Yum China Holdings, Inc. (YUMC) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, I'm Florence Lip, Senior Director of Investor Relations. It's a great pleasure to welcome you to Yum China 2023 Investor Day. We have a full agenda today and tomorrow. First, our management team will update our latest strategies this morning. Followed by site visit in the afternoon and tomorrow morning. Before we get started, I would like to go through some illustrative items. Today's presentation materials will be in English but some of our management team will speak in Chinese. Simultaneous translation from Chinese to English will be provided. For guests here in Xi'an, you'll need a headset to listen to the simultaneous translation. If you need a headset and you haven't got one, please let our staff know. For our webcast audience, you can also choose the channel. Just follow the instruction online. Our Investor Day presentation contain forward-looking statements, which should be considered in conjunction with the cautionary statement in our presentation deck and the risk factors included in our filings to the SEC. You can find the webcast of our presentation on the IR website. Without further ado, let's get started. [Presentation]

Welcome. Welcome. Welcome. It almost feel a bit emotional to see so many friends after all these years, but very big welcome to Yum China's 2023 Investor Day. On behalf of Yum China, a huge thank you to our 430,000 employees, our shareholders, hundreds of million of our loyal customers and shareholders, and of course, all of you today. It's just wonderful to see everyone in person. I hope you have a good time in Xi'an. And your trust and support got us through the 3 years pandemic, and we believe that we have emerged stronger and more resilient. And today's presentations will provide you update on our progress, our opportunities and strategy going forward. I'm excited to unveil our ambitious target for the next 3 years, which I would do in my closing remarks. So I'm going to make you wait a little bit. I'll do it after end this presentation. Let's start with a brief recap of our RGM strategy. RGM stand for resiliency, growth and moat. It also pay tribute to the most important people in our company, the Restaurant General Manager. As you may recall, we introduced our RGM strategy actually back to 2021 Investor Day. Suiting the times, we put a very strong focus on resilience. And yet, we did not backed off from our commitment to growth and investing to deepen our strategic moat. The last 3 years were pretty tough, but our RGM strategy served us well. Over the last 3 years, we have transformed our business actually. We have at -- more than 4,400 net stores. We opened a lot more than that, and we closed the underperforming one. But we add the net new store, 4,400. And we opened these stores, and we improved the quality of these stores. And we are also profitable. We generate over $3.6 billion operating profit and profitable each and every quarter. And we returned over USD 1.3 billion to shareholders over the 3 years. Winston Churchill said: Never let the good crisis go to waste. Indeed, there's little to -- very, very little good thing to say about the pandemic, but we make the most of it. And we strongly believe that every great company is the child of winter. We would like to believe that we have been very hot in order to get close to that great company. There are three areas I would like to highlight. First, we transformed our store portfolio. There's a lot of focus on same-store sales compared to 2019. However, we actually have expanded our store network by 55% over the past 4 years. So for our store portfolio, right now, a lot of growth coming from the store we opened after 2019. And at the same time, when we opened these many store, quality is still the most important criteria. We maintained the 2 years payback for KFC for the new store opened, and we reduced the payback for new store opened for Pizza Hut to 3 years. Secondly, customer now enter 90% of their order digitally. While off-premise consumption, which is a combination of delivery and takeaway is over 60% of our sales. Why this is important to us? Because that is resiliency. We learned it from pandemic. Even when some of our store could not open, we still can keep our business going. And even when the dine-in business were not operating properly, there will be sales transfer from dine-in business to delivery. Therefore, even during the quarter 4 2022, which is very difficult quarter, we still delivered profit for our shareholders. We also rebased our costs and the focus here is fixed cost. You'll hear a lot more about that today. We've reduced our top 3 store level fixed costs by as much as 20% to 25% over the past 4 years, which lowered our cash investment per store by more than 35%. It will come back to the point why we can open so many stores with such profitability because the investment is lower. And also, it also lowered the operating cost. As a result of our transformation, as you can see from here, not only we averted disaster, we performed during the pandemic. It also enabled us to become a stronger and better company. Compared to the first half of 2022, last year, our revenue grew 16% -- only 16%, not 50% because we did not lose 50% during 2022, right? So same-store sales is always a mirror of last year. Our restaurant margin improved by 530 basis points and our operating profit doubled. Compared to the first half of 2019, we improved significantly on virtually every measure: store count, revenue, margin, overall operating profit with a bigger, stronger, leaner and more profitable. Going forward, we are shifting the emphasis of our RGM strategy from resilience to growth. I think that's very, very natural to do because right now, we are able to do business on a daily basis, which we are very, very happy about. We are calling it RGM 2.0. It centers on three primary areas for growth: One, expanding our store footprint; two, increasing sales; three, boosting profits. Looking back at Yum China's history, we start our first store back to 1987. It took us 16 years to get to 1,000 stores. Now when we look at it, we feel it's a bit slower. But it's always very difficult for a new brand to establish. And then another 9 years to get to 5,000. But from 2012, 5,000, it took a few years to get to 2020 in the middle of pandemic. And right now, we are at over 13,600 stores. And that makes us one of the world's largest QSR operator by equity store count because a lot of the restaurant companies are actually franchise based, and we actually run the business ourselves, which has slightly different level of sophistication and challenges. And the interesting chart here is while our store accelerate very, very fast in the last few years, the GDP growth actually came down, right, from double digit to high single digit and then right now sort of mid-single digit. However, let's remind ourselves, China still is one of the fastest-growing economies in the world. And the big question in this room is, can we continue the acceleration of store opening when the GDP is going down? How does it work? The answer is yes. We are actually -- this is the first big news we're going to share today, we are actually setting an ambitious goal of 20,000 stores by 2026, just 3 years from now because now things are back to normal. We can see things a bit more in a predictable way. So we feel confident that we can put forward an ambitious target. And that means we are adding about 1,800 net new stores annually for the next 3 years. So the scale of the economy, as you can see, when it comes to 2023, the scale of economy is something incredibly important to consumer industry and in particular, for our business here. Right now, China is about 18% of global GDP. It's about USD 17 trillion. And of course, population exceed 1.4 billion. And we believe that with the combination of the scale economy, even with modest growth is more than enough to fuel the growth of our business. Let's put things into perspective. 5% growth of China GDP is nearly about USD 900 billion to our economy. And that is the size of two Vietnam GDP, more than two. So we are adding two Vietnam GDP to our China economy every year even with 5% growth because the scale is so big already. And with the 5% growth and $900 billion, it contributed about 30% of the total GDP growth worldwide. Your number -- our number might be slightly different, but it shouldn't be too far off. And then secondly, if we look at the urbanization, it's still happening. The number of cities is still growing. And right now, China adds about 40 million people to urban area, and that's about 1.5 New York City population to China annually. And then when we look at the middle class population, which is also addressable market, you can call it 450 million, 500 million, not too far off. And interesting enough, this number is quite similar to our total membership size of Yum China right now. Our membership stands at 445 million. So if we look at the glass half full and half empty situation, what does that mean? That means while we already have 445 million lower customer. And KFC is a very accessible brand. I mean it's affordable, it's convenient. That means there are nearly 1 billion Chinese consumer who still today don't have convenient assets to our store or find our price still beyond their reach, in particular in areas like Hunan or Guizhou or Guangxi or for other reasons. So the opportunity is still there. Just to reinforce our commission on growth potential is the fact that the penetration of China QSR is still very low. I mean we are talking about only seven store per 1 million people. And then we compare to a lovely country Japan, the penetration is 24 store per 1 million people. I mean, Japanese food is very good. Chinese food is very good. But among all these wonderful Chinese food and Japanese food, there's still a big appetite for our type of convenient and good food. So the conclusion is the demand is still way bigger than the supply in our industry in China. Okay. After looking at the market potential, let's turn -- focus back to Yum China. The question is, are we ready for that -- for this aggressive, ambitious growth target? Absolutely. Let's look at the CapEx. This is over longer time period from 2014 to 2022? Why 2014? Because I joined at that time. So I'd like to look at just back to almost about 10 years ago. We reduced the CapEx per store by as much as 50% or 60% for KFC and Pizza Hut independently. What does that mean here? Remember, in the CapEx, it has the component of some costs and equipment. For the equipment that we invest, we can always move it around. If one store doesn't work, we move the equipment to the other store. And then the other part, the sunk cost. When we reduced the total investment by this much, you bet the reduction of sunk costs, the number is bigger than this over 8 or 9 years' time. And that results in what, lower depreciation in our operating margin. And also strategically, is lower cost of making mistakes, which is very good. Secondly, each brand has developed their own primary store design and supplementary module like a drive-through, to-go, the coffee truck, even the pop-up store during the holidays or late-night market. Yes, I mean this approach ensure brand consistency with customization and also, it allows us to open stores in locations where we could not open before. It either -- what does that mean? It's either in a store that we could not afford before, or the investment is too much, or the shape of the store is too odd that didn't work before. But right now, we can do it. As long as it is right location, the unit economic works, we can open store. So we make us more flexible to adapt to the market. Third, franchising. We plan to unlock opportunities in strategic locations with about 15% to 20% of our new build from franchising. And all of you here know that we were reasonably conservative about franchising before. Why? Because we are very protective of our food safety. And I'll talk about it later with the investment in the end-to-end digitization, right now, we have full visibility of inventory system in each store. So now we feel that we can manage the food safety, including all the franchising stores. And therefore, we are ready to have more franchise stores. And here are the very interesting number, right? With the pandemic, food safety is more important. We have the opportunity to open store in university, in [indiscernible] Tejada, in Fudan [indiscernible], Jiao Tong [indiscernible], they're all coming. And there are only 3,000 universities in China. And then highway service station, service center, we have signed quite a significant number of strategic agreement with our strategic partner to open store along the service center. If you have your self-drive through in Hainan, you will experience how does it feel to stop at every single important service station to see a beautiful KFC store there compared to the local store that you might not want to put the food into your kid's mouth. And there are a lot of Highway stations and tourist. locations are doing well in China right now. And then 36,000 hospitals in China, we do really, really good business in hospitals, and there are many reasons for that. Doctors and nurses love our food because they're very busy, our food is convenient and quick. And during the pandemic, we actually deliver free food, not for any particular reason. It's just because of being a good citizen, we deliver free food to thousands of hospitals in more than 30 provinces. And we have customized menu for patients. food -- congee, which is the best thing for patients, at least for Chinese. So accelerating store expansion built system sales but also have a little bit of challenge here. It has sales transfer of SSSG. You open more stores, sales will transfer from the old store to new store. So we have to work harder to protect our same-store sales growth. How to do it? Amazing food at very big scale. We start with the classics such as original recipe back to 1987. Since 2000, the second row, you can see, [indiscernible] Dragon Twister, which is the famous [Foreign Language]. These localized will have driven growth. Since 2014, these are our new star products, Durian Pizza surprise. Surprise to us too. Who would think that this will be so big. Last year, we sold more than USD 100 million, we're talking about U.S. dollar here, of Durian Pizza alone. And supply chain has a big task to do to make sure we have enough durian for the Chinese customer. Single-bone chicken [Foreign Language] is a very special cut of the chicken, and supply in the past didn't know what to do with this piece of meat and we use them. And then it's a very good value item particularly for promotional and low-tier city to start with. Now it's popular everywhere. Burger. Who will think the fried chicken company sell that many burger? We launched it recently in the last 2 to 3 years, only came to our permanent menu last year, actually. And that includes Wagyu Beef Burger. I know Wagyu Beef in KFC, I just love the idea. And we developed this burger just for the Chinese people. So for the non-Chinese people here in this room, I'm sorry, that's not targeted for you because for the Western customer, the barbecue flavor of the beef burger is important. But for Chinese, very few of us have the luxury of having barbecue in our backyard. We love the juicy burger. And we did not cook the burger on the grill. We actually cooked it in our oven. We are one of the very few, if not only QSR company, we invest heavily in the oven technology. You don't see this beautiful oven. They're imported from a very nice European country. You don't see this oven in other QSR, but you see them in Michelin star restaurants. They use the same brand of our oven. And therefore, we can cook amazing food with oven, whole chicken. We've developed this product during the pandemic targeting the at-home consumption, so you can eat the whole chicken at home. But occasionally, you see young people who eat -- who demolished the entire chicken in a store by themselves. And that's when you look at them, you feel like, wonderful to be young, isn't it? And we cooked this chicken by steaming in the oven, and then we go through it very quickly in the oil. So it has a little crispy flavor skin. It's doing very well, not only in the store but at home, but holiday, weekend. And then a coffee. We upgrade to fresh ground coffee for KFC by about 2014, '15 and coffee -- sparkling coffee, big category, $200 million. So when we do promotion, not only we want to bring the value to the customer. We want to build a big category, and we want them to survive and become classic over a long time because the strategy has been proven to work. To further support the SSSG, we have to work even harder. That's one unique thing about China is the rent is always high when you want good locations. So we have to work very, very hard. One single day part is not enough to cover the rent, to make good business. And it's okay, we can do it because our brands are powerful and we can build from the fundamental, all the way to incubate disruptive innovation for our brand. We always start with the core menu and then we do viral UGC campaign. What is UGC? User generated content. So Crazy Thursdays, Green Wednesdays. It become a cultural phenomenon right now every Thursday. And then we extend the daypart. So unlike many other QSRs outside China, here, we have to have good breakfast business, lunch business, afternoon business, dinner business, late night business, 24-hour business, delivery business, holiday trade. And we can do it, and we need to do even more to drive the same-store sales. Now of course, we go even outside the store to having this pop-up store and extension like K-Coffee. You will see more and more stand-alone K-Coffee, either store or a truck or to-go in order to drive the same-store sales. Occasionally, we do toys as well. And I think many of us here still remember the amazing side, [indiscernible] last year. It went completely viral. And of course, we continue to do that this year and then the games, et cetera. So with all this effort, not only we provide good food, but we provide the emotional connection with our customers. That's how to keep the brand alive and young. And the pandemic actually even brought back the emotional connection with our customer. Tying all together is our membership program, which I've talked a little bit earlier about. And here's one last thing I want to talk about membership is, for the most loyal 1 million customer of KFC, they visit our store around more than 100x a year. And that's our ultimate goal for our membership program. Of course, they're at the top of the pyramid, but we at least have a target. Let's focus on the brand a little bit more. The largest brand is KFC. We are in 1,900 cities with over 9,500 stores. Look at our net store opening during the pandemic and before the pandemic. Before the pandemic, 3 years, 1,300 stores. During the pandemic, twice as fast, 2,500. And going forward, this is our focus, expand the store footprint, continue to build a core menu and the new growth pillar, including the new retail actually, expand the signature campaign and rebase the cost structure. Warton, our first GM of KFC, starting from store management trainee will provide you an in-depth overview of our expansion strategy. Pizza Hut is revitalized and is ready to take off. Pizza Hut right now operates about over 3,000 restaurants. And look at the speed that we achieved with new store openings. Before pandemic, 200 stores for 3 years. Over the pandemic, 600 stores, 3x as fast, and we're going to continue to accelerate because we are ready. And the focus, expansion of footprint, pizza leadership, off-premise business because the off-premise business, the percentage is still from our Group point of view, low, there's opportunity to go higher, create more affordable moments and transform cost structure because we, of course, are working on improving the profit margin as well. And Jeff, actually, who started as an IT guy, see the management team is from very diverse backgrounds. That is an IT guy will share more detail of the Pizza Hut. And let's take a quick look on emerging brands. We are committed to investing in them for longer-term growth. But the total investment of the smaller brand is only low single digit of our total operating profit. However, we are having a very long-term view on this one. Lavazza actually has achieved a key milestone, opened 100 stores. This Italian coffee, which I hope you like the coffee outside, has a solid growth trajectory and with huge potential in China. Adrian Ding, the GM of Lavazza will elaborate our strategy. Taco Bell. The focus is localizing and innovating the Mexican QSR for Chinese consumer. Not an easy task, but it must be done. And right now, we have over 100 stores. Actually, we accelerated store opening Taco Bell in the last 2 years compared to 2021. Huang Ji Huang is a pioneer in Chinese star, simmer pot, is recovering well and continue to deliver decent profit. Actually, Huang Ji Huang even delivered profit during the pandemic. So it's actually quite a resilient business model. The scale can be -- I mean, the focus is to grow the scale. Little Sheep, we clarified the brand position as Mongolian hotpot concept. It's close to breakeven during the first half this year. And we'll have a chance to taste their food tonight in Xi'an because actually both Chinese dining concept, pretty good business in northwestern part of China. Moving on to profit growth. We achieved a high -- record high OP during the first half of the year. And our largest cost setter is cost of sales. Here's an example, this is the iconic original recipe chicken, right? You see the pretty significant inflation in chicken price, but we maintain stable cost of sales ratio over the past year. And this is the secret that allow us to provide customers with deep value for money while protecting profitability. People sometimes think that when we run good value campaign, we just sacrifice the profit. Well, a little bit in the short term. But the real trick of having good value campaign over long time is to have very strong supply chain. Two different story. And you can see the gap actually widened significantly from 2020 onwards. Well, that takes more than just putting the standard procurement lever. That gap is a result of many innovating solutions through entire upstream value chain. Howard Huang, our Chief Supply Chain Officer, another great homegrown talent will provide you an overview of our supply chain strategies. Rent. Focus on our rent is to shift from fixed rent to variable rent to enhance the business resiliency. I mean maybe outside China, with a percentage rent -- variable rent is more common, but it's not common in China. Over the past decade, we lowered the total rent ratio from 10.8% to 8.7%. And of course, you guys are very smart to figure out this pure profit contribution is amazing. It really helps. And today, our new leases, about 70% of leases are variable rent. Our brand power, and particularly the credibility built during the pandemic and flexible store format were the key enabler. In many large shopping malls in China, KFC and Pizza Hut might be one of the very few who can enjoy the full variable rent structure. Our small brands are not strong enough to get there yet. People. Despite our store count by -- that we increased by almost 80% across all these years, we have maintained a pretty flat headcount of around 430,000 people. How did we do this? We reduced administrative burden for our GM and stores team by investing in system, automation and tools. Going forward, we're going to simplify the management structure. The new management structure is called [ mega ] RGM. That means one store manager, one RGM that manage multiple stores. Not only the improved labor profitability, think about the RGM actually is fixed cost to our store, right? But it also solve our biggest bottleneck of aggressive new store opening, good RGM. The biggest bottleneck is always good people, not cash. Later, Jerry Ding, our CPO, would detail our approach to our most important asset, people. We complete our multiple year end-to-end digitization project during the pandemic years. It connects all parts of business together from farm to table. We integrate the customer-facing functions with the restaurant back-of-house operations, allowing our AI-based inventory system to directly align with customer order. It provides a seamless customer experience, boost the operational efficiency and facility store expansion, including franchising that I mentioned earlier. So going forward, we will continue to invest in technology and including generated AI, we are very, very curious. Later, our CTO later, Leila Zhang, will present our digital strategy. The foundation of all what I have mentioned about is actually our culture. Our RGM #1 culture lies at the heart of our value, which can be summarized by fair, care and price. Fairness and inclusion, are fundamental to us. It's about treating our people right with respect and without biases. We strike to create a workforce where everyone gets a fair chance. I'm very, very proud to mention again several members of our leadership team have risen through the rest from store management trainee to top leadership position, Warton, Howard and another wonderful colleague of us, [ Herman ]. [ Herman ] who's the Chief Development Officer, opening the stores for us. We were also one of the very first in the industry to launch Angel Restaurant for employees with special needs and disabilities. They are the absolute star in the most recent Winter Olympics in Beijing. Amazing ambassador for the brand and for our country. In addition to our competitor pay, we are proud to offer one of the leading employee care programs in China. Actually, during the pandemic, we upgraded the medical insurance coverage of our RGM and their families, and that includes their parents. I believe we are very -- one of the very few companies that actually offer medical coverage for our store managers' parents. And think about this, if they want to leave their job, they need their parents' approval now, which is wonderful. There's no layoff during the pandemic. So -- and then our business performance is a big source of pride for our team, particularly during the pandemic. So as a result, our RGM, they vote with their [ feet ], only 9% of turnover rate in our company for the store manager, which is way lower than the industry average. And we simply care deeply for our communities as well. At group level, we have our focus initiative. 1-year donation, we've been focusing on it for 16 years now, raised over RMB 240 million and helping the children in the rural China. And KFC focused on the little migratory first fund, [Foreign Language], the focus about the migrant children or left behind children. And Pizza Hut focus is on grow local initiative to source locally -- directly from local farmers and then we'll provide the training and support from our supply chain expert to make it happen. We also are committed to protect the planet as we expand. In 2021, we took the important steps of joining the science-based target initiative and committing to achieve net zero greenhouse gas emission by 2050. We also set the midterm target by 2035, reduced 63% for Scope 1, Scope 2. 66.3% for Scope 3. It's a very aggressive target because we have to grow. Because by then, it's likely that our store network will have grown 2- to 3-fold but we still committed to this target because it's the right thing to do. Several initiatives are under the way. Virtual green power purchase alliance launched earlier this year. It has -- it helps drive the low carbon transformation across the entire value chain. And we also just opened the China's first cold chain logistics center to run completely on renewable energy without increasing utility costs. We try to find a way to pay instead of getting profit from our shareholders. Finally, let me introduce our management team on screen. I'm very, very grateful to our outstanding management team. The me look smart. The women look very smart too. [Foreign Language], okay? Without whom none of the Young China achievements will be possible. So thank you so much. And today, you will hear from them and interact with them. I'm sure you'll be impressed by them as much as I am. So let me welcome Warton Wang, General Manager of KFC to the stage right now.

[Interpreted] Thank you, Joey. Good morning, everyone. My name is Warton Wang, and I'm the General Manager of KFC. I first joined KFC as an operations management trainee in 1998. Over the years, I have served as a market manager of Harbin at Hangzhou Markets as well as Regional Vice President of Eastern China overseeing KFC brand operations. In 2020, I assumed the role of Yum China's Chief Development Officer, leading the group's business development openings and franchise expansion as may I return to KFC. Welcome to Yum China's Investor Day. Thank you for all the love and support for Yum China and KFC. Today, I'd like to share with you on the brand in three parts. First, we are confident about KFC's growth potential in China. Second, we have identified resilience, growth and moat as effective strategies for rapid expanding our business. And third, I would like to share our thoughts on the future development. KFC fast came to China in 1987, and we've been growing in China ever since. So far, we have over 9,500 restaurants in more than 1,900 cities across China. In December, we are going to celebrate 10,000 stores in [ Hangzhou ]. In our commitment to -- delighting consumers with delicious food, while we continue offering KFC classic menu items. We never stopped innovating. In 2003, the chicken roll of old Beijing was launched, which has been well embraced and loved. Ever since that, original new product offerings such as the egg tart and our new all in [indiscernible] chicken wings gradually became iconic products to our brands. We now have 50 exciting menu items with any sales exceeding USD 100 million. As consumer preference is involved, they require increasing convenience. We strive to explore additional service scenarios. In 2006, we launched our own delivery services. Today, our annual delivery sales cross USD 3 billion. Well, in 2015, we rolled out digital service offerings amid digitalization boom in China. As an industry pioneer in digitalization in just 6 weeks, we made digital payment available in our 5,000 restaurants. Now more than 90% of our orders are currently fulfilled by digital payment. It is through our data offerings, including loyalty program and Super App that will remain a digital frontrunner in China's restaurant industry. KFC is without a doubt, one of the most successful restaurant brands in China. We boast over 9,500 stores, more than $1 billion annual transactions, over 400 million members and our Super App a year exceeds $28 million. As we all know, restaurant brands in China face intense peer competition. I would like to specifically note that the restaurant brands only survive for an average of less than 2 years, while KFC has been with China for 36 years. Moving to the part of rapid economic growth propelled by China's reform opening up, and we successfully navigated the challenging pandemic business cycle. As an increasingly sophisticated mega brand, we continue our rapid growth momentum. Considering China's population size and a large number of cities, we see huge growth potential. KFC's market share in China's quick service restaurant market is around 5%. While the market share of the other top 10 brands combined is less than 10%. Yes, we already cover 1,900 cities yet there are still 1,100 more cities that are ripe for expansion goals and we are in the process of identifying the right locations. In recent years, we've been expanding our brand to cover more strategically targeted scenarios with openings across more highway service centers, hospitals, college campuses, tourist attractions and gas stations. These are highly suitable locations, and we will continue to capitalize on opportunities for new openings in these types of locations. If you look at our stores per capita, over the past 5 years, there has been a rapid increase of KFC stores per 1 million people. This growth reflects the trends and organizations that have brought increase in population concentration and with it, a rise in consumer purchasing power. With continued strength of our brand, our expanded service and our business frontline capabilities, we are now seeing greater potential for opening new stores. We also have many exciting opportunities to expand our consumer base. Our key target consumer groups are college students and small town use. Building on our knowledge of these core development groups, we're actively gaining more insight by expanding our presence on college campuses and in small towns. So through more accurate [indiscernible] and precise marketing, we expect to kind of more growth from both constituencies. I would also like to put your attention to another customer group, the value consumer, which represents a huge group. Your lower-income consumers with less purchasing power are highly valued and cautious to increase our [indiscernible] consumers. To broaden our local addressable markets, we are developing more cost-friendly products and could also decrease associated prices of select products to extend our reach among these groups. In addition, the aging population in China represents another growing demographic for us. We expect this increasing number of scenarios to have higher and more frequent demands for dine-in, delivery and takeout. As long as we pick the right food with the right [indiscernible] based marketing, our senior customer group will also contribute to further growth. Another growth opportunity for us is higher consumption frequency. At present, we analyzed frequency of new and activity [indiscernible] 3. 6 for existing members and [ 26 ] for privilege members. For the front -- the top 1 million most loyal members were analyzed frequency is as high is 100. It is clear that there is a lot that we can achieve. Next, the second part of my update is our strategy. The benefits of our RGM strategy will allow us to expand rapidly and efficiently. We have been continuously accelerating the pace of our store opening, averaging 22% annual growth in net additional of KFC new stores over the past 5 years. We expect our annual KFC net new stores to exceed [ 1,200 ] in the coming years. Currently, we continue to optimize our investment in new stores over the past 5 years. We have reduced our average per store investment by 9% and last year's single-store investment dropped to RMB 1.5 billion. The quality of our new stores is outstanding with the new store openings payback period remaining at around 2 years. So how have we managed to open so many sources? We operate under a variety of new store models and modules. There are four different store models, average size of standard stores is 180 square meters. Future stores are opened in special business streets, featuring customized designs that showcase our brand identity. Mini store cover a more modest area, around 120 square meters. Due to their smaller size, investment in mini store is around 1/3 lower than standard stores. Mini store are mainly opened to increase our restaurant density in higher-tier cities. Likewise, our investment in lower-tier stores is also relatively low. But unlike mini stores, the reduced cost of low-tier stores is mainly attributable to less equipment and decoration. As the name indicates, low-tier cities -- low-tier stores are mostly opened in lower-tier cities with large area coverage that is sufficient of holiday picks, a smaller financial investment that enable us to get more higher success rate. In addition to these four store models, we have multiple functions. [ Modules ], we can serve as add-on to any of our store models with flexible mix and match, for example, by adding the inland ordering function to our standard store. The drive-through is created. Building on this concept to-go is a new module we launched this year. It is designed as a single window in the wall with the counter on side where a customer can pick up their food, avoiding the need to go into the restaurant. They have the option to order ahead and you can also place your order and pay at the window, which people love. The quick service window option is especially resonant with consumers grabbing a quick coffee or ice cream on the go. Moving on to our side-by-side module. This is our feature that it was designed to expand our coffee business in lower-tier cities. Where, side-by-side, the seating area is separated from the parent store, providing our customers with an independent coffee shop, while the food production area and equipment are otherwise shared, which effectively reduced our cost. As for K-Coffee trucks and mini stations, they all serve as a complement to their parent stores by maximizing customer traffic and expansion, the customer base for parent stores. As you can see, the variety of flexible models can easily combined with the design new stores. Modules can also be added to existing stores to meet evolving needs. Another major driving force to accelerate store opening is franchising. There are two primary franchise models that cooperate. The first is channel franchising, which is used primarily to achieve rapid store opening and expand in major business usage. For example, to open stores in highway service centers due to limited resources and low availability of dedicated locations, it would be hard for us to engage in each store -- and open each store individually, not to mention the prolonged store opening process. So we reached out to [indiscernible] Communications Investment Group, and they became our channel franchise -- for highway service centers in just a few years. We opened 32 restaurants in highway service centers across the [indiscernible] province. We have partnered with resourceful channel franchisees for highway service into provinces. Our China franchisees also include Universities, hospitals, of tourist locations, gas stations, et cetera. Of course, if anyone here or you know have access to these resources, please let us know. The other franchise model will leverage targets lower-tier cities and remote areas. Our goal here are to accelerate store openings in these markets and improve management efficiency. For example, our Tibet partner has opened 16 KFC restaurants in Tibet. And the restaurants are well managed with perfect KPIs. As you can see from the picture in Nagqu, Tibet, we have the world's highest KFC restaurants at 4,510 meters. It is located 1,500 meters higher than [indiscernible]. You cannot imagine how hard it will be, first to open and manage restaurants directly in such areas in such examples how we enter low-tier cities in remote locations where we see huge potential for small restaurants opening rather than attempt to open and manage these stores directly and face low store efficiency. We will continue to work within our franchise model in these types of locations. This allowed us to more effectively and efficiently extend our brands and revenue fees under the purview of local franchise operators. At present, there are over 1,000 KFC franchise restaurants. Moving forward, we expect 15% to 20% of annual new store openings to take place under such a franchise model. And let's look at growth. And there are several drivers propelling KFC sales growth, our products. First and foremost, especially our staples. The KFC restaurant brands maintain is meals. The variety of food we offer not only affect our consumer base, but also impacts our consumption frequency including our primary food offerings, we utilize multiple strategies. First, we continue to add new food categories to attract more consumer groups and generate new groups. Leveraging our specialty as the chicken experts, we seek opportunities to address consumer demand for whole chicken dishes. With the launch of our offer weekend bonus and other base program, we have made more comprehensive group meals accessible for family and friend gatherings. Our whole chicken product was originally successfully launched in 2020. In 2022, it was added to regular menu and its sales exceeded USD 100 million this year. We are checking the beef burger category is crucial for KFC to diversify and offer our consumers protein choices while continuing to emphasize our brand sense of value. In 2021, the burger secured a spot on our regular menu and in 2022, its sales exceeded USD 250 million. The second aspect of -- is to diversify the price range of our food that consumers can choose from a variety of price options that appeal to even the most value-oriented consumers. We have found it especially important to explore the lower end of price deal. Over the past 2 years, we developed two burgers that are not closely effective, but tastes great. It is a smart burger made with [indiscernible] pepper flavor. Another is grilled chicken slides burger that we're leveraging cost effectively. With these two products, we will combine the sale of both burgers [indiscernible] built into our weekday value [indiscernible], extending the price range of our company used options to below RMB 20. The initiative has meaningful implications to consumability, to attract more consumers with lower purchasing power and boosting demand. Certainly, we continue to research and development innovative food choices tailored to our customers in China that visually appealing the grid and to make people happy. We love to delight our consumers with delicious prices and farm products. The [indiscernible] we rolled out this year, knocked it out of the park. We use bull frogs exclusively bred KFC with customers immediately raving out our [indiscernible] tacos. hit the market in May. We introduced another engaging, the pizza. The pastry crust of chicken [indiscernible] of old veggies makes it a base with a filing of a [indiscernible] chicken, et cetera. The pizza is a big as one of our unique KFC offerings. Likewise, the doubled ice [indiscernible] also incredibly popular. And regarding the drivers of KFC sales growth. Besides, our -- products, we need effective marketing. I'm sure you are familiar with the Crazy Thursday, the punchline recreations have garnered significant attention promoting numerous social media sharing the discussions. [indiscernible] also became a buzzword. With the success of Crazy Thursday, we rolled out a Sunday buy more and save more program, attracting consumers with buy more, save more deals as well as lucky draws offering free cars and trips to Maldives. Consumers have a lot of firm and benefited from this deal. The program boosted our Sunday sales and the sales is still growing at faster pace. Games and businesses. We continued -- there are abundant opportunities in market campaigns with toys and games following the site extension last year during this year spring, first of all, and -- times and the [indiscernible] generated enormous traffic and notable sales growth for us. The children's deal special scenario was available for sale of [indiscernible] Valentine's Day -- the first sales volume of last year [indiscernible] duck, setting new record highs for us. And we also believe there is huge potential in K-Coffee. There are more consumers becoming coffee drinkers. The coffee market in China has expanded to lower-tier markets. We expect that in 2023, the sales volume of K-Coffee will reach 180 million cups, an annual increase of 30%. This year, we will launch new models and new products such as in [Foreign Language] as well as in [indiscernible] in Shandong. The all new K-Coffee stores have become local [indiscernible] for social media postings. We also have got some new products such as [indiscernible]. Compared with other brands -- KFC large scale of about 10,000 stores and our extensive member base and powerful online and offline penetration capabilities, we have confidence that we will maintain double-digit growth for our coffee business. In 2024, we will step up our coffee business. We hope that we will double the number of new products, double our marketing spending as well as speed up our expansion to lower tier cities. We set a clear goal that the [indiscernible] study launch of high-quality products at friendly prices with a strong presence nationwide. That's the goal of our coffee business. Apart from these businesses, we also have some new businesses including new retail opportunities. And for example, the KFC grand [indiscernible] has launched eight pilot stores in Suzhou, and we are pleased with the excellent performance. As for -- with our initial efforts in healthy light food over recent years, we have learned a lot. And I think that they will contribute to our brand identity and creativities. Now let's move on to resilience. I think over the past 3 years of COVID, we rebased our cost structure in order to reinforce the resilience of our brand. So that we can face more challenges in the future, and we can provide consumers with the best value for money. There are several important aspects. Firstly, we will transform fixed costs into variable costs. About 70% of new KFC stores implemented variable lease payment terms. We introduced the mega RGM initiatives under the mega RGM framework. And RGM would have originally overseen a single restaurant who are now gradually taking on more responsibilities to oversee multiple restaurants. So changing fixed costs to variable costs. And secondly, we will also move certain in-store restaurant operations into centralized operations to leverage economies of scale. I would like to share two projects. First is shift the restaurant-made pickles to factory-produced pickles. And we will also deploy city-wide hiring instead of restaurant-specific recruitment as well as centralized the training. We will -- we plan to move more administrative responsibilities out of restaurants to middle office operations so that restaurants can focus on customer services. Thirdly, we might like to talk about efficiency that we are achieving with new technologies. We have used in-store IoT, automatic cleaning devices, order replenishment systems and shared labor scheduling systems to improve our operating efficiencies, and we must prioritize our resources by cutting the unnecessary burdens. And we will cut untargeted discount promotions and dedicate our resources to more impactful promotional campaigns to build a platform that carries long-term value. This will help us to observe customer demand for good food and service at a good value. Our restaurant margin has become increasingly healthier. Next, let's take a closer look at strategic [indiscernible]. We have got membership programs. There are four kinds of members: Non-members, new and reactivated members, existing members and privilege to subscriptions. The core is to continuously promoting membership upgrade. And at each upgrade, it will increase our ARPU value. Now for a privileged paying member, their ARPU value can reach more than [ 2x ] of that of new members ARPU. And the second core businesses is what we call digital stores. We have got four categories of digital stores. The first is PTP. This is our proprietary transaction platform. The second is mini program. That is our store on WeChat platform. And the third is the delivery aggregators such as [indiscernible] that support our food delivery business. And fourth is local service platform, such as [indiscernible]. We have set up our brand shops with live streaming businesses, and our GMV ranked the first in the industry. And all these are very important to us. we are focusing on promoting app downloads and usage. It is our own digital store and is the moat of the moat. At present, the proportion of transaction values generated on app has increased to 30%. The number of downloads has exceeded 260 million. In other words, we have opened 260 million digital stores on the mobile phones of the consumers, a very encouraging achievement. So customer menu 2.1 and RGM #1, are very important moats. We have more and more stores, how to serve their needs and how to manage the restaurants are whole competitiveness and there are two aspects to it. First, we continue to build our system and training infrastructures. We have developed a customer-centric listening systems, which enables us to hear the feedback from the customers across the board, including social media platforms. We have big data so that we can see what are the -- what is favored and unfavored by customers, we can respond quickly and make improvements. This is what we call customer menu 2.0. Another initiative is RGM #1. We must rely on our RGMs. They must manage their restaurant well, and their success means the success of our brand. First of all, we will cut unnecessary KPIs to allow restaurant rooms to be more customer-centric. And meanwhile, we have optimized restaurant workflows by removing in-store operation components that the managers were previously responsible for in order to release their capacity for overseeing more restaurants. We have also built a platform for communications with RGMs so that we can have more integrated management and quickly response and address issues. And these will enable us to improve efficiency of management as well as improve our services. Turning to the third part of my presentation. KFC brand will be opening its 10,000th store in China very soon. As we approach this milestone, we have thought a lot about our future. I'd like to share some of these thoughts with you today. Looking ahead, we intend to maintain our position as the #1 brand in China's restaurant industry. In order to do this, we must maintain our leading market share. We continue to -- the industry's development in all aspects, including mindset, product, services and innovation. To achieve this vision, there are three important aspects. First is [indiscernible] tasting. We are a restaurant -- if customers think that our products are tasty, we are already halfway to our goal. Our first priority is classics. We selected some nine classic menu items that customers like the best, and they accounted for more than 40% of our total GDP. These are our legacies. We will tell good compelling stories of these products to communicate their values. So consumers, especially young consumers will remember us. We will also continue to introduce upgrades of these products to maintain their relevance with the customers. While preserving these classics, we will innovate our product offerings, which is the foundation for a restaurant brand's ability to remain vibrant. The tackle double-down burger, whole chicken, these items that we launched in recent years have been embraced by consumers and have the potential to become new classics. We will maintain rigorous quality control of our products from ingredient selection, sourcing, product development and staff training. We will deliver the highest quality in every product that we give to the customers. Second direction is forever with you. KFC is not an aloof brand, and we hope that it will be within easy reach so that consumers in China can always enjoy our products and services anytime, anywhere. We need to ensure two key factors, affordability is the first. We spent a lot of efforts to make sure that the products are at an affordable price. We reduced the costs and to expand our price range, we hope that consumers with lower purchasing powers can become our consumers as well. The second is availability or accessibility, anytime anywhere. We have accelerated pace of store openings, extending our presence in more and more cities and business districts. We do drive-throughs, coffee shops and to-go in order to improve consumer convenience. So whenever consumers have the need, we are there and KFC is there. The third direction is forever love and care. Love and care is our wishes for the brand's emotional connection, including connections between the brand and consumers as well as employees and the partners. We prioritize cultural humility and embrace the diverse background of consumers and employees. We respect the preferences and choice of our customers. Customer menu has been our corporate culture for more than 30 years. We listen to consumer feedbacks and innovate and make adjustments to response to consumers' evolving needs. This is our shared mission. As for our staff and partners, we trust and support each other in the most difficult years of the pandemic. We did not cut salaries nor laid off employees, we did not default on payables to our suppliers or our rent payments. It is because of a commitment and passion for our brand that help us to come through these difficult times. I believe that we believe in the power of care and love. We believe in the power of vision sharing that fosters a team culture of encouragement and overcoming difficulties to forge ahead. We are also a socially responsible brand. We have three main themes and five projects in public welfare and social responsibility. First, red hotline, which includes little migratory program and Angel Restaurant, green ecofriendly line, including little green shop and food station programs and sports lines, that's the team's 3 on 3 basketball tournaments. We will lead our employees and inspire the consumers in order to help us reach our society's collective goals. Our team has produced a short video clip to provide a glimpse into our mindset and initiatives for the KFC brand. Please join us in watching this short video. [Presentation]

[Interpreted] A few years ago, Joey led us in a reflection and discussion on KFC's development in China, KFC brand's journey of a company in Chinese consumers as they grow. We salute everyone who appreciates life with positivity and optimism and who strive to move forward in pursuit of a more joint field and a better life, cherishing the beauty we present and forging ahead -- full of love. It's part of our inherited brand identity and something that we will perpetuate. Looking forward, we will forge ahead with this spirit and continue to give our best in all what we do. Thank you again.

Thank you, Warton. Good day, everyone. I'm Jeff Kuai, General Manager of Pizza Hut. Welcome to the Pizza Hut investor update. I'm thrilled that we can finally meet in person this year. Before I get started, let's kick things off with short video highlighting some of the exciting development over the past few years. Play the video. [Presentation]

Right. Today, there are three key messages I want to share with you. First, after building a strong foundation over the past few years and achieved a number of significant milestones, Pizza Hut is ready to take off. Second, even with our substantial scale, we see huge opportunity for future growth in the years ahead. Third, we have a clear strategy to see the opportunity and get an even larger share of the market. Next, I will elaborate on these key messages in detail. Pizza Hut stands as an undisputed leader in the casual dining sector in China with a strong presence of over 3,000 stores in more than 650 cities. We dominate in all of our core categories, pizza, steak, pasta. Over the past 12 months, we sold over 100 million pizzas, 20 million steaks and more than 50 million pasta dishes, far exceeding both our premium pandemic levels and also other players in these categories in China. Our strong financial performance reflects our leading position in the market. We now operate 36% more stores compared with the first half of 2019. And we just hit our 3,000 store milestone this past April. Our restaurant margin has climbed to 13.3%, which is high than pre-pandemic level back in 2019. And in addition, our operating profit for the first half of 2023 also outpaced the same period in 2019 by 14%. Behind these strong numbers is a significant improvement of our brand foundations and overall competitiveness. Customers are acknowledging the improved taste of our food as well as our enhanced value for money. The resilience of our business is also more evident with off-premise sales mix up to 46% in the first half of this year from 29% in 2019. Our business has also been transformed to be more digitalized. We now have over 145 million members, more than doubled that of 2019, and they contributed around 2/3 of our total sales. From these figures, it is clear to see Pizza Hut is in good shape and ready to further accelerate our growth. Looking ahead, we see a huge runway for future growth for Pizza Hut. The casual dining sector in China is large yet highly fragmented. And as an absolute leader in the sector, our slice of the market is bigger than the next 9 brands combined. Despite our leading position, there is still tremendous opportunity for us to gain an even large share of the market. First of all, on geographic expansion, besides deepening our penetration in 650 cities that we're already in, there's more than 1,200 cities in China that have KFC but have no Pizza Hut. Many of these cities are ready for us to enter. Second on consumers. While we continue to appeal to families who are our stronghold segments, we're expanding our focus to cover younger generation and those on the budget. Third, on products. Besides our core -- area of pizza, steak and pasta, we are introducing new items such as burgers and more coffee drinks, each representing substantial market opportunities. Lastly, on consumer needs, we are well known as a place where customers can share a meal together. Now we are beefing up meals -- for everyday needs such as individual meals, breakfast and working in lunch. This area represent relatively untapped opportunity for us to further expand our business. Our growth-focused agenda aligned with Yum China's overall RGM 2.0 strategy, which you heard about from Joey earlier this morning. I will now share more on how we plan to accelerate store development, drive same-store sales growth and expand our restaurant margin. I will start with our game plan for footprint expansion. We have accelerated our new store development pace since 2021. Last year, we achieved our highest net new build numbers since spin-off, opening more than 300 stores. And 2023 is going to be a record-breaking year for store development. About 2/3 of our recent store openings are delivery-focused store, which have delivered a stable payback period of 2 to 3 years, even during the pandemic. And the margin of these new stores surpassed the one that we built in 2019. Looking ahead, over the next 3 years, we plan to add 400 to 500 stores a year while maintaining a healthy payback period of 2 to 3 years. Next, I would like to share more on our strategy to accelerate high-quality store development. First and foremost, we are deepening our penetration in high tier city. To do this, we will leverage the success of our satellite stores, which have a payback period close to 2 years to increase the density of delivery -- zone. This improves our delivery speed and customer experience, helping us to gain a greater share of the delivery market. At the same time, we will introduce a new compact store model, which have select menu, require less investment and has a faster payback period than the standard dining store model. The new compact store model will enable us to penetrate into more shopping malls and community centers, providing a good supplement to our satellite stores. And finally, we are upgrading our standard casual dining store model to a fast-casual model, which will provide us -- in which we will provide fast and lighter service in a comfortable setting. Our goal is to offer a customer a relaxed yet inviting dining experience while improving our labor efficiency. The second part of the strategy involves low-tier penetration and franchisees. We are expanding rapidly into new cities, especially those where our sister brand, KFC, has had already built multiple stores and demonstrated strong sales performance. In addition, we are partnering with franchisees to enter into location that are not efficient for us to manage by ourselves, like remote area or small towns. All locations, franchisees have more resources to get in like transportation hubs or touristic areas. Now let's talk about our strategy to drive same-store sales growth. We are focused on five key areas: Reinforcing our pizza leadership position, expanding into new categories, occasions and consumer segments, creating more affordable moments, driving delivery growth and enhancing digital capabilities. I will elaborate on each of these key pillars in detail in the next few pages. Let's talk about pizza first. Over the past few years, we've put in tremendous effort into strengthening our pizza category. Just a few examples. We introduced the hand-tossed pizza, upgraded stuffed crust pizza and build up Durian pizza series. In the first half of this year, our pizza sales rose 56% compared to the same period in 2019. This has been a leading factor in driving same-store sales growth. To continue reinforcing this leading position and driving category growth, we will focus on three key areas. First of all, we'll continue to strengthen our pizza expert reputation with improved taste and more choices. We are upgrading the dough recipes of our pan pizza and hand-tossed pizzas. At the same time, we are introducing a Napoleon-style pizza for customers who are seeking an authentic Italian pizza experience. Second, we are upgrading our signature pizzas like the Super Supreme to drive repeat purchases. Lastly is to continue to innovate new flavor to bring more excitement to our customers. Our newly launched -- pizza, Durian Lovers Pizza have already become instant hits with our customers. Moving on to our growth pillar. I would like to share how we are expanding into new categories, occasions and consumer segments. First is product category. We are preparing to launch our new line of burgers, an area where we have many advantages. A large chunk of our existing customers are also burger lovers, making this a natural extension for us. Our burger will be made to order, ensuring unparalleled quality and flavor. And we will do this leveraging our existing restaurant infrastructure and skilled workforce, keeping marginal costs low. We strongly believe burger will be a key engine for same-store sales growth going forward. Coffee presents another massive opportunity for us. Starting from this month, we are partnering with Lavazza to introduce premium-grade Lavazza coffee in Pizza Hut. This will nicely complement our current beverage offerings. Next, we are creating even more occasions for customers to love pizza. Our upgraded individual-sized pizza is a perfect choice for a single meal, fulfilling the needs of solo diners and office workers. We are also enriching our breakfast offerings, maximizing our store utilization while catering to our customers who are craving for our food. Finally, we are broadening our [ peer ] into more consumer segments. We're strengthening our collaboration with gaming IPs, introducing more trendy toys and toys -- and pet toys to our customers. Our partnership with Genshin Impact become a phenomenon in the industry, not only brought us tremendous new customers and significant incremental sales, but also offer Genshin Impact gamers an opportunity to experience the game better and engage with other players offline better. We are also catering to a growing sector of pet lovers with our adorable pet toy offerings. Our third growth pillar is value. At Pizza Hut, we strive to offer customer great food at an even more amazing value for money. To create more affordable moment for our customers, first of all, we are widening our price range to cover lower price tier, enabling us to tap into a broader market to serve a wider range of customers on everyday needs. This move will also allow us to compete more effectively with other players in the market. Second, we'll continue to enhance our signature value platforms, such as Wednesday, all-you-can-eat program, to give our customers more reasons to visit. And lastly, we'll continue to create delightful surprises for customers. Our buy 1, get 1 free offers and RMB 59 for two campaign have resonated very well with customers, generating huge social buzz, bringing us significant incremental sales. Our fourth growth pillar, delivery has been one of the most important growth engine for us. In the first half of this year, our delivery sales grew by 68% compared to 2019, with its mix going up from 25% to 37% within the same period. Going forward, we foresee the delivery market will continue the strong growth. Given that pizza is a product naturally suited for delivery, we are well positioned to capture the growth of delivery market. On top of our natural [ fee ] for the delivery business, we're focused on two main area to expand our delivery sales. First, we'll continue to improve our delivery experience. We have been improving our delivery speed. At present, we are able to deliver orders to customers within 25 minutes after they place order in 12 Tier 1 and Tier 2 cities. With that capability in place, we are ready to roll out our 30 minutes delivery commitment in these cities. Moreover, a faster delivery time is not just about customer experience, but also to keep the food hotter and therefore, taste better and in return, contributing to a higher rate of return customers. Another focus here is tailor-made our offers for delivery customers in different regions and city tiers so that the overall attractiveness and repeat purchase of our products will be higher. The last growth pillar I would like to talk about is digital, which touches all aspects of our business. Our efforts focus on three main areas. First, acquire new members to expand our member base. New members bring us incremental sales. And as customers become our members, we can communicate with them more effectively. Second, we will continue to drive member visit frequency through VIP programs and targeted offers based on their food and value program preference. And finally, we are constantly improving our customer ordering experience with 92% of order on digital channel. Every bit of improvement on ordering experience will help us to boost online traffic commercial rate and bring us more sales. Our approach involves improving system response speed, streamlining user interface and providing real-time order tracking to ensure a best-in-class online ordering experience. To sum up our growth strategy, with continuing efforts on strengthening the core categories, expanding into more, improving value for money, driving delivery growth and enhanced digital capabilities, we are confident that Pizza Hut will generate even stronger sales momentum and enhance our leading position in the market. In the next few slides, I would like to share some of our new store design concepts we've launched over the past few years. We believe a comfortable restaurant ambience is critical to our customer. We have been launching these new designs on a yearly basis to attract new attentions. This is one of our newly designed store or design concept called young and modern. Here is another one called [ City Hannon ]. With this new concept, we hope to create inviting spaces for customers to have their own lasting experience with their friends and family. So far, 82 -- 89% of our stores are either new or refurbished with new designs in the past several years, helping us to give our customer a great dining experience and raise our brand equity. Lastly, I would like to share our plan to achieve margin expansion. The first element is to reduce the work done in store. We will reduce duty management and administrative workload significantly with centralized support. And we are moving towards a share management model where when one RGM is in charge of multiple stores, essentially like our satellite store management model. Further, we'll promote more self-service facilities in stores. And finally, we will streamline production procedure and move some of the more complicated preparation work to central kitchens. With all the efforts I mentioned, we target to reduce the workload in-store by 30% over the next 3 years. Second, we'll continue to leverage the power of automation and AI to further improve labor efficiency. So far, we have deployed over 1,000 automatic store fryers and delivery robots in our stores. We plan to double this number over the next 3 years. And we will also implement AI-empowered system to automate all major restaurant management tasks from sales forecasting, labor scheduling, inventory management to material replenishment. Lastly, we'll move as much fixed cost to variable cost as we can to enable our store to achieve higher margin even in low seasons. We have substantially increased the percentage of working our contribution from our flexible crew and proactively seek variable rents for new stores. As we forge ahead, a guiding principle for us is respect. We have a deep respect for our employee and RGMs. We actively listen to their feedback, help them solve problems, support their work with technology and constantly seeking ways to take better care of them and their families. We also respect our customers deeply. We have built systems to effectively gather their feedback of different channels, analyze the feedback, respond to them in a timely manner and ultimately design solution to serve them better. The culture of RGM #1 and [ Customania ] and a culture of respect and people first are the cornerstone of our business and will enable us to continue to grow big and grow strong. As we focus on preparing our growth, we remain committed to give back to communities and the society. Through our grow local initiative, we actively support training for local farmers and use locally grown ingredient whenever we can. We are also collaborating with partners and other brands initiatives across different -- across more than 50 cities to help reduce food wastage, forge the good reading habit among children and take care of stray animals. We will continue to amplify these social responsibility efforts to make a meaningful impact beyond business. With our solid foundation, huge market potential and a clear strategy in place, we are confident to further accelerate our growth. We are ready to take off and ambitiously to forge the most innovative pizza brand in the world. [ Let's test you ] and embark on this exciting journey together. This concludes my presentation for today. Next, let's welcome Adrian Ding, our Chief Investment Officer and GM of Lavazza to give you a quick update on our Lavazza JV. Thank you.

Thank you, Jeff. Hello, everyone. I'm Adrian Ding, the Chief Investment Officer of Yum China and the General Manager of the Lavazza JV. I'm very excited to provide you with an update of Lavazza JV's business development. I would like to first show you a short video, which introduces Lavazza brand, the JV's recent updates as well as a few words from our JV partner, Lavazza Group. Please? [Presentation]

Good morning, everyone. It is an honor and a pleasure to speak at Yum China Investor Day. Lavazza is strongly committed to the long-term success of our joint venture with Yum China. In this highly competitive landscape, it is critical to maintain consistency in positioning, execute policy and foster creativity to shape the consumer experience. During my recent visit to China, I was amazed by the exceptional quality of our coffee shops, particularly the coffee and food products as well as our frontline colleagues' outstanding customer service. We are just at the beginning of a long and [ frilly ] journey that will keep us side-by-side. Thank you, and I hope you all enjoy the special event.

Thank you. The joint venture between Yum China and Lavazza has made encouraging progress over the past couple of years. Two synergetic growth engines have emerged, the coffee shop business and the retail business. The coffee shop business around our own Lavazza stores, while the retail business involves selling retail coffee products beyond Lavazza coffee shops namely into other B2B or B2C channels. Since the time we introduced the Lavazza JV at our 2021 Investor Day, our footprint has grown fivefold to reach over 100 stores across 11 cities in China. Our first half revenue in 2023 has also more than doubled year-over-year. On the digital front, we've been improving our digital and delivery capabilities. Approximately 70% of our sales come from digital orders and 37% of our sales are contributed by delivery. We have also grown our member base to over 2.4 million, which has enhanced our sales resilience. Notably, member sales represent 80% of our nondelivery sales and loyal members who have transacted 5x or more with us contribute around half of our member sales in the first half of this year. While Lavazza has around 128 years of history in its native Italy, it's still a young brand here in China. Since opening our first flagship store in Shanghai back in 2020, we've gained knowledge and insights that are benefiting our continued growth. We have formulated and have been executing on four key strategic pillars. First, brand building. At this stage of development, growing Lavazza's mine share among Chinese consumers is critical. We focus on building our brands through our own marketing initiatives. For instance, our Italian coffee icon campaign as well as through selected co-branded collaborations. Second, menu and calendar. We have come up with three key themes: who we are, how we differentiate and plan with local market. I will share some more color on each of these three key themes shortly as to how they enhance our competencies. Third, digital and delivery. We're building an effective and diversified digital presence, driving repeat purchase among our members and strive for delivery excellence. And finally, store models. This involves upgrading our store design, improving customer experience and enhance store economics to foster our winning edge. And we are confident that these four strategic pillars will help us -- solid business fundamentals to better position us for future expansion. Let's now take a deeper dive into understanding each of our four strategic pillars. The first one is brand building. Lavazza is positioned to deliver a unique and authentic Italian coffee experience. We have great brand assets to work with. Lavazza is the original inventor of blended coffee beans, a technique now widely used throughout the global coffee industry. Furthermore, Lavazza is recognized globally as the master of espresso. As Italy's leading coffee company, Lavazza has contributed to building espresso and espresso-based beverages' global popularity. We're leveraging these techniques. We're leveraging the unique branding assets to promote our coffee expertise for our target consumer groups, which include young white-collar professionals, Gen Z coffee lovers, a full middle-class consumers and family-oriented coffee enthusiasts. We aim to offer accessible premium and contemporary Italian experience that embrace our local consumers. Casa Lavazza is an example of our brand building efforts. this is a unique event we hosted at Shanghai's [Foreign Language]. The event immersed our consumers in the rich Lavazza brand heritage and gave them a firsthand and interactive brand experience of Lavazza coffee world. We have also been heightening our brand awareness and exposure through high-traffic events such as coffee festivals and music festivals through our coffee trucks and booths. Through these events, we build experiential engagement from our baristas with large groups of consumers. Beyond our own branding programs, co-branded collaborations are helping to amplify our brand recognition. For example, earlier this year, we had a collaboration with the gaming IP from miHoYo, miHaYo, Tears of Themis [Foreign Language]. The collaboration was a big success. And not only grew our sales, recruited a meaningful number of new members, but also generated significant social buzz among young consumers. Next month, Lavazza will sponsor the Rolex Shanghai Masters, which is one of the top global tennis tournaments. To promote the event, we'll launch sports-themed coffee drinks in our coffee shops and associated campaigns including offline events featuring offline customers and global K stars. We'll also be the exclusive coffee service provider on-site at the tournament. Overall, we're investing in and shaping our brand in China in a holistic way through four aspects. First, product with high quality and perceived value. Second, consumer-centric service. Third, costly and contemporary Italian store experience. And lastly, brand communication that conveys our brand essence and activate consumer engagement. As evidenced by our leading consumer feedback ratings across all major third-party platforms, you can see that all of the above aspects are helping us win over consumer recognition, build our brand equity and effectively grow our business. Now we come to the second strategic pillar, which is menu and calendar. This is critical to winning in a competitive market. We have identified three key themes in this pillar: Who we are, how we differentiate and plan with local market. Who we are. This reinforces Italianess as Lavazza's identity. For example, by our cappuccino campaign this spring, on social media platform, we became a consumer top-of-mind choice for cappuccino, a symbolic Italian coffee drink. How we differentiate. We leverage our coffee expertise and authentic Italian experience to win over our consumers. One example is our Kafa bean. This is a unique single origin Arabica bean coming from Ethiopia, and is considered the first coffee on Earth. This product has earned rave reviews from our consumers for its high quality and great taste. Third, plan with local market. We do this by selling innovative coffee drinks and delicious food that tailor to local taste buds. When it comes to how we execute all of these, we adopt an approach of moving from me also to increasingly me better, me-first and me only. We provide a wide assortment of products, including market favorites and those that we add a special Italian touch to create a captivating new twist. We also capitalized our Italian identity and Lavazza heritage to develop a unique winning menu items and calendar ideas. Who we are. Authentic Italian store products effectively convey our Italianess and who we are to our consumers. A great example is our -- sandwich. This idea comes from authentic Italian food coming from Northeast Italy, called --. And interestingly, it looks very similar to a traditional famous Chinese street food coming from here from -- Products like this enhances our Italian identity while also bridging perfectly to the local market. How we differentiate. Lavazza's high-quality beans and blending expertise enable us to launch various beans regularly, each with a different flavor note and a unique story to tell. Roma bean, one of our signature beans tailored to local consumers taste is a great example demonstrating our state-of-the-art blended coffee techniques. And Yunnan bean is the first bean Lavazza sourced from China and we are exploring to potentially bring Yunnan bean to the world by potentially adding it to Lavazza's global procurement. Critical to our uniqueness, our product presentation aims to demonstrate traditional Italian coffee ritual. For example, dipping croissant into coffee is a distinctly Italian way to enjoy coffee. In Italian, we call it [foreign language]. Communicating these types of coffee and food ritual differentiate us from competition and bring our brand story to life for our consumers in a very real way. Thirdly, blend with local market. While authentic Italian is part of our strategy, we strongly believe that it is important to offer products that cater to local consumers' preferences. With this in mind, we add elements such as buffalo milk and coconut in our drink products, and these products have effectively enhanced our sales performance. For example, the buffalo milk sales -- the buffalo milk series coffee drinks has added double-digit percentage of incremental sales in the first month after launch last year. On food, we innovate similar approach. We sell [ Vignola ]. This is a kind of Italian -- puff. But we sell it in the packaged retail format so that can better -- so that it can better tailor to local consumers' delivery and takeaway needs. Let me now introduce to you our constantly improving digital and delivery capabilities. We leverage private domains and online traffic driving channels to recruit new members and drive repeat purchase. Our digital engagement is further enhanced by ecosystem partnerships spanning delivery aggregators and other major digital channels. Now we have over 2.4 million members and we focused on building membership value and long-term brand loyalty. Member sales represent around 80% of our nondelivery sales. And as we mentioned, loyal members who have transacted with us 5x or more contribute around half of our member sales. In addition, delivery has contributed around 37% of our overall sales in the first half of this year. Lavazza is committed to provide our consumers with an unparalleled experience. We're systematically enhancing our digital outreach while strengthening our digital infrastructure. One example of this is our mini program. With just a few simple clicks, consumer can tailor their coffee drink to their own specific preferences. And in addition, a specially designed user interface demonstrate Lavazza's unique brand story and our fine selection of coffee beans. Beyond this, we're also utilizing social media platforms, such as [ Tencent Live ], Douyin to bolster our incremental sales. Various coupons and live streaming initiatives nicely extend our touch points with consumers and effectively convert them to our private domain. With off-premise consumption booming across China, delivery is a key growth driver for us. Delivery sales mix was up by 6 percentage points in the first half of 2023 compared to the same period in 2021 and account for 37% of our sales. More importantly, our ratings on the third-party platforms excel over other major chain coffee brands. To further drive our delivery sales, we'll continue working very closely with delivery aggregators and at the same time, we're further enhancing our digital and operational capabilities to continuously improve our delivery experience. To create a memorable experience for our consumers, store model and design are critical elements. We have constantly evolved and enhanced our store models. Our journey started with store model 1.0. What we tried out this Italian -- classic Italian style design and building upon this foundation, we rolled out store model 2.0 last year distinguished by this contemporary talent design and elevated consumer experience. Importantly, with the store model 2.0, we successfully reduced the capital expenditure per store by more than 20%. Our pursuit of excellence and -- in both customer experience and cost efficiency has led to our latest iteration, store model 2.5. During the first half of 2023, the new openings from this period adopting this new model, store model 2.5, has demonstrated better unit economics compared to the overall store portfolio yielding a meaningfully improved store level [ UC ] margin. Lavazza now offers four distinct store formats catering to a variety of property settings. We conduct our store rollout using a pyramid portfolio strategy, carefully shaping distinct positioning for each of our store model. To illustrate this systematic approach of flagship and large stores full of iconic branding in prime locations, while our standard and compact stores play a crucial role in adding density in core areas of cities. Additionally, our presence extends to office and community spaces via our lobby store format. And we have developed beautiful new store designs by resonate with our consumers. With this mix of contemporary Italian design, iconic visual elements and coffee credentials, our design emphasizes the charm and history of coffee while telling the unique story of Lavazza's pioneering role in the coffee world. I welcome you to visit our stores and experience for yourself how our stores use design and environment has important touch points to make our brand story resonate with our consumers. As of today, we have entered 11 cities across China with over 100 stores. Our current footprint brings us closer to more customers than before and further strengthens our growing brand awareness. As we continue to grow, we plan to both restore density in existing cities as well as entering into new cities with high consumption capacity. Here comes to our second growth engine, retail. Retail is the other engine to drive our business growth. A key asset in this growth engine is Lavazza's position as iconic Italian branding coffee widely recognized in the roast and ground and capsule coffee categories. We have established a distinct route to market by growing our e-commerce business as well as fostering a close collaboration with our premium to-be partners including premium hotels, fine-dining establishments and various retailers across China. As we continue to build this engine, we introduced more product categories tailored to the local Chinese retail market. We hope to make Lavazza a meaningful and cherished element in the daily lives of coffee lovers across China. In conclusion, I want to reiterate our excitement and passion for Lavazza. Through our four-pillar strategy, we'll continue enhancing our fundamentals and grow the business. Looking ahead, we aim to achieve 1,000 stores in the next 3 to 5 years and become a leading experiential coffee brand in China. Thank you very much for your attention. I will now hand it over to Florence. Thank you.

We now have a 10-minute coffee break. Please feel free to grab some Lavazza coffee or refreshment. Our lunch is a little bit late today so make sure you grab some food so you don't starve yourself. After the break, our Chief Technology Officer, Leila Zhang, will present our digital strategy. So enjoy. [Break]

[Interpreted] Welcome back. Hello, everyone. I am Leila Zhang, Chief Technology Officer of Yum China. As you may know that in the restaurant industry, Yum China has always been a leader in digital innovation. We have always regarded digitization as an important strategic moat, continuously apply the moat -- digital technology to empower business. Well, just now in the previous presentations on KFC as well as Lavazza, you see that how we continue to make investment in digitalization to boost our [indiscernible]. Today, I'm very happy to share some of our achievements and plans in digitization. In the past 2 years, we have further improved our digital customer experience ecosystem consisting of our Super Apps, membership, delivery services and third-party channels. Our total number of numbers now exceeds 445 million with digital orders accounting for approximately 90% of company sales. At the same time, market conditions have affected the way our business operate, putting forward more requirements for digital capabilities. The following video will introduce how our digitization has gone through the fundamentals and capacity building and further unlock the potential of the digitization. [Presentation]

[Interpreted] As you might see in the video, we can buy smart hardware with data and AI capabilities to open up the end-to-end digital capabilities from farm to customer. Thus, we are able to widen and deepen the digital and intelligent moat to empower both our business and partners such as franchisees and suppliers to form a closer ecosystem. Today, I'll share a few notable cases. The first is intelligent store management, which makes store operations more efficient as well as the smart supply chain from farm to table. The second is a digital franchise, which helps the rapid expansion of franchisee business. The third is the digital supply chain from farm to store. And finally, all these digital capabilities are built based on a unified Yum China cloud infrastructure. Let us go through each of these cases in detail. First very important part is from farm to store digital and intelligent supply chain. It also implores our supplier supporting initiatives and credit. We have further advanced technologies such as iFRD and IoT to enable automatic inventory tracking and monitoring, accurately identifying products and helping to reduce human error. And smart replenishment system. It reduced the risk of inventory. In particular, for the new product, we can make our forecast more accurate and greatly enhance the testing efficiency and empower the vast iteration of products. With our supply chain control tower, we integrate core suppliers, logistics and store data enabling a more intelligent decision-making. People. Leveraging our knowledge graph algorithm, our AI-powered food safety risk monitoring system proactively identifies and mitigate risks based on Big Data of food safety, significantly improving food safety control efficiency. The smart store system, it enhanced the efficiency of management. Starting from 2016, the number of store count has increased by 80%, while our employee headcount has remained relatively flat. Thanks to the cooperation of all our colleagues, a number of digital tools, empowering our restaurant management teams have helped to make that possible. AI-enabled operational analysis by integrating the Super Brain into the pocket manager, restaurant general managers can quickly identify and resolve operational pain points and automatically schedule tasks to improve efficiency. For example, we enhanced the efficiency by automatic labor scheduling, et cetera. There also helped to pinpoint opportunities to reduce cost and enhance efficiency. Remote supervision, the restaurant management team can supervise operations at their stores remotely to expand the management scope and improve operational efficiency. Intelligent monitoring system is based on vision recognition system. It includes unmanned security, unmanned delivery, quality recognition, et cetera hoping to reduce repetitive and many tasks with a view to enhancing the quality control efficiency and reduce the complexity of our work. With these digital tools, store management team, sharing flexible employment, centralized management and other projects are proceeding orderly, supporting the future stores as well. As we can see that all these great tools can help us to support the speedy new store opening efforts. With franchisees becoming an increasingly important part of our business strategy, digital and intelligent support the rapid growth of our franchise business, elevating store opening capabilities via improving franchise management capabilities, optimizing franchisee management and ensuring consumer experience. We have enacted an all-in-one franchise portal, which integrates various functions from franchisee selection to store opening, training and operations. This enables a turnkey experience for franchisees, reducing the complexity of store openings while ensuring unified operational and management standards for both sales operators and franchise stores. Now these apps have a KFC and Pizza Hut franchisees. Altogether, and [Foreign Language] Little Sheep, the two Chinese brands adopt a franchise-based model. To adapt to this model for Chinese dining, we have upgraded our cloud-based PO assistance, developing the -- cloud-based POS and the -- all-in-one pocket manager for Chinese dining franchisees. All of our digital and smart capabilities are inseparable from the support from the Yum China cloud infrastructure. As one of the earliest enterprise cloud platforms in China, Yum China cloud project completed the first phase of its development and construction. Our transaction volume is large and with high degrees of fluctuation. By integrating public and private cloud capabilities, Yum China cloud is capable of supporting picks of transaction, one after another. With mass demand from our customers, the Yum China cloud supports agile iterations of systems and products, while its service level achieved industry-leading 99.99%, ensuring seamless user experience online. At the same time, the Yum China cloud has organically combined multiple clouds and therefore, help to control cost effectively. In addition, our comprehensive multidimensional security service system is embedded in Yum China cloud with content security, data security, network security and system insecurity, all covered, we are able to ensure the secure development of our business. [indiscernible] intelligence, we apply new technologies to improve customer experience and store operational efficiency as quoting the rapid growth of our business. In the future, with the advancement of new AI technologies, such as large language models and generative AI, we will fully embrace the new era of AI. On top of existing decision-making AI capabilities, we will introduce new generative AI capabilities. Our company's intelligent capabilities will rise to the next level. Now I would like to introduce some of our thoughts in AI technology application. AI will reshape the entire customer journey. In membership, service ordering and delivery as well as customer services, decision-making AI have already promoted sales, recommended ordering as well as optimization for lighter routes. And later in the private domains, we will use AI GC to improve customer experience. At the same time, we will use the latest AI technology to innovate new business scenarios and solutions, such as media creative generation, digital avatar live streaming, digital customer service to enrich customers' experience in Yum China's various brands and create intelligent dining brand perception. For store operation, we will upgrade pocket manager, which will integrate more generative AI capabilities. We will upgrade to AI plus smart store assistance to improve the working effectiveness. There are three aspects. The first aspect is that based -- the first aspect is from analysis to action. Super Brain is a strong analytical tool. However, it cannot speak natural language. Generative AI will help to formulate action pipelines for store operations. AI GC can speak natural language and provide the operators with more accurate analysis and insights. The second aspect is from silo to integration. Generative AI can empower not only employee recruitment, training, evaluation, promotion as well as store operations. We can realize the close the loop of store management. The third aspect is to combine generative AI and decision-making AI technologies to explore new business scenarios that includes proactive equipment maintenance, dynamics, business district planning, et cetera. In an era of Big Data, data is a core to link the value chain. In the new era of AI, unstructured knowledge together with structured data will be the key to empowering our ecosystem. There are also three steps. First, we'll build in-house big models. These AI capabilities will be upgraded to help us understand better business needs and scenarios. Second, generative AI will expand more scope for innovation to empower our employees, franchisees as well as suppliers and partners to improve the whole ecosystem capability. We will also establish company's knowledge base and ecosystem knowledge base. They will synergize unstructured knowledge and structured data to create greater value together with our partners. For all these AI-empowered business scenarios, we are full of confidence. The confidence comes from the company's persistence in developing core digital tech capabilities. In Shanghai, Nanjing and Xi'an, we have a large level of digital data and AI experts. They represent the best-in-class digital assets of the company. A notable example is the Yum! China digital R&D center established in October 2021. In just the 2 years, they developed a Phase 1 for Yum China cloud. We also have built a lot of mid offices for recommendation, delivery, operation as well as engineering. R&D capabilities are not enough. We also have a technical capability through our digital survey center. I would like to welcome you to visit our Xi'an digital R&D center as well as the digital survey center office to closely observe more about these digital capabilities that we have. Finally, I would like to use AIGC to sum up our AI capabilities and go in the future, A stands for agility. Markets and businesses are always changing. We will upgrade and iterate our AI and digital capabilities to ensure that the latest AI capabilities can help us to create business rather efficiently. I stands for integration. We will integrate generative AI, decision-making AI and knowledge graph as well as databases among other relevant technologies to build Yum China's AI capability system and realize the complementarity and synergy of different technologies. On the big models, sometimes also generate [no centers] and such integration will afford that problem. G stands for generality. We will build our main office capabilities and build general AI capabilities for new business scenarios. Existing AI solutions can be quickly repurposed and applied. This will propel business innovation in a more efficient way. C stands for collaborations. We will continue to work with industry-leading AI provider to test and adopt the latest AI technologies and adapt them to business scenarios. We will be a pioneer in the technology and powered cater industry. The new era of AI is coming, the future digital blueprint of Yum China. AI will be -- will act as an important cornerstone. We believe that starts strategic investment in AI and other cutting edge technologies, we will further revamp customer experiences, improve employee working efficiency and fortify our ecosystem together with our partners. The digital moat will be wider and deeper. With the empowerment of the faster technology, we will steadily move toward the milestone of 20,000 stores. It's been a pleasure to share with you today some of our thoughts on digital capability, and I hope to have more opportunities to communicate with you. Thank you. Next, I would like to invite our Chief Supply Chain Officer, Howard, on to the stage.

Thank you, Leila. And good morning, ladies and gentlemen. I'm Howard Huang. To briefly introduce my background, I have served as Yum China Chief Supply Chain Officer since 2021. Previously, I was KFC marketing manager for more than 10 years. I also served as Pizza Hut Regional Vice President for 3 years. It's my great pleasure to present this overview of our supply chain ecosystem to you today. Yum China operates a robust and integrated supply chain which has been built and refined over the past 3 years. Our supply chain function covers a wide area of responsibilities including food safety, procurement management, food innovation, logistics, engineering, sustainability and supply chain strategy. We help foster the working environment of respect and trust that has enabled us to solve many challenges together and achieve growth. To provide a better understanding of our strategy, we have prepared a short video. Let's take a look. [Presentation]

As Joey mentioned earlier, our goal is to reach 20,000 stores by 2026. To achieve this, we have developed 4 strategic pillars to better support the development of our brands, including food safety, innovation, efficiency and sustainability. Over the years, we achieved a consistent quality results through building a holistic food safety quality assurance management system. This system covers our entire value chain from farms to stores. It leverage the various strategical tools to help control and monitor potential risks and raise alert to enable preemptive action. Importantly, through digital data collection, we can help our suppliers and the operating teams to optimize their processes and improve performance. Another critical part of what we do is cost management. As Joey mentioned, we have maintained a stable C/S ratio over the past few years. As the slide shows just one example of the result we have achieved. A few ways that we have mitigated the cost inflationary pressures include proactive processes, working with upstream suppliers and continually optimizing the cost of our products and logistics infrastructure. In these areas, what sets us apart is our strong innovation capabilities and the creative utilization of materials. This allows us to provide more choices to our customers and improve customers' experience and accelerate our brand growth. One example is what we call whole chicken utilization. As new processes, we better utilize various parts, the parts of white feather chicken. In products for KFC and Pizza Hut, by doing so, we can provide our customers with more product choices at lower prices. I'll take one example, as Warton mentioned, the Golden chicken burger, we redesigned all parts of the whole chicken to help maximize year and achieve cost efficiency. And we then used our unique recipe combining, rolling and timing together to make the meat juicier and more tender. Moreover, we are increasing the use of other chicken types. For example, KFC's juicy whole chicken, one of our rising star product, uses a smaller chicken called 817. Our whole chicken innovatively combines 2 different cooking process, a steaming and night frying to seal in [indiscernible] juices uses and lock in flavor. Our customer feedback has been very positive, and about 36 million chickens were sold in the first half of 2023. Another product we are serving in Pizza Hut restaurant is chicken soup. We creatively leveraged the chicken trading cycle and developed as a soup we serve our suppliers. Chinese consumer consider chicken soup to be highly nutritious by serving these product at a reasonable cost. We can provide our customers with high perceived value leading to a better overall dining experience. Let's turn now to how we will invest and further improve our supply chain of regional efficiency. The investment will mainly focus on 3 areas: intelligent network, automation and infrastructure. About half of the investment in supply chain will be spent on logistics, and the rest is planned for other capability development, especially on product innovation and the central kitchen. Recently, we invested in a production facility of strategic seasoning supplier to further deepen collaboration in product innovation. An important initiative we are working on is intelligent network planning. We started this project with opportunities that rolled during the pandemic. During this time when our regular truck transportation rules were not available to ship materials, we came up with an alternative solution, use railway and sea fleet as backup channels. Multi-modal delivery adds flexibility to our network. This involves a strategic site selection and the coordination with suppliers and vendors to shorten transportation times and their distances and achieve cost saving. Moving forward, we are planning to co-develop logistic centers and food industry products together with the suppliers and other strategic partners to further streamline operations and reduce transport costs. We have implemented a diverse array of automation solution at our logistics centers. The high-density for short-haul system at our Xi'an logistics centers is expected to increase our storage capacity by 50%, shorten the delivery time by 51%, and improve operational efficiency by 45%. Many of you will be there this afternoon. We also plan to install an industry-leading automated storage and [ freezer ] system at our Shanghai Nanxiang Logistic Center. These will better leverage space and the support our chicken stock lease. With our logistic infrastructure, we are planning ahead the support of our brands accelerated growth. Our current network covers stores in more than 1,900 cities and towns with the capacity to cover more than 3,000 cities and the towns. With our long-term growth in mind, we plan to reach 45 to 50 logistics centers in the next 3 to 5 years, aiming to cover more than 5,000 cities and towns to reduce our [indiscernible] lead time and transport cost. About 38% of these logistics centers are expected to be company owned. Company-owned infrastructure helps us better adopt customized technology and automation solution to support our long-term development. It also helps us meet our sustainability goals like our learning Guangxi logistics center, which is now operating on 100% green power. This leads us to our last pillar, sustainability. We are working to protect the planet through a more sustainable supply chain as we continue to grow our business. As Joey mentioned, we are focusing on 3 priorities on sustainability, such as economic action, circular economy and upstream collaboration. Under climate action, technology of tools such as [indiscernible] Internet of things are now used for improved energy efficiency for Scope 1 and 2 emissions. We are rolling out this project nationally and expect to cover 500 stores by the end of this year, and the projecting to save 3% energy per store. We are accelerating our free energy transition. The Nanning logistic center is a good example. By leveraging virtual power purchase agreement and installing solar panel on future new logistics, we will power more stores and logistics with green energy. While for scope 3 emissions, we successfully launched Yum China's supply chain distributed photovoltaic and virtual power approaches agreements alliance. With more than 40 key suppliers, this objective is to speed up their transition to bring energy at a competitive cost through our collaborative purchasing. Our circular economy focus on reusable packaging and waste recycling, while also achieving cost saving, which I'll explain a bit more on the next slide. Here are some examples of our efforts to reduce risk and recycle more. For waste recycling, in stores, we have converted over 3,000 tons of used cooking oil into biodiesel as of 2022. This translates to 9,000 tons of greenhouse gas emission reduction. And at the same time, we also have a successful pilot run through few of our logistics fleet with biodiesel in Shanghai Logistics Center. We also partnered with a local company to recycle packaging risk for the Shanghai market following a successful pilot project with 60 [indiscernible] stores at the end of last year. In selected KFC stores, we have introduced a new serving basket and tray to replace original plastic ones. Believe it or not they were made with 10% coffee ground recycled for our Shanghai KFC stores. As an extra step, we are in the process of rolling out these baskets and trays for more stores. And at the same time, our team is proactively exploring new business opportunities with existing resources and capabilities. Our new stream we are offering is providing supply chain service such as logistic service procurement or sourcing and quality result -- consulting service. All the services to a third party, we doubled the revenue for such a stream in 2022 and expect to further grow the business in 2023. With industry-leading infrastructure, high level of efficiency, innovation and cost management capability, along with our world class team, we are well positioned to support our continued growth towards the 20,000 stores in the next 3 years. Now please welcome our Chief People Officer, Mr. Jerry Ding to the stage. Thank you.

Okay. Thank you, Howard. It is a pleasure to be here with all of you today. I'm Jerry Ding, CPO of Yum China. First of all, I would like to take this opportunity to express my sincere gratitude to our people at Yum China for their dedication, commitment and service that help us navigate all the challenges of the past 3 pandemic years. The strength, resilience really have been pivotal to us, emerging here today a much stronger and more agile company. So as we look into the future to reach our ambitious goal, our people will continue to play an instrumental role to us. Our future-ready people strategy boils down to 2 key components. First, building a sustainable workforce that supports the company's future growth. As we strive towards 20,000 stores, hiring, training and retaining a highly operative and efficient workforce is critical. Second, ensure we have the mechanism in place to properly incentivize and energize our people, keep them engaged and united in purpose, making sure everyone is aligned with our mission and vision. So to reach our goal of 20,000 stores by 2026 means we will need to staff and support around 50% more stores than we have it today. So on the other hand, we must navigate an increasingly complex environment with a declined birth rate in a highly competitive labor market. So our frontline like our restaurant general managers, our RGMs, is the key to address this. So since last year, we have started a centralized recruitment process. This frees up our RGMs from spending significant amount of time on recruiting so that they can focus on some other tasks such as customer experience and driving sales. In addition, with the help of digitalization and automation, we have been enabling more of our RGMs to manage multiple stores. At KFC, for example, a single RGM can now manage 3 stores instead of 1 per store. We are also rolling out this approach in -- at Pizza Hut and in our emerging brands. Results are actually very promising. Simply put, we won't need 20,000 RGMs when we reach 20,000 stores. As you can see here, a range of digital tools allow us to implement our multiple store management model while upholding high operation standards. Pocket manager and Super Brain are a few examples that Leila has just shared. These helped our frontline employees optimize workflows and streamline operations. While at the same time, we have enhanced the visibility of store operation. This allow our RGM and management team to make smarter and timely decisions. We have also invested in technology to accelerate our recruiting fulfillment pace. So with the scale like us, we received around 300,000 CVs just for 1 position alone, our operation MT. Imagine how much effort we would need to do the manual screening of these CVs. So to better enable our team, we have deployed AI technology to assist the initial screening, the interview scheduling and even the interviews. So these innovations have provided us and with our candidate and improved interview experience. They have also shortened our lead time to fulfill the positions. We can now extend an offer within just 5 days of the moment we receive CV. This is a significant 60% reduction from the previous of average 12 days. We are now also exploring AI-generated content, or AIGC. This holds potential to enhance operation efficiency, improve our service and provide our employees with a more personalized at-work experience. We are now exploring how AI application can embed in our recruiting process, learning and develop programs providing us with an enhanced insights to really step change our HR function in the future. So while maximizing our productivity is important, it must never come at expense of delivering exceptional customer experience. To that end, we have invest extensively in training to continually improve the skill of our people so that they really can serve our customers with excellence. Our training outcomes really clearly show the result here with our brand continuing to be highly rated by customers for their guest experience. We are committed to hiring and develop the best people at work for Yum China through the industry-leading career path and competitive salary. We have a robust talent developed strategy in place to build our leadership pipeline. Our career planning program is systematic and transparent. At Yum China, we see the value in promoting from within. 100% of our market managers are homegrown and promoted from within the company. The average tenure of these senior leaders in their operation teams exceed 20 years. Some of our senior leaders today, including Warton and Howard, who you just met, started their career as Operation MT some 20 years ago. This practice supports our goals in building a sustainable workforce, ensuring we have a high-caliber talent at all levels. Now that we have talked about building a sustainable and high-performing team, let's talk about how we motivate and engage our over 400,000 employees towards our common objective. Like Joey said, that can be summarized in our people philosophy: Fair, care and pride. The fairness and inclusivity are the fundamentals to our core value. At Yum China, over 50% of our employees are female. We also strive to provide people with disabilities not only career opportunities, but also the dignity to make a lasting contribution to the society. We are one of the very first in the industry to launch Angel restaurant, helping employees with disabilities to gain useful professional skills. We are also expanding investment in education to encourage our employees to pursue higher education. We provide them with necessary resources and support. Our Pursue Your Dream program has supported over 5,000 employees in realizing their goals. So we are proud to offer one of the leading employee care program in China. During the pandemic, we upgraded the medical insurance coverage of our restaurant management team in appreciation of their service. Notably, this includes up to RMB 1 million in medical coverage for RGMs and free critical illness medical coverage even for their parents. This gives our people a peace of mind knowing their family's well-being is secure. They are focused on work responsibilities and better serving our customers. Our RGMs are also our shareholders. We have launched equity incentive plans so that we can share our growth of business with our motivated and talented employees. These initiatives have been well received by our employees. Our RGM turnover rate was only 9% in 2022, one of the lowest in the industry. This stability has helped us create an anchored environment and also contributes to the growth of high-performing teams. Providing volunteer opportunity for employees to give back to the society is really forcing a sense of personal pride. Charity program like One Yuan Donation are deeply rooted in our culture. This is the 16th year of this program and is very well known among our employees. Additionally, our people are engaged in a range of volunteer initiatives such as mentoring teenager students, providing aid for disaster areas, promoting safety education for public and many others. Last year, our employees collectively volunteered over 4 million hours in various projects. So I think one moment that stands out in my mind and perhaps for all of us in 2022 was the feeling of pride when we offered 8 of our KFC [indiscernible] employees the opportunity to support the Beijing Winter Olympics game on behalf of Yum China. They provided catering service to athletes from all over the globe, demonstrating the Olympics spirit and our brand mentality. Our effort to care for and engage our people have been constantly recognized. In the past 5 years, we have been ranked as the top employer and ranked as the first in the industry in the past 2 years. We are proud of what we have achieved, and we will continue this momentum going forward. So in closing, our people are the foundation of our business. They represent a strategic moat that enables our resilience and growth. Our journey in building a future-ready people strategy is characterized by a clear vision, technology innovation and steadfast commitment to our people's well-being. Through this collaborative approach, we will ensure robust, sustainable growth while setting new industry standards for excellence. Thank you all. And now let's welcome our CFO, Andy Yeung, to the stage. Thank you.

Thank you, Jerry. It's really good to see everyone here. My name is Andy Yeung, CFO of Yum China. My heart is racing. I'm sure it's because I am very excited to see you all here today, or just because Lavazza's coffee is kicking in right now. Again, thank you for joining us on our Investor Day in Xi'an today. As you have heard from Joey and our other team members, we have a very exciting initiative to capitalize and drive growth in the coming years. Now without further ado, I would like to share more with you on what they mean in dollar and cents, and how finance can help our company strategy. Now let's get started with a recap of our current performance. As Joey mentioned in her presentations, we have emerged from the pandemic stronger and better positioned, ready to grow. Now this is reflected in the significant improvement on almost virtually every metrics. On store count, in sales, to your operating profit to our margins. Now if you look at on a year-over-year basis and also on a comparison to our 2019 first half, you will see that it has improved on almost every metrics. Now with the reopening from the pandemic, our RGM strategy is transitioning from an emphasis on resiliency to one on growth. Now our RGM 2.0 focuses on 3 key area for growth for us: Expanding our store network footprint; increasing sales; and also boosting profit. First, let's talk a little bit about our store network expansions. We have set, as Joey mentioned, an ambitious goal to reach 20,000 stores by 2026. This objective is supported by a number of strategic factors. One, we plan to take advantage of the still very robust economic growth in China. Two, we have identified considerable white space and tap market for further expansion. Three, our innovative models, as have Warton and Jeff and Adrian have mentioned, we have a lot of innovative store models. Coupled with our diverse brand portfolio, it really place us in a very good position to satisfy evolving consumer demand. Four, our strategic franchise partners are expected to play an even bigger role in our expansions in the coming years. We expect they to account for about 15% to 20% of our new store opening in the next 3 years. Central to our store footprint expansion is really to identify area with strong growth potential. Currently, we identified over 3,000 cities, which is about 300 more than we have identified just 2 years ago, are the key factors that would increase the number of store in a number of cities and towns where our brand can potentially operate include economic growth, our new store format and also our restaurant unit economics. Now out of the 3,000 cities that we have identified, KFC already have a presence in 1,900 of them. And there are still over 1,100 cities that remain untapped by KFC. An opportunity for Pizza Hut is even more prominent. More than 1,200 cities currently have a KFC, but not a Pizza Hut. Now regions like [indiscernible] with faster economic growth but low brand penetrations offer tremendous growth opportunity for us. Furthermore, if we look at the top tier cities, like Shanghai and Suzhou province, our focus shift to increasing our network density. By doing so, we can cater to the rising demand for off-premise dining and benefit from the network effect of having a denser store network. Now not only we are expanding our footprint, but we are also ensuring the quality of our new store opening. Both KFC and Pizza Hut boast fantastic unit economics and store payback, particularly for the smaller models. Now if you look at the cash payback period for our new store opening, we have been relatively consistent over the year, roughly 2 years for KFC and 3 year for Pizza Hut. Small model for KFC offer a compelling payback period of 2 years and cash dividends -- cash margins of about 21%. Now Pizza Hut satellite store model also offer a fantastic payback period of 2 years and a cash margin of 16%. Now these assets come from our consistent and disciplined approach to store openings. This innovative product -- innovative store models require lower upfront investment, therefore, unleashing significant growth potential for our brands. This is especially true for Pizza Hut, which saw a significant ramp-up in new store openings from 41 in 2019 to more than 300 last year alone. Now besides of store openings, same-store growth is another key driver for our overall sales growth. Even with the fast pace of store expansions, we generated an average of 2% same-store sales growth before the pandemic. While we have four objectives for store opening over the next 3 years, we also have strategies and initiatives in place to offset the impact of those fast pace of store opening and more importantly, to drive positive same-store sales growth in the coming year. Now Warton and Jeff have already gone through them in more detail so I would just highlight a few key point here. For innovation. Good food attracts customers. We'll continue to innovate in our new product introductions, introducing new delicious dishes to our consumer, enhance our signature dishes, widen our price options so that we can appeal to a broader consumer base. Brand engagement. Our brand resonates very well with consumers. Many of our marketing campaign like Crazy Thursday have become viral online. Convenience. To cater to the increasing demand of speed and ease for our customer. Our goal is simply to be there whenever, wherever our customer needs us. Customer loyalties. Retaining customer loyalty is very crucial to us. We're utilizing our advanced digital infrastructure to broaden our membership base, promote cost brand selling and to increase the purchase frequency and also spend by our members. Our emerging brands are very important to our future growth. They are also making very encouraging progress at this time. Collectively, our emerging brand operates 1,000 stores. A little bit more than 3 years since its debut in China, Lavazza have just recently celebrated its 100 stores. Now as Adrian mentioned earlier, Lavazza is on a solid trajectory, making good progress on brand recognitions, product development, store format, all that leading to better unit economics and sales. We are confident that Lavazza will become one of the top coffee brand in China. Taco Bell also recently celebrated its 100th store this year. We are pleased with their momentum and also the customer that was created by our Taco Tuesday campaign, which features NBA star, Lebron James. Meanwhile, our China -- Chinese dining business overall is making good progress and have a strong recovery this year and became profitable as well. Huang Ji Huang remained profitable throughout the pandemic, and we are seeing a further improvement in its sales and also its franchise store growth. Little Sheep continue to make progress in its turnaround and is recovering same-store sales. It is getting close to breakeven at the first half of this year. Now our emerging brands, as I mentioned before, is very important to our future growth. And so we will continue to invest but with discipline in our emerging brands. We're investing a small percentage of our operating profit into our operations of our small brands. Now let's talk about profit growth. We have worked hard over the past few years to restructure our cost base and it pays off. Compared to the first half of 2019, we reduced the top 3 store-level fixed costs by 20% to 25%. We expanded our restaurant margins by 160 basis points and meaningfully reduced or lower the breakeven sales, therefore, enhancing our overall business resiliency and opening up more room for further development. More importantly, we did it by rebasing our cost structure that would benefit our margins in the long run. For example, by improving cost structure, by introducing store management team sharing initiative, we empower our capable RGM to manage multiple stores. Enhancing our labor productivity, right, by investing in digital infrastructure; optimizing depreciations by reducing upfront investment per store; lowering rental costs by securing more favorable rental agreement; and also shifting more fixed cost, rental cost to wearable costs. Now certainly, as we -- as a leading restaurant brand in China, we face some potential challenges in the long run, like rising commodity prices, increasing wages and challenges in hiring and retaining quality staff. But as we have demonstrated over the past few years, we have like with hard work and innovation, even in very challenging time, we can sustain and even improve our margins over time. We aim to keep our cost of sales and our cost of labor as a percentage of revenue stable while we work to improve on our operational leverage in our fixed costs and expenses. Now to achieve this goal, we will continue to focusing on product innovation. Labor productivities and leverage on our investment in digital, technology and supply chain infrastructure. Now naturally, we can only do that achieving those goals with the dedication of our staff, consistent cost management in our restaurants and leverage our G&A expenses. Now when it comes to capital allocations, we take a balanced and systematic approach, which is underpinned by our very strong cash flow. Over the past 3.5 years, we generated over $4.6 billion from our operations. By the second -- quarter end of second quarter, we have about $4.1 billion in cash, cash equivalents and short- and long-term deposits. Our capital allocation priorities are working capital and reserve for potential contingency, capital expenditure to drive organic growth, strategic investment to improve our capability and capacity. And last but not least, returning excessive cash to our shareholders. At our 2021 Investor Day, we have introduced a 5-year CapEx plan of $5 billion to $6.5 billion for network expansion, digital and supply chain investment. For the first 2 years of the plan, which is including this year, we are on track to invest roughly $1.5 billion in CapEx. We're increasing our store count by almost 2,500-plus, building 8 logistic centers, rolling out the number -- like number of automation initiatives at our restaurant and also our logistic operations, and also completing our initial end-to-end strategy plan. Now for the coming 3 years, we plan to invest a total of $3.5 billion in CapEx, of which $2 billion to $3 billion will be invested in expanding our store network to 20,000 by 2026. And we also would invest to keep our existing store fresh. Another $700 million to $1 billion will be invested in the market for our supply chain enhancements. We plan to expand logistics and further digitize and automate our supply chain to keep it safe, agile and efficient. We expect the ratio of our company-owned logic center to reach about 30% by 2026. Now this will enable us to further invest in end-to-end digitization for the long run. Another $500 million to $1 billion will be reserved for investment in digitization to further strengthen our technology mode, from IoT to cloud computing to automations and expanded AI applications. Now this investment, we believe, will help drive sales and productivity, improve customer services while ensuring cybersecurities and system safety. Another area for our capital allocation is our M&A and strategic investments. While we are receptive to investment that would foster growth and enhance our core capabilities, we maintain a disciplined approach to our strategic investments, primarily focused in 3 key sectors. One, we consider reconsolidated KFC's legacy joint ventures. Now in 3 key market areas, Wuxi, Hangzhou and Suzhou, which together account for roughly 17% of our KFC store. We also invest in brand development and acquisitions. Our joint venture, as we mentioned earlier, Lavazza is really helping us to strengthen our position in our -- in China's rapidly growing coffee sector. Our strategic acquisition of Wanxiang has also enabled us to gain economy of scale in our Chinese dining business and also enhance our innovations in Chinese food. We have invested also in strategic partner like Sunner and Meituan to fortify our ecosystem. Now recently, you may have heard we have formed a joint venture with Bolex to accelerate our central kitchen initiative. Now let's discuss a very, I guess, dear topics to a lot of investors here today, returning excessive cash to our shareholders. Now since our spin-off in 2016, we have returned $2.5 billion to our shareholders. Now despite the challenges during the pandemic, we have returned approximately $1.3 billion to our shareholders over the past 3.5 years. This last year alone, we have returned $668 million to shareholders through dividends and share buybacks. At the beginning of this year, we have increased our quarterly dividend from $0.12 per share to $0.13 per share. In total, we are on track to return roughly $600 million to $800 million to shareholders this year alone. Now we conveyed to returning excessive cash to our shareholder and Joey will provide a more concrete update on our returning cash to our shareholders in her closing remarks. I know lot suspense there. But before I conclude my presentation today, I will just give you a quick update on our 2023 outlook. Now in the first half of this year, our sales have notably improved compared to the same period last year. Indeed, our same-store sales have rebounded to roughly 90% when we compare to the level in the first half of 2019. Now recent economic data, certainly point to a potential soft patch in the Chinese economy. However, the encouraging use for us is that despite the near-term economic headwinds, our recovery trajectory remains fairly stable. Now we anticipate the recovery of our same-store sales to maintain a relatively steady pace for the full year 2023 at roughly 90% of the 2019 levels. Furthermore, our system sales should continue to benefit from our robust pace of new store opening as well. Now given the current pace of store openings and our store development pipeline, we are now expecting net new store to be in the range of 1,400 to 1,600 for the full year 2023. Now that's an increase from previous expectation of 1,100 to 1,300 net new stores. We continue to expect capital expenditure to be in the range of $700 million to $900 million. So with that, I will conclude my presentation today. Thank you. Let me now invite Joey back to the stage to give you her closing remarks.

Thank you, Andy. Hello, again. As we come to the end of our presentations today, I want to thank each of you again. It's been a pretty busy morning. Many people beginning with Plateau, I guess, have observed that necessity is the mother of invention. And so the pandemic was to us. The many measures that we took to survive over the last few years add up to a transformation of almost every aspect of our business. I'm confident that with our amazing team, world-class capability and our powerful brands, these will make us one of the very best of our -- of restaurant industry in this world. Before we transition into the Q&A session as promised previously, I'm thrilled to unveil our key targets for the next 3 years. First, we are pleased to announce that we are targeting to return about $3 billion in cash to shareholders from 2024 to 2026. [Foreign Language] We intend to achieve this target with a combination of significant increase in stock buyback and a double-digit increase in dividend over the upcoming 3 years. With things really back to normal now, particularly even after the second wave of COVID in the middle or slightly before the middle of the year, we see the response from the market from the customer. We feel we are there. Things are back to normal. We can continue to trade the business as a normal business. Therefore, we are comfortable to make this commitment. And we make this commitment without sacrifice our aggressive investment into our business, our stores, our digital capability and our supply chain capabilities. Second, other than the cash, second, let's talk about the next target -- growth target. We mentioned many, many times, it should be very clear right now that we intend to reach 20,000 stores by 2026. And there are 3 ambitious financial targets here. One, high single-digit to double-digit growth in system sales in the next 3 years; two, high single-digit to double-digit growth for operating profit for the coming 3 years; and three, double-digit growth of EPS in the coming 3 years. These targets reflect our commitment to delivering value to our shareholders, our confidence in our prospects, expanding our reach and driving robust growth. And very importantly, our vision remains unchanged, which is to be the most innovative pioneer in our industry globally. One more time it's not because we are very arrogant to think that we can be that amazing. It's this humble belief that in order to survive and to excel in this industry being innovative is the most critical and basic capability that we have to build. So as we conclude our Investor Day presentation now, I want to extend my heartfelt thank you to all of you again. Thank you for your support, really. Thank you. And let's do Q&A. One last thing it's Crazy Thursday today, you can V me 50. Okay.

Thanks, Joey. Please just stay on the stage. May I also invite other presenters to come on to join us on the stage for the Q&A session. [Operator Instructions] Okay. Let's take our first question, Luo Chen.

I guess the majority of the attendees here are Mandarin speakers. So please allow me to ask my first question in Mandarin. [Interpreted] I would like to thank you all from Merrill Lynch. I am an analyst. My name is Lou Chen. What impressed me a lot is that at 12:00, we finished the presentation on time and started the Q&A. This is the sixth Investor Day that I have attended this year. The previous 5 really ran very late on their schedule. It really represents flawless execution from Yum China being on time. And I really admire Joey and Andy's floor management of all the presentations because you really save the most exciting part that we all want to listen to the last 5 minutes. It's the first time that we have organized Investor Day for the past 4 years. The last time was inbound in April of 2019 was in the world of hotel, if I remember correctly. And that well before COVID as well as before the worsening of the China-U.S. relations, a lot have changed over the past 4 years but not in a so good way. There have been a lot of changes in Yum China, but in a very good way because it has become stronger and more resilient. The capital markets are all asking this question, what are the future prospects of China's economic development. Everyone is talking about consumption degradation as well as the heightened competition. I would like to share with you my observations in the following 5 aspects. First of all, I think that everyone in the industry are not doing value campaign. We have got a Crazy Thursdays we have to be crazy every day, let alone our competitors. The second observation is that if you look at the digital channels, more and more traffic comes from digital channels. Over the past 6 months, we had a lot of coupons on the Douyin or Chinese version of TikTok. I don't know about the share even if we are exploring this China, our competitors will also use Douyin as a channel to drive traffic. I don't -- I wonder what the impact will it have on our future EPM and ESP. And another category is tea drinks, coffee drinks like Luckin Coffee, et cetera, they have been quite successful in the Chinese market. You also share the vision of accelerating speed of store locations, but a lot of competitors are doing the same. Last but not least, we have seen some emerging competitors like testing for Chinese style burgers. They are opening up stores quickly, totaling 45,000, not just in lower tier cities, but also in top-tier cities as well. So my question based on the 5 observations is, what's the implication for our margins. I think that we can -- we have capabilities to maintain the margin. But if we have reinvestment needs, well, these kept our upside of margins. And the second is the implications to our same-store sales recovery and in the lower cities, space for opening up new stores. And the third, what are the implications to our new business such as Lavazza. And finally, in face of such intense competition, how do we differentiates ourselves from peers. I'm sorry, I have really asked a lot of questions. It's just a dozen, not that many.

[Interpreted] Let me respond to your questions in a very concise way. First of all, when we talk about value, I think that value is really very attractive. But we cannot simply rely on value. If you always talk about value, value, it is not enough. You must have tasty food and it all comes down to our capabilities to deliver that. It's not just about marketing or value. Everyone can do that. But we have to have long-term commitment to supply chain, R&D and innovation. These are our long-term commitment, and we have been doing it. We have invested for the long term with a lot of manpower input for KFC, for Pizza Hut for all the other brands, these are very important enablers without which values alone is not enough. Secondly, competitors and the competition in lower-tier cities. It is true -- it's true for all brands. We welcome competition. It makes there is confidence in the market. So there is no economic downturn or despite economic downturn, there were still abundant opportunities. There are so many questions from the investors because the size of the market, the size of the economy is there. So competition is good news. As for lower city competition, I think internally, it's also a good news here, I think that we are the only company that the bonds are saying that you must penetrate into lower-tier cities and there are a lot of people saying that there are objections. It's too hard to do. And then there are fierce competitions like from testing, et cetera, and However, with the competition, they -- these people will have more passion to penetrate into the lower-tier cities. Jiangsu province was end market that was neglected, but now with the participation of competitors, now we are talking about doubling the business of Pizza Hut, KFC in these locations. And on top of that, we are -- we have been doing a lot in terms of marketing, such as Douyin. I will leave that to Warton.

[Interpreted] I would like to touch upon the competition as well because you talk about testing. First of all, I think that there are a lot of room for further development and innovations have opened up new opportunities for store openings like lower-tier cities, gas stations, remote areas, there are more space for innovations in the future. And I think brand is fully capable or face up to the competitions are several dimensions. First, on a dimension of product. We have all the core categories that competitors have we will do better than our competitors. Our beef and chicken burgers are very good examples in Jiangsu, Fujian and Hunan provinces, we are testing Chinese-style burgers as well. By the end this year, we will roll this out nationwide. Second, price competition before, in the past, we were quite weak in the lower than RMB 20 menu that's where the other brands have grown very rapidly. That's why we have combo OK deals, which are less than RMB 20. It has been very competitive in the market. So in -- with the support of supply chain, we will have more cost-friendly products to extend our price range. As long as we have more products lower than RMB 20, we can be more competitive. Third, competition in store openings, we have so many models, modules. We are constantly developing them as well. So -- and also with the cost reduction, it will speed up our store opening pace. There are a lot of space for us to tap into this market and the pioneering innovative ones will be the winner. You also asked about value, this is a constant theme. If you do not do anything, you just do a marketing and promotion and the margin will decline. This is simple math. We exist to manage this, to avoid this from happening. That's why we will have more targeted resources allocation. We have this budget. We have to spend our money to the biggest value possible. Over the past few years, we have done quite a lot of promotions and our cost structure is as sound as pre-COVID levels, we have the confidence to maintain the cost structure steady in the future.

The value is not enough. such as beef burger is a relatively costly product, but it's value for money, and the customers are favoring these kind of products. Next question, please.

Next we have Xiaopo Wei.

Congratulations for this great presentation. We are so glad to be here to see the high energy of Joey and the leadership team better than COVID. So I would like to ask in Chinese well. [Interpreted] I think what's different about the company is that over the past 3 years, we experienced COVID, but you spread up investment in infrastructure. But I think this is something that differentiates your company from others. My question is very simple. Have you ever considered that if the digital capabilities is the hidden gem of the company, have you ever considered to capitalize on that, to budgetize on that, to monetize on that. To -- if we can monetize on these infrastructures, will you open these infrastructures to third parties to get more revenue streams and to drive more revenue growth for you.

[Interpreted] Thank you, Xiaopo. Definitely, Digitalization is something that we have been a front runner in the restaurant industry. And if you look at emerging brands, they are benefiting from it with the digitalization foundation of KFC and Pizza Hut, the emerging brands, the Taco Bell,, the Lavazza among others, we have also a SaaS platform for all the emerging platforms when help the emerging brands. Any platform of SaaS, if you look at, basically, you need to have 3,000 stores to have this economy of scale. So we have the benefit of the economy of scale of Pizza Hut as well as KFC so that we have the power to empower the emerging brands. So we can also empower our Chinese dining brand as well as other emerging brands on the SaaS platform. So we have already monetized on these infrastructures from this sense. And in the next step, we plan that we would be able to empower the industry if more industry PS can work together to co-build these platforms, the digitalization will progress even faster. In this era, it's all about openness be it online platform, it must be open. I think that for our systems open and the compatibilities of our systems are also things that we have to fix up to as well as to address. I hope that I answered your question.

Next question from Michelle Cheng from Goldman Sachs.

[Interpreted] I'll also ask in Mandarin. We are encouraged to see that -- Joey that there will be a lot of more shareholder return and the cascade of store opening is more concrete. I want to ask about franchise model. In the past, we were conservative about franchising, but from 1,400, 1,600 to 1,800 many of them will come from franchising opportunities. Can you share more on the opportunities of the franchising and the potential economics of your franchising business.

[Interpreted] The economic model of franchising, we understand it very deeply. KFC, Pizza Hut have quite a large number of franchising business. And we are looking at it from the strategic point of view. Warton has shared in his presentation on this as well. At Yum China, we are a highly efficient team. in big cities, these efficiencies can be best represented certain lower-tier cities and remote areas, the efficiency will go down. is like the Gorilla war in lower-tier cities. There are also strategic points, for example, highway service stations, schools, hospitals. Very frequently, it's very hard to get to these places. So we have to work together. We have been quite conservative because we attach great importance to food safety, something that we do not compromise. With huge technological advancement, it enabled us to open up new opportunities for franchising. We don't need franchisees to anything. We can have automatic inventory replenishment and sourcing. We understand their efficiency, clearly, quality control. We can do random inspection anytime because everything is online. So our management and control has been much stronger compared with the past. Food safety is a priority among priorities. But now we have full confidence in our capabilities, and that's why we dare to open up opportunities for franchising. COVID has also brought us quite a lot of business opportunities as well. After 3 years of hard work, in China, we have quite a lot of suppliers, partners and consumers who have placed their trust in us. It was very difficult to get into or have access to the university market. But now we have the opportunities. We really have to work hard on that. That's basically our strategic thinking. Thank you.

Lillian from Morgan Stanley, please.

[Interpreted] I'm Lillian from Morgan Stanley. My question is a bit relevant to Michelle's question. Overall, thank you for the presentation, Joey. We will reach a target of 20,000 stores. We are more light capital because we deploy franchise model and small mini store. And the target Joey shared with us is very encouraging. Our growth at dining service is not only about profitability, but also the traffic. I would like to know that you have 17% of the margins, right? What will be the trend in future in terms of the margins for restaurants? Second, in terms of ROE , ROE -- now it is mid low teens. With less and less investment of capital, your ROE might significantly improve, right? Do you have any specific target for ROE?

Restaurant margins. I think as we have mentioned in our presentations. This year, first half this year, when you compare it to our restaurant margin obviously improved significantly, more than 500 basis points compared to last year. And then when you compare with 2019, we have expanded our restaurant margins by more than 150 basis. We're very glad about that. For restaurant margins, the most important thing, obviously, is restaurant sales. That's the biggest driver for margins. And then as we have mentioned, over the next few years, our goal is really to maintain and potentially expand our margins. And the way we do it is that obviously, we utilize our supply chain, right. Duoduo has mentioned a lot of initiatives that we do to keep our cost of sales stable, right, despite potential [indiscernible] or as we mentioned, marketing promotion activities. We also intend to keep our cost of labor stable. We anticipate wage increase. In fact, in the second half of this year, we have increased the wages at our restaurant level by low to mid-single digit. So I think we'll continue looking forward. I think in China, we will continue to see some wage inflation. To sort of manage that cost of labor is really one, as we mentioned, we try to reduce the workload, the administrative workload at the restaurant level. We also invest in technology and automation so that our staff can do their job more efficiently, better and so that way, by increasing labor productivity, we try to keep our cost of labor stable. Now the lever there is really the fixed cost area. Go and grow. We will continue to work to restructure that. And we have been very successful over the last 10 years, right, not just last few years, reduce that, and that is a really great way to drive leverage. And obviously, we will continue to work to gain leverage in our G&A expenses. Although we continue to invest in digital, which would increase depreciations, but we're confident that in the long term, our G&A expense increase would be below the sales level. And so that's how we look at restaurant margin, overall operating margins.

Okay. May I invite our investors to ask questions.

[Interpreted] I'm Thomas Jack. In terms of strategic investment, what is your plans, you made some investment in some other companies such as [indiscernible] or even [indiscernible]. In the upper stream partners, do you have any thinking? Do you have any future plans?

So I think the question is about strategic investment direction that we have. As we mentioned, like we always are kind of receptive to investment that can help us to foster growth also improve our capability. Now the key focus for us in coming years in strategic investment real is in the upstream supply chain. where it can help us to improve our capabilities. And also, especially if you think about direct sourcing or our central kitchen initiative, all that will have a long-term indication for us in terms of our ability to manage costs and be very competitive in the marketplace and also help us to sort of innovate in our product development. And so those are sort of the area. I think going forward, you will see a key focus for us. We certainly have, as we mentioned earlier, recently invest in a joint venture with 1 of upstream supplier in our central kitchen initiative.

All right. I mean, let me just add a little color to it. You can -- actually, over the last few years, 1 big investment is the joint venture consolidation, which did not get a lot of the attention and there's no consolidation management risk because we've been running the business. So when the opportunity presents and the number works, we will invest and get better shareholder return. And when we invest, we always ask ourselves whether we can build the capability ourselves. If we could, we do internally, like technology-wise, we do it internally because the capabilities -- we want the capabilities -- capabilities stay with us for long term. and then the IP, et cetera, blah, blah, blah. But there are things that we think that will be much faster, more effective if we use our capital to invest such as the recent investment in central kitchen because it's a very different story to run factories, central kitchen. It will be more effective if we learn from someone. I mean, no matter who we are, Yum China, we always need to maintain the humility. There are so many things that we don't know, and we need to learn. So we have constantly update ourselves about the upstream opportunities, particularly for some very key categories because we sell everything in very big scale. So we have to make sure that 1 that is good to -- that's enough for us in the long term. So we will always look at the upstream opportunity and hopefully make some investment to allot that bottom it and to support the core business. The focus is about core business, all of our core business. We are not going to go sideways because that's more than enough for us to focus on.

Give to that gentleman, yes.

Ivan Su from Morningstar. My question is on your CapEx. Do you still expect your unit CapEx to decline going into the next couple of years? And then number 2 is, if we were to extrapolate your CapEx guidance for the next 3 years, there seems to be a pretty big step-up in 2024. So I want to get a better understanding of what's driving that step-up in CapEx? Is it more remodeling or supply chain digital-related investments?

Okay. So in terms of what our CapEx spending Obviously, as we mentioned, we have a pretty ambitious target over the next 3 years. We plan to reach about $20 also the acceleration in store opening. And then as we mentioned, we have a bigger portfolio of store now. So to keep them fresh. We're going to invest also money into keeping them remodeling and giving them fresh. Now if you look at, as we mentioned, for us, the 20,000 store is just a next milestone, right? We continue to look forward to future growth. And our supply chain investment has come ahead of the store opening. And so our target is to open more logic center over time. And also, as we look forward into the future, we probably, as we mentioned, own more of our logic center. The reason to do that is because if we want to invest in automation, especially in automation it's better to have your own operations or own warehouse than leasing it for 5, 10 years, and then you have to demented your automation. Now as we -- depend on like on the technology side, like will depend on how far we can take the AIGC. We have a lot of confidence in using technology to help enable our employees to be more productive, to make our operation more efficient and serve our customer. So that's another area that we have mentioned earmarked about $500 million to $1 billion over the next 3 years for the technology side. So in terms of store, I'd like to -- Wat.

[Interpreted] And for supply chain. In the past, we rent a lot of logic centers. But now we have high bar warehouses. We need a lot of technology investment. That's why it's smarter that we own it and operate by ourselves. As Duoduo mentioned, in the COVID-19 period ,we used the trucks to do the transportation. But in COVID-19, we find out that we can combine trucks with ocean as well as other models of transportation. If we can run our own supply chain, we can be very flexible and mix and match. We don't have available products and solutions in the market. So we figured that we need to do it by ourselves. That's why we need to move forward. And we can see the very good results, and we need to deploy renewable energy. We need to make breakthroughs by ourselves. As for the store investment, Warton, please.

[Interpreted] As for the investment in restaurants for KFC and Pizza Hut. So single restaurant investment continue to decline. Let's take PFC as an example, over the past few years, the per store investment declined by -- 9% last year. The new restaurant investment were up to $1.5 million. Several years ago, it was as high as RMB 3 million. In the future, will it continue to decline, yes, it will. There are some good opportunities. We have the capabilities. First, as per the sales volume, we can develop different models. So we invest more for big stores and less more for small such as mini. And second, we can design very good seating area so that it is loved by consumers, but it does not cost a lot. Second, you don't need to decorate every store as based on the forecast of your sales, you can wait a little bit until the sales grow to a certain number, so that you can do the fourth declaration. So as to avoid the risk of waste. Thirdly, there is a new project called Flexible Kitchen. In future, all the kitchen will be assembled. It will not be fixed. It will be module-based. All the kitchen will be produced in the factory and then it can move to the location to be installed. And then it can be removed as well if it becomes unnecessary. All of these designs will help us reduce the new investment for the stores.

I think we have time for one more question. Our shareholder, Lee.

I am Lee from [indiscernible]. And I'm thrilled to see Yum C to be well positioned for a period of accelerated growth after it further strengthened its mold and resilience in the past few years. I'm going to play the devil's advocate here and ask what if question. If Yum C stock price halved in 3 years' time compared to attain, what do you think going to be the possible causes and what would you do in that scenario?

I guess this question is for me. It's a really good questions, I think. And then I think it's probably on a lot of people's mind as well, just given the market relativity. But I think if -- but I think hopefully, that was not going to happen because obviously, we're delivering pretty strong performance. Hopefully, the market will recognize that volume there. Now obviously, if that happens, 2 things I would feel like. One is that I will feel very bad for all the investors here because you have lost money. And the second part is that I may feel bad for myself because I probably have lost my job already. But I think the [indiscernible] business, I think if that happens, if that were to happen, that would be a pretty good value for some investors, a lot of investors because if you think about this, our current market cap right now is only around $23 billion. If it got cut in a half, our market cap will down to you about like $12 billion. We are sitting on about $4 billion in cash. That means our enterprise value is only $8 billion. That's a little bit more than 6x our EBITDA or our operating cash flow, right? So imagine that if you have $8 billion, you can buy it and then in 6 years, you can only debt free and then a business that would spit out at least $1.4 billion, which we have done last year. maybe more. As we have mentioned, we continue to see growth in our business. So I don't think that will happen. But if that happens, I think a lot of people will see great value in our company. Thank you.

We still see some people with questions, maybe we can extend for 2 more questions.

Our management is very generous with their time. So maybe we'll take 2 last questions. Maybe a shareholder as well, Giles.

I'm afraid it's going to be in English. I just wanted to ask a question about the RGMs and then they're working in multiple stores. And I think you said Jerry, I think, said 3 was the maximum. Is that what is happening already? And can you talk about how that kind of works in practicality of these restaurant managers working more than 1 store.

[Interpreted] Yes, indeed, 30% of our restaurants have got one RGM working on several restaurants. Is it practical? First of all, we have to be more razor focused. We cut unnecessary KPIs. The restaurants can razor focus on their core business. We reduced the burdens for the RGMs, any operations that can be removed outside the restaurant will be removed. Recruitment and training are the biggest responsibilities. We now have citywide hiring with the support of HR, so I will ask the functional departments to do more. So the RGMs can manage more restaurants. Second, we rely on systems, which is totally different from several years ago. There has been a lot of administrative manpower. To sum up, we enable RGMs to focus on the core businesses we use automated systems, and we will reduce their unnecessary administrative burdens.

I think that if we do well, maybe in the future, an RGM can manage 5 restaurants at most. And that is the incentive for the better-performing RGM. And of course, we pay them more. That's point one. Point 2 is it's happening in KFC, Pizza Hut and all the other smaller brands as well. The speed will be slightly different depending on the situation because like the smaller brand, the distance between the stores is much bigger. So we have to do things rightly differently. But we are having pretty decent progress, and we'll continue to improve on land as we go along.

All right. Last question. Maybe at the back, GIC.

Earl. from GIC. Sorry, I can't speak Chinese as well. This acceleration of your store network, I want to understand why is there an acceleration. I know you are more than capable of doing so, but you're already a leading restaurant network company in China. And it's possible for you to also go for current network of 1,000 is opening, optimizing between store growth and same-store sales, optimizing your margin. But the reason that you're accelerating the store growth, I want to understand the real reason. Is it because you see a lot of capabilities? You're seeing rent being quite cheap still in China? So I'm just wondering why?

This is an important question. I am going to stand up. We actually always have the goal of 20,000 in the last few years. We just never have a specific year target. And this time, we are able to be very clear about 2026 because we have learned enough, acquired enough capability in the last few years. And we feel that time actually is pretty normal right now compared to last 3 years. So it's more predictable, and therefore, we can have a plan. Two more points here. One is we always do things at the speed that we can. We try our very best to be a very competitive player. But we always do things at a speed that we can. Not that many years ago, we were being criticized or being too slow when some other brand opened a few thousand stores and then shutdown, blah, blah, blah. And you see we take our time to build our pace. Pizza Hut is a great example, right? Because right now, you might have the same question, Oh, this 1 brand, it seems that they are not moving that fast compared to many other competitors in the market. And I will urge you to come back to look at Pizza Hut. We embarked the journey of revitalization back to 2017, and this is the sixth year. When we start the journey of revitalization, the number of stores that we opened the year back to 2019 -- 2019? 41 stores, 41 stored 2019 -- and this year, we're going to open 400 stores, 10x. So before we move fast, we have to make sure that we are absolutely doing the right thing. We fix the store model, the cost, the people, the infrastructure, the food, the price, the customer preference, the branding, you name it. I mean I was once on the analytical side of the business when I was in consulting. The privilege of being analytical person is we always say, Oh, there are 5 things or 3 things to focus on as if they manage the whole business. When we are on the operations side, I am very honest about this, as operator, we make 10, 20, 30 decisions every day or 100 decisions every day. And we hope we make a few of them right. There are so many decisions, so many aspects of the decision that we have to fix and tweak. It's a good -- well, I love business, so I think it's a piece of art, okay? So analogies you throw the fishnet and you have like 20 threats that you want to pull and you put it bit by bit. Get it right first before you run fast, and this is our speed. And why right now, we are ready to run so fast because we can because we are ready -- and when we can, we are ready, we should have a very clear goal because clear goal is motivating, it's exciting. We only live once, let's do something exciting when we could. [Foreign Language] If we have these opportunities to do it, why not. No, we don't get this opportunity to do things right and to have exciting target. And we work very hard for this moment. So now we are ready to have this exciting target and put every ounce of energy into this goal is very exciting. So when we -- but it's okay. When we try to run fast and people say, Oh, you might be too fast. When we are taking our time, people like, you are a bit too fast. It's okay. We are taking our own pace, and we are ready. Thank you.

Thanks, Joey. It's a good wrap up for the Q&A session. That's all the time we have for Q&A for those of you joining via webcast. Thanks for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]