywhere in the world,
has given us a huge competitive advantage.
Our conclusion is that our foundation has never been stronger, and we’re
just on the ground oor of growth in China. China is predicted to be the
fastest growing major economy in the world. In fact, it is expected to grow
its consuming class from around 450 million today to around 650 million
people in 2020. Like I’ve said in the past, we will no doubt have some
bumpy years, but 2010 denitely wasn’t one of them and I wouldn’t trade
our long-term position in China with any consumer company in the world.
The way we look at it, KFC can be every bit as big as McDonald’s is in the
US, ultimately reaching 15,000+ units; Pizza Hut Casual Dining can equal
the casual dining leader in the US, Applebee’s, achieving 2,000+ units;
Pizza Hut Home Service can match delivery category leader Domino’s
in the US, achieving 5,000+ units. And East Dawning is attacking the
Chinese equivalent to the hamburger category in the US, so who knows
how high is up? I always liken our China opportunity to the days when
Colonel Sanders, Glen Bell, Dan Carney and Ray Kroc started KFC, Taco
Bell, Pizza Hut and McDonald’s, creating dynasty-like category leading
brands in the US. Clearly, just like the founders of the brands I just
mentioned, we are the pioneers on the ground oor of a booming category
in a growing mega market. Having said this, we are constantly monitoring
our returns and fully intend to remain true to our commitment to never
build ahead of our people capability and unit economics. Our goal is to
build a quality long-term business the right way.
In spite of our robust prot growth, some investors have asked: “Is Yum! now too China-dependent?” We believe
the answer is denitively, NO! We think China is the Number 1 growth opportunity for Yum! in the 21st century
and we love our leading position in this huge and dynamic market. Yet, we also have a tremendous emerging
market opportunity outside of China, which leads me to our second strategy.

doubled in the last 3 years to $755
, making it our Number 1

500
New Restaurants
in 2010
In Every Signicant Category.