Pizza Hut 2012 Annual Report Download - page 6

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As I’m sure you’re well aware, urbanization and the rapidly growing
consumer class point to China as the #1 retail growth opportunity in the
world and certainly for Yum!. Rising incomes are making our brands even
more affordable for an increasing number of people. Think about this. In
the U.S., McDonald’s has over 14,000 traditional units in a population of
more than 310 million. In China, we expect to have at least that many KFC
units with the consuming class growing from 300 million to more than
600 million in the next 10 years. With this tailwind, new unit development
across China should continue at a high rate, and same-store sales should
continue to grow. And remember, I’m only talking about KFC. Pizza Hut
Casual Dining, with its dramatic sales increase and strong margins in the
past few years, is far and away the largest and most successful full-scale
restaurant in China with fantastic new-unit returns.
Yet, as I write this letter, there is no doubt we recently suffered a setback
in China following an investigation into KFC China’s poultry supply and the
resulting negative publicity. These events significantly impacted consumer
confidence in KFC, and resulted in a sharp decline in sales beginning in the
last two weeks of December.
Hindsight is always 20/20 and history is only good for two things: first, to
learn from and second, to inspire your belief about what can be done in the
future. We are aggressively applying our learnings from this incident, and
we are committed to regaining consumer confidence and rebuilding sales.
Because our China business accounted for 42% of our segments’ profits in
2012, and because it’s clear it will take time for sales to recover, there is no
question we will fall well short of our targeted growth of at least 10% EPS
in 2013.
In spite of this challenge, looking back at history also gives us confidence
we have the capability to fully recover and grow. We have faced SARS,
Avian Flu, Sudan Red and in every case, we bounced back. No two crises
are the same, and we don’t know how long it will take us to recover.
Nevertheless, we expect to weather this storm and come out stronger.
So let me be very clear…we will STAY THE COURSE in China and are
fully committed to our #1 Growth Strategy. We will continue to grow the
business with leading brands in every significant category. This includes
continuing to build our two big brands KFC and Pizza Hut Casual Dining.
We will also continue to invest behind Pizza Hut Home Service, Little Sheep
and East Dawning. Our new unit target of at least 700 remains unchanged
for 2013.
As a matter of fact, we are more confident than ever in
our long-term business models in China and our ability
to leverage the strengths that make our company so
unique. As I said earlier, we view China as the best
restaurant growth opportunity of the 21st century, and
quite simply, I wouldn’t trade our place with anyone.
China is the #1 retail growth
opportunity in the world.
826
Pizza Hut Casual Dining
restaurants in China.
889
New restaurants in China.
4