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"Epidemic" outside the store, Yum China seeks to break the situation

"Epidemic" outside the store, Yum China seeks to break the situation

Text | Hong Kong Stock Research Agency

Despite 17 years of exploration, Yum China still doesn't seem to have learned to cook Chinese food.

Recently, KFC's parent company, Yum China, announced in its 2021 annual financial report that it will terminate the operation of its original Chinese food brand Dongfang Jiebai.

Although Yum China said that the closure of Dongfang Jiebai was mainly affected by the new crown epidemic, since 2012, the news of the closure or transformation of Oriental Jiebai has been continuously reported.

Yum, which has successfully operated KFC in China for 35 years, why can't it do Chinese food?

The Chinese food business is struggling

"Oriental white" comes from Su Dongpo's "Former Chibi Fu", "guests are happy and laughing, washing cups are more drinking, the core of the dishes is exhausted, and the cups and plates are in disarray." In the boat, I do not know the whiteness of the East."

In 1987, KFC opened its first restaurant in Beijing, quickly becoming the earliest "internet celebrity store". But Yum, as the parent company, is not satisfied with only selling hamburgers and fried chicken, it wants to fully enter the Chinese catering market.

Therefore, after the success of brands such as KFC and Pizza Hut in China, Yum tried to incubate Chinese fast food brands internally and gave the brand a "Chinese style" name - Oriental White.

In terms of catering design, this restaurant with a Chinese flavor is "ambitious", and has just opened with innovative designs for breakfast, lunch and evening restaurants, as well as dim sum, ice point and other special foods, covering most of the mainstream Chinese snacks at that time.

However, the development of the Oriental White soon showed a lack of stamina.

At the beginning of its establishment, the categories of dishes that were regarded as core competitiveness (including breakfast, dinner, afternoon tea, and at most more than 140 SKUs) led to unclear brand positioning. The higher prices of dishes than other fast food restaurants have made Dongfang Bai lose its competitiveness.

At the same time, many domestic restaurant chain brands: Xiao Fat Sheep, Xijiade, Rural Base, etc. have opened up the "Eight Pulses of Qijing" and begun to seize the market through model innovation and capital assistance.

Under the internal and external troubles, Dongfang Bai failed to realize Su Jingshi's ambitions, and did not advance but retreated. Public information shows that in 2012, the number of oriental white stores in the country was 30, but by 2015, the number of oriental white stores was cut in half. By the end of 2021, only the last five stores remained: Suzhou, Shenzhen, Jinhua and Shanghai, of which two stores in Shanghai had closed for business.

Dongfang is both white and has also worked hard to save itself, and in 2020, in order to improve the situation of unclear positioning, the brand has been transformed into a "snack bar". In terms of products, the main promotion of "Huaiyang noodles", in addition to the bun series, there are Also Huaiyang braised lion's head, Jinling brine duck, soup and other series of dishes, the price ranges from 3-37 yuan.

Unfortunately, it is too late, on the one hand, affected by the epidemic, chain catering brands have also suffered a heavy blow. Previously, Haidilao and Naixue's tea issued profit warnings, Starbucks, McDonald's, luckin have increased prices, and Xicha, Wen heyou have exposed the news of layoffs and so on. Under the repeated epidemics, catering people are struggling to survive.

On the other hand, after the transformation, there is a lack of competitiveness in the low-end catering market, and this transformation has not resurfaced in the East.

For the failure of Dongfang Jiebai, Chinese food industry analyst Zhu Danpeng said: "Dongfang Jiebai, as a sub-brand under Yum, has not formed a brand effect and scale effect, and the reason behind it is related to its own differentiation ability and innovation, and there is no iteration of upgrading." ”

In fact, not only the internally incubated Oriental has failed in vain, but also the setback of Yum China's Chinese food business line has also included external acquisitions.

The development of the East is not as good as expected, and Yum China has set its sights on the outside. Because the code for american fast food success is standardization , which allows for the fastest expansion — Yum has targeted the hot pot industry, which is also suitable for standardization.

In 2012, Yum China acquired the hot pot brand Xiao Fat Sheep for nearly HK$4.6 billion, but after The hong Kong-listed Xiao Fat Sheep, known as the "first hot pot stock", was acquired by Yum, the business development seemed to be pressed to the end of the sign.

According to the 2021 annual report, as of December 31, 2021, Xiao Fat Sheep, which had more than 700 stores in its heyday, only had more than 240 stores left in the world, of which 220 stores were franchisees.

"Epidemic" outside the store, Yum China seeks to break the situation

Source: Prospectus

The development of Yum's Chinese food business is not smooth, and part of the problem is that its own differentiation ability and innovation ability are not strong. Zhu Danpeng believes that Western food and Chinese food are two different systems, "Chinese food pays attention to accurate docking, if you use foreign simple standardized chain thinking to do Chinese food, the effect will definitely be greatly reduced." ”

Summarizing the reasons for the failure of Yum's Chinese food strategy, the lack of recognition of the difference between Chinese and Western food is a major reason, but not the only reason.

Yum China's two major challenges

The failure of the East to be white may not be accidental. Through another of Yum China's biggest brands, Pizza Hut, you may be able to see Yum's problems more clearly.

In 2007, Pizza Hut wrote the "no obvious competitors" comment on an internal market analysis document.

At that time, just as I commented, Pizza Hut did not encounter any opponents in the pizza category and the Western food category. But as the Chinese pizza pioneered by Pizza Hut matured, Pizza Hut not only lost the Western food market, but also did not maintain its leading position in the pizza market.

Slow follow-up of new products or a big problem.

Around 2010, a new batch of pizza restaurants took the lead, and new entrants set up the banner of pizza reform with thinner pizza and more fillings, and durian pizza became a popular item at that time.

But it wasn't until 2015 that Pizza Hut did the following, and some Pizza Hut restaurants didn't even renew durian pizzas until 2016.

So Pizza Hut's biggest problem is the lack of dish innovation?

According to chopsticks play thinking data, Pizza Hut's menu in 2020 has a renewal rate of more than 70% compared with 2017, and in 2019, Pizza Hut has developed nearly 1900 new products, but the selected 400 new products are mediocre in the market.

In other words, Pizza Hut is not lacking in innovation, but has lost insight into the catering market and changes in customer preferences.

In 2020, the United States closed more than 300 Pizza Hut restaurants, and more than 900 Pizza Hut restaurants were pushed into the buying and selling market. Although the domestic Pizza Hut has not been greatly affected, in China, the first choice for pizza categories is no longer Pizza Hut.

In 2016, with the blessing of new catering, new tools, new entrepreneurs and other concepts, the entire catering industry was hot, with the blessing of market dividends, and the sales of Yum China increased by 5%, but at this time, Pizza Hut's same store fell by 7%.

Within the category, brands such as Supreme Pizza, Le Caesar, Big Pizza, And Zhigen Zhidi have obtained customers from the perspective of reducing the per capita consumption threshold, product upgrades, and increasing the relationship between host and customer, and the brand dividend of Pizza Hut has begun to disintegrate, and the market no longer regards Pizza Hut as the first choice for pizza consumption.

Under the independent innovation of emerging brands, Pizza Hut is subject to the lag in brand management and market research, and loses its advantages.

Finally, let's look at KFC. KFC is Yum's most recognizable brand and the main source of Yum's revenue.

But KFC, like yum's other fast-food brands, is being squeezed by the rise of more fast-food brands in the country.

Compared with a number of Internet celebrity restaurants such as Xicha and HotPot that continue to occupy the attention of young people, whether it is KFC or Pizza Hut, it has long been not the first choice of The Z generation.

The Economic Observer believes that as the backbone of future consumption, Generation Z was born in a stable and prosperous economic era, and the consumption of catering has long been not satisfied with the desire for high calories, but favored "emotional consumption".

At the same time, the two-dimensional culture, lazy people,loneliness, fan effect, etc. have also successively led to the performance growth of theme restaurants, one-person food, takeaway platforms, and star restaurants. And these elements are still classified as "fast food" and the calories are not available at KFC.

It can also be seen from this that the failure of the East is probably not unique. The entire Yum China department may face challenges in market research capabilities and brand management capabilities in the new consumer era.

On March 1, Yum China released its 2021 annual report, which showed that Yum China's total revenue for 2021 was $9.853 billion, an increase of 19% year-on-year, but adjusted net profit was $525 million, down 15% from $615 million in the same period last year.

After the results were announced, 10 investment banks, including Goldman Sachs, Damo and Jefferies, issued research reports to lower the target price of Yum China.

epilogue

Stopping the operation of the Orient may be a timely stop-loss decision for Yum China.

Yum China CEO Qu Cuirong once said on the 2021Q4 earnings call that xiaofeiyang and Huang Jihuang faced an "extremely unfavorable" situation due to a large number of stores distributed in north China and west China, which had concentrated outbreaks.

Bao Yuezhong, a new retail expert, said: "In recent years, Yum China's Chinese fast food business has not developed as expected, and under such circumstances, it is very necessary for companies to make corresponding strategic adjustments and give up those areas that are not successful enough." ”

Yum China, now 35 years old, may be facing a new test.

It is necessary to consolidate the leadership position of the Western-style fast food market and maintain growth in the digital era, while at the same time streamlining the Chinese fast food business and concentrating on the hot pot field.

In short, Yum China needs to improve its brand management capabilities and market research capabilities, find new growth points, and give investors more confidence.

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