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China Investor Conference

September 8, 2011 Shanghai

Tim Jerzyk SVP, Investor Relations

Vincent Huang, VP KFC Marketing

Candy Chan, VP
Mark Chu, President & COO (Yum! China)

Pizza Hut Marketing

East Dawning

Joaquin Pelaez, Chief Support Officer

Lily Hsieh, CFO

Support Capability

Sam Su, Chairman & CEO (Yum! China)


Forward Looking Statements

This presentation will include forward-looking statements that reflect managements expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information in the presentation related to projections or other forward looking statements which may cause actual results to differ materially are subject to the safe harbor statement posted on our Web site:

Building Leading Brands KFC

Vincent Huang

KFCs First Days -- in Shanghai

1989 KFC Menu Signature, Heritage Food KFC Convenience Available at a store near you

KFC: #1 QSR brand in China

A series of strategic brand building blocks over the years

Daypart / Service extensions (e.g. Delivery, 24 hours)

5+ Years ago

New Fast Food (vs. conventional model)

10+ Years ago

Position brand as Rooted in China

Day One

KFC heritage (fried chicken)

The New Fast Food business model

Great tasting and safe food; high-quality and speedy (what conventional fast food offers) Balanced in nutrition; healthy life style Rooted in China, continuous innovations

KFC Today: Signature products in every category


Category Chicken Sandwich Twister/wrap Rice Snacks Sides Desserts Beverages

Signature Products Colonels Original Recipe Zinger New Orleans roasted burger shrimp burger dragon twister chicken & mushroom rice hot wing New Orleans wing popcorn chicken veggie soup egg tart 9 lives juice lemonade coffee float milk tea with red bean pastry puff sandwich congee dough stick soy milk


New Fast Food


Gradually broaden appeal with meaningful menu variety



Destination beverages

Local taste

KFC offers more variety on main meal items KFC burger

Top Competition





KFC has more choices in breakfast

puff pastry sandwich

Top Competition



Offer balanced choice and encourage healthy eating

Abundant choices of salad, soup, and juice Consumer education on healthy eating Sponsorship for studies on health and nutrition


Promote regular exercise with grass-root sport events

Teens 3-on-3 Basketball Leagues

Teens Fitness Dance Program

Good Morning Program

200,000 participants from 480 cities in 2010

1.5 million students joined from 3,600 schools in 2010

Winning over competition on New Fast Food image

Top KFC Competitor 61* 62* 60* 57* 48* 45* 58*
*Significant difference 95% confidence level

(Top 2 box %) chicken expert food taste menu variety innovative balanced choice promote regular exercise rooted in China
Data source: Brand Image Tracking in 47 cities, 2011 Q2

42 53 50 44 42 39 41

Gap widening versus competition


Store Count Comparison


Recent key initiatives sustain our brand growth

Food innovation

Daypart extension

Improve affordability

Our future platform for growth

Continuous food innovation Burger

Texas BBQ flavored Roasted chicken burger

South African periperi flavored Roasted chicken burger

Chinese Sichuan flavored Double mighty burger

Burger with ham & egg Burger with pork sausage

Continuous food innovation Rice, Soups

The popular Chinese eating habit a balanced meal

Black pepper beef strip & mushroom Roasted thigh fillet in New Orleans flavor Chicken fillet & mushroom

Minestrone Chinese sour & spicy soup

Continuous food innovation Snacks

Fried shrimp wrapped with crispy noodle

Fried crab meat stuffed in shell

Roasted drum stick with Bailey flavor

Continuous food innovation Beverages, Desserts

Irish coffee float with Sundae 9-Lives Blended Juice

Milk Tea with Red bean stuff

Megranate juice with Agar-agar

Strawberry Sundae

Cranberry Sundae

Sundae topped With mixed Q Beans

Leverage asset and grow sales from all dayparts


Weekday lunch
Afternoon break Dinner

24 Hours (overnight)

Daypart / service extensions generate incremental sales

Increasing store coverage and sales
year began system unit coverage Breakfast 24H/overnight 2002 2009 94% 47%




KFC Breakfast: High Quality, Nutritious, Affordable

Busier life style, more and more people eat breakfast out of home
Most people spend 3 to 5 yuan

KFC 6 yuan breakfast value combos meet consumer needs well

Becoming a preferred place for weekday lunch

Different eating habits vs. dinner
Shorter meal time around 30-40 min Less spending vs. dinner

Offer both Western and Chinese choices KFC 15 yuan weekday lunch
Value combos effective in expanding customer base

A convenient and value for money choice for afternoon tea time

Afternoon tea time habit is becoming more popular

Coffee shops, bakery & retail, casual dinning

KFC Buy your own tea sets at 9 yuan received very positive response

The #1 QSR brand in China

Positioning as New Fast Food

A preferred brand deeply rooted in China
Superior brand image Growing faster than competition Well penetrated into lower tier cities

Recent key initiatives sustain brand growth

Continuous food innovation Extending dayparts and services Value initiatives to improve affordability

Pizza Hut Dine-in Pizza Hut Home Delivery

Candy Chan

China is in an age of explosive growth

But unlike ten years ago, the speed of growth is not the most important thing anymore.

And the Chinese consumer is changing

Affordable casual western dining is the immediate fulfillment

New taste

Aspirational urban lifestyles

Proof that I know how to appreciate life, and I CAN.

The unique position of Pizza Hut Dine-in in China

The intimate PORTAL to western fare and lifestyle for this generation and the next

The Western Restaurant right next door for China

560+ stores 120+ cities 29 provinces

The First Taste of a sophisticated urban lifestyle

Pizza Hut provides Best WCDR Menu

New taste and cultural sensations:
Extensive menu more than pizza

New taste and cultural sensations

Wide range of beverage and desserts

Pizza Hut is leading the Tea Time business

Multiple Years of SS TC Growth

Outstanding service , ahead of competitors

Pizza Hut Loved by people of all ages and walks of life

Brand Equity Stronger Than Ever

Pizza Hut Dine In -- Consumer Data ta
2009 Attributes PHDI 2011 Q1+Q2 PHDI

Overall taste
Variety Innovative Service

61 59 72

75 76 78

CDR leading Brand Most Favorite Brand Most Trusted Brand

51 52 71

75 75 82

The Bridge to Western food and urban lifestyle

Pizza Hut Home Delivery

Candy Chan

The Best Delivery Brand


118 117




120+ stores 12 cities

Friendly and reliable ordering service

www . . com

Professional rider delivering good quality food

Variety at affordable prices

Chinese food to better serve consumers need

More affordable for lunch and tea time

Brand Equity becoming stronger

Pizza Hut Home Delivery Consumer Data
2009 PHHD Based on Brand Awarer Favorite Delivery Brand Leading Delivery Brand Good Taste Menu Variety Food Innovation Delivery Speed Food Temperature Value For Money

2011 Q1+Q2 PHHD


69 74
65 72 69 70 82 47

70 73
75 75 70 71 80 59

Pizza Hut Home Delivery The Best Delivery Brand

Thank You!

East Dawning

Mark Chu

Chinese Foodservice a Huge, Growing Category

Huge opportunity beyond Western QSR & CDR.
Traffic share % Growth%

Traditional Full Service Rest.

Casual Dining Rest. CQSR WQSR Vendors




2 19 7 19 13

3 22 6 18 15


17.5% 36.1%

Other *

2010 1st Half

*Others includes other QSR, bakery/coffee shop, retail and other outlets

2011 1st Half

Accelerated Chinese QSR Growth

Governments effort on urbanization

Urban lifestyles increasingly busier than before

Newer generations trained on Western QSR Chinese food choices out of pace with changing needs
Local and unbranded, no quick solution, lack all-daypart service

Higher frequency on comfort food Healthy, balanced in nature

East Dawning Our Vision

The choice of Chinese QSR Build KFC-like business model for Chinese food
Serving all day parts Mainstream, serving broad consumer target Our famous product innovation and varieties Price range to satisfy all occasions Unmatched operations standards

East Dawning Consistent, Strong Progress

Strong menu innovation
Attractive value offerings Improving consumer scores Improving business model, consistent double-digit transaction growth

East Dawning Strong Menu innovation

Menu built for broad appeal Serving all day parts Breakfast Lunch Dinner Afternoon (drinks / snacks / desserts)

Food acceptance by regional palate (tested)

East Dawning Product offered for broad appeal





Soy Bean Milk


Rice Roll


Pocket Sandwich

Today, Offering Over 30 Breakfast Choices

East Dawning Product offered for broad appeal

Lunch / Dinner (Protein variety)





Dozen Shrimp Noodles

Pork Rice

Chicken Rice

Beijing Style Noodle

Beef Rice

15 Main Meal Choices

East Dawning Product offered for broad appeal





Steamed Dumpling

Fried Shrimp Dumpling

Roasted Wing

Popcorn Clam

6 Main Stream Snack Choices

East Dawning Product offered for broad appeal

Drink / Dessert





Egg Tart

Milk Tea

Crushed Ice

Mango Pudding

Black Tea Green Tea

15 Drink / Dessert Choices

East Dawning Attractive Value offerings

RMB 6 Breakfast combos Delicious Chinese Breakfast choices 11 varieties in all

Winning on taste and value Fast growing daypart

East Dawning Attractive Value offerings

Non-meal daypart

Afternoon tea time After dinner hours

RMB 7 for 2 items
Choose any 2: snacks, drinks, desserts 30 possible combinations in all

East Dawning Highest Unaided Awareness Among CQSR

Base = SH P3M CQSR users aged 16-49 (n=604)

East Dawning (a) %

J-Kungfu (b) %

Yonghedawang (c) %

KFC n=150

Store No. TTL Unaided TTL Awareness

19 33c 89b

24 20 76

41 17 92b

93 100

East Dawning Strong appeal to younger generation

Chinese youth attracted to Western QSR
Still lack Chinese restaurant brand that caters to their needs Achieving new breakthroughs with youth
Top of mind Imagery Spontaneous recall

East Dawning Asset

Contemporary assets Ambience to enjoy delicious and affordable Chinese food

East Dawning Improving business model

Central kitchen opened Simplified restaurant BOH

Kitchen space reduction

Improving economics via asset leverage Double-digit SSS transaction growth several years in a row

East Dawning Looking Ahead

Building leading Great Food Taste positioning via product innovation Grow all day parts including non-meal to build All Day business model Build a KFC-like operation system and team to support expansion Continue work on unit economics Explore lower tier city with cost advantages Expand with good discipline

Building Dominant Brands in China

Strong Operations The Foundation of Our Brand Building

Great Operations starts with people capability Every store a training store Operations a key enabler for growth New Products, New Brands

Support Capability
Joaquin Pelaez

World-class infrastructure and long-term competitive advantage

Unmatched Food Innovation Capabilities

World Class Distribution Business

Unequaled Talent & Experience

Highly Developed Supply Chain Management

Food Innovation Capabilities

Innovation is key to our Brands success

Chinese consumers demand and expect innovation Innovation is approached with a Future Back perspective with a step change view Innovation is anchored on our New Fast Food Model Innovation is Everyones Job in the China organization
Immersions Ideation Concepts & Prototype NPC review all concepts & prototypes Focus Groups


Deep skills developed to support all our Brands that balance the right brain with left brain approach

Our Innovation Model supported by world class infrastructure

Local insights driven innovation with strong support from consumer research and product groups

BOH engineering know-how capabilities

Culinary chef team to help improve food style and quality presentation Strong integration with the Supply Chain group

Our pipeline is full and we are at record pace

New P roduc t s Launc hed

160 120 80 40 0

0 20

0 20

0 20

0 20

0 20

1 20





Highly developed Supply Chain Management

Our Sourcing Philosophy

Multiple qualified suppliers Collaboration between SCM, R&D, Food Safety and QA

Capacity to support growth

Efficient market to drive competition

Sustainable, Safe and Reliable Supply Best Total Cost Efficient Process Drive innovation

Review status for every SKU Prioritize development of new suppliers with R&D and QA Ensure sufficient capacity to support 3 to 5 years store and transaction growth Fair, transparent competition to reward most competitive supplier

Support Group Ensures Organizational Alignment


Chief Support Office



Boards & Committee, Annual Operating Plan, Financial Targets

Brand Teams Marketing

Alignment with Business Strategy

Other Functions

China SCM Guiding Principle

Be the best customer

Supply side expert

Develop suppliers & capacity

Fair, ethical and equitable Orderly competition

Proactive brand builder

at innovation Sweet spot management


Strong Food Safety System Capability

Strong Food Safety System Capability

Supplier QA and field QA to ensure quality compliance to specifications Food Safety office to address all food safety and regulatory issues, and work closely with government authorities and industry association Food Safety Expert Committee leading food safety experts from China assist and advise us on all food safety related issues Strong analytical partnership with Shanghai FDA testing lab to double check our ingredients and raw material

World Class Distribution System

One of the Biggest food supply chain network and the Best Cold Chain in China today
Deliver to 4,200+ restaurants for everything from chicken to pizza dough to napkins Receiving from more than 500 mostly Chinese suppliers Managing 17 logistics facilities with 24 hours operations Operating 1 national Consolidation Center in Shanghai Manage more than 400 refrigerated trucks that shuttle 50+ million km/year between our suppliers and restaurants Distributing 78+MM cases/year to 710+ cities Adding 500+ new restaurants every year

YUM self owned integrated supply chain network spread across China

World-class logistics operations

End To End Perspective

Stable and highly efficient logistic system a critical step for food safety From inventory planning to storage & handling to distribution

Food Safety & Quality

Approved CIQ supervised importation warehouse Quality inspection process starting from suppliers to restaurants Facility and transportation security

World-class logistics operations

Multi-Temperature Distribution

Frozen, refrigerated, dry, and fresh-baked goods

Operational Excellence

Qualified state Pilot Logistics Enterprise

ISO9001:2000 certified

World-class logistics operations

Stock control Supervision Shipment Load Move in Stock move

Fill stock

Stock sorting



Logistics Center functions

Customer Services Inventory Ordering



Drive for Excellence

Purpose Weld a cohesive team by structuring LC visit from different aspects Frequency--One LC per month Recognize Yum! Desired behaviors Go deep Yum! culture & value BSC Review & Coaching Review level of people capability

Drive for Excellence

High-Return Development
Lily Hsieh

Profitable Development Opportunity in China

China strong economic growth continues Yum! expanding multiple category-leading brands

Unit economics generate excellent returns

New growth opportunities geographically Gap versus competition continues to widen Unparalleled development capability

Profitable Yum! Development, Pace Quickening

# of Yum! China restaurants

4,000 3,000


1987 1st Unit 15 years 4 yrs 2 yrs 2 yrs

Rapid Rise of China Economy To Continue

GDP Per Capita (USD)







China: a Big Growth Opportunity for Restaurant Industry

GDP/Personal income growth among top globally Large and growing middle class Government plan to raise living standard for low income Restaurant chain market share low (in contrast to U.S.)

High purchase intent for western brands

New trade area opportunities Alliances with major retail players national & regional Government led transport infrastructure Metropolitan areas hub cities

Continued Urbanization Part of Government L/T Plan

Planned Urbanization

Transport networks New city hubs Economic centers

Designated City Clusters Development Zone

Source: National Development and Reform Commission (NDRC). June 2011

Unrivaled Development Resources & Know How

Today, 750+ Development professionals 300+ added past five years Team on the ground in every province (except Tibet)

Extensive people development programs

Advanced technical know-how and strong execution Database of 700+ cities 4,000+ new build decisions provide rich catalog of learning
3,500 trade area data points on QSR 500 data points on Casual Dining

KFC - Strong New Unit Economics

Mainland China KFC Traditional Units

Average Unit Volume ($ million) Average Transactions (000) Cash Margin Cash Investment ($000) $1.2~$1.3

300+ 25%+ $550

Strong Return Sales Are 2X Investment

Note: FX rate US$ = 6.4956 RMB

KFC Brand Strong in Lower Tiers

Strong consumer acceptance in lower tier cities Despite lower level of disposable income Unit economics at least as good as top tier cities Relatively lower costs versus top tier labor, rental New units typically cash flow positive in first year

KFCs Strength Goes Well Beyond Big Cities

Number of Cities with KFC

300+ new cities

T3 & Below T1 & 2


30 2005
5 Years

30 2010

Development Balanced Across Cities Large & Small

KFC New Builds -- Tier Cities

Tier 3 & Below



Tier 1,2

Pizza Hut Dine-In - Strong New Unit Economics

Pizza Hut Dine-In Units

Average Unit Volume ($ million) Average Transactions (000) Cash Margin Cash Investment ($000) $1.1~$1.2

60+ 25%+ $550

Strong Returns Sales Are 2X Investment

Note: FX rate US$ = 6.4956 RMB

Pizza Hut Also Going Beyond Big Cities

Number of Cities with Pizza Hut

70+ new cities


T3 & Below T1 & 2

28 27 2005
5 Years

30 2010

Tier 3 City Example: Wuhu

Population -- 2.3 million

5 Years ago GDP (US$) $0.6 billion $1,481 $293 million

Today $1.7 billion $2,881 $677 million

Disposable income per capita

Retail sales - consumer goods
Note: FX rate US$ = 6.4956 RMB

Tier 3 City Example: Wuhu

5 years ago
KFC Units Pizza Hut Units Sales (US$) $2 million $11 million+


Profit (US$)
Note: FX rate US$ = 6.4956 RMB

< $1 million

$ 3 million

Continued Discipline in Our Rapid Expansion

Relieve pending capacity constraints with adjacent new units Continually monitor, proactive to optimize service levels
Helps solve queue wait times New unit impact built into our economic model

Rigor Every Step of the Way

Market mapping and trade zone identification Site selection and acquisition Project approval Construction and opening Post opening analysis Feedback loop, huge catalog of learning

Transportation Network Expanding

Transport Network High-speed rail (4x4) Highways Airports

Giving Rise to Non-traditional Units

Bringing our Brands to wider variety of destinations
4 years ago Railway station 29 Today 81 ~3x

Bus station


~ 4x




~ 3x

Contemporary Assets to Complement Our Brands

Maintain contemporary assets that fit with our brands
QSR: Convenient, accessible, dine-in or take-away Casual Dining: Destination, ambience, group gathering

Asset designs adapted to meet variety of trade zones

Transport, mall, drive-thru

Reinvesting in our estate with discipline

Asset Renewal: Taking a page from others

1989 Today

Asset Renewal: Updated Assets

Chinas First Ever KFC - Beijing 1987 Today

Asset Renewal: Contemporary Interiors



Asset Management: New Menu Boards



Development continues to be a key growth driver
Helped by strong returns

World class Development capability

Team/disciplined process/database big competitive advantages

Not limited by our own resources