Yum! Brands
China Investor/Analyst Conference
           23 September 2008
            Shanghai, China
Today’s Agenda

   Introduction and Yum! Overview       Tim Jerzyk

   Building Big Brands                 Angela Loh

   ...
Power of Yum!


   GLOBAL PORTFOLIO




    GLOBAL GROWTH




GLOBAL CASH GENERATION
Not Your Ordinary Restaurant Company
                                            % of Total Operating Profit

            ...
Long Runway for Growth
                                                                                  5+
              ...
Leading International Retail Developer
                              International New Builds

                           ...
Huge Global Potential
                                         Middle & Upper Class Growth
                               ...
Asia Pacific to Contribute
                                Majority of Growth
                                 Middle & Up...
Developing Country Growth


                                                                                           5 Y...
4 Key Strategies to Drive Growth


                              2. Drive Aggressive
                               2. Dri...
. . . with Substantial Infrastructure and
    Long-Term Competitive Advantage




                                        ...
Building
Big Brands




        Angela Loh Chief Marketing Officer
Unique Approach to Brand Building




                               East Dawning
Category Leaders



          #1 QSR                   #1 Casual Dining




   “Life is tastier with KFC”   “Happy Moments...
KFC’s Positioning: New QSR for Chinese Consumer

        Traditional QSR                  New QSR

   Core QSR strengths Q...
KFC outperforms McD’s in major
    Food-Related Measures…

            Top 2 box%                 KFC               McD
  ...
… and in most Brand Imagery Attributes


        Top 2 box%                          KFC            McD
        Fun and en...
Building a Big Brand at KFC




                    Community
                   Involvement

              In Store Exper...
Building a Big Brand at KFC




                    Community
                   Involvement

              In Store Exper...
KFC Menu Design Strategy


   KFC is the chicken expert, but not chicken only

   Different cooking platform to enhance va...
Building a Big Brand at KFC




                    Community
                   Involvement

                In-Store Exp...
A Step Ahead on In-Store Experience


     Passionate crew brings Customer Mania to life

     Up to date interior design
...
Building a Big Brand at KFC




                   Community
                  Involvement

              In-Store Experie...
Community Involvement, Not Gimmicks


    First Light Foundation
    - Awarding scholarships, building schools
    Chicky ...
Building a Big Brand at KFC




                    Community
                   Involvement

               In-Store Expe...
KFC Brand has Emerged Stronger than Ever

   How we did it

   Development capability held penetration

   Strong belief i...
Pizza Hut, Dual Channels Brand Building

   Casual Dining Brand                 Home Delivery Brand




         Inspiring...
Pizza Hut Menu Strategy

                                  Home Delivery Brand
   Casual Dining Brand



Pan, stuff crust ...
Pizza Hut, Dual Channels Brand Building

    Casual Dining Brand                  Home Delivery Brand




         Inspiri...
Pizza Hut, Differentiated Experience

                                      Home Delivery Brand
   Casual Dining Brand


U...
Pizza Hut, Dual Channels Brand Building

    Casual Dining Brand                 Home Delivery Brand




         Inspirin...
Pizza Hut, Differentiated Communication


  Casual Dining Brand           Home Delivery Brand


                          ...
Pizza Hut, Dual Channels Brand Building

    Casual Dining Brand                 Home Delivery Brand




         Inspirin...
East Dawning – The Choice of Chinese QSR


                       East Dawning


     A promising future

       Higher fr...
East Dawning – Asset
East Dawning – Nutritious Breakfast




                      Savory         Chicken     Rice Roll
House Specialty
       ...
East Dawning – Mouthwatering Main meal




Guizhou       Chinese    Ground Pork    Tomato Beef    Sichuan
 Spicy     Sausa...
East Dawning – Tempting Snackables




                   Steam Pork Dumpling   Spicy Chicken Wing
   BBQ Pork Puff
East Dawning – Inviting Sweets/Drinks




Mango Pudding                 Sesame Ball   Summer Drink
                Crushed...
East Dawning – The Choice of Chinese QSR




   Chinese Fast Food meets KFC’s Standards
Building Dominant Brands in China


   Differentiated brand vision, based on consumer
   needs

   Stay relevant, ahead of...
Support Capability




           Joaquin Pelaez Chief Support Officer
Support Capabilities That Set Us Apart


    Logistics

    Quality Systems

    Innovation Capabilities

    Manufacturing
Yum! Logistics China
                        A Powerful Advantage




   Distribution Centers: 11

   Satellite DC: 5
   P...
Yum! Logistics China

                              Brand               Stores        SKUs
                  KFC          ...
Upgrading Distribution Assets

   Upgraded and New DCs:
   Beijing, Shanghai, Guangzhou, Xiamen, Qingdao, Nanjing, Wuhan
 ...
Why Upgrade?

  Investing for Safety, Security, Growth

     Food safety / Ensure cold chain

     Secure freezer space fo...
Yum! Logistics China
          World Class Facilities
Food Safety
      and
Quality Systems
Yum! China Food Safety Quality Systems


    Recent media attention has highlighted food safety
    and quality issues in ...
Commitment to Food Safety

    Much work has been done to improve food safety
    policy in China

    Has become top prio...
Yum! China Model Is Based on
    Traceability from Farm to Table

                     Yum China Food Safety HACCP Based P...
Yum! China Food Safety & Quality Model


                                                                     Restaurant
 ...
Yum! China Food Safety & Quality Model

  Supplier
Selection and
   control

     Re-qualified the right suppliers based o...
Yum! China Food Safety & Quality Model

   Raw
 Materials
  Control

    More specific criteria used for suppliers when pu...
Yum! China Food Safety & Quality Model

 Yum China
 Standards




 Specification                Issue specification     QA...
Yum! China Food Safety & Quality Model

 Education


      Integrated educational requirements beyond primary suppliers

 ...
Yum! China Food Safety & Quality Model


Enforcement


     Monitor:

        Adulterants and contaminants surveillance

 ...
Yum! China Food Safety & Quality Model

 Restaurant
  Support

    Dedicated Field QA team (108 professionals) in all mark...
Yum! China Food Safety & Quality Model

Restaurant
 Support

     Created the Food Safety and Regulatory Office


        ...
Lessons Learned Thus Far

    Our Food Safety approach has been suggested as a strong
    model for China
    Collaboratin...
Food Innovation
  Capabilities
Food Product Innovation

    Food innovation a core value in Yum! China

    Clear goal: Deliver great tasting, differenti...
Food Product Innovation

 Each brand focuses on business pillars and day parts

 Typically launch 80 + new products annual...
KFC Innovation

                 Second Proteins
 Chicken
Sandwiches
KFC Innovation — Soups & Salads,
     Snacks & Portables
KFC — Beverages & Desserts




                     Hot & Cold Drinks
        Egg Tarts
Pizza Hut Casual Dining
           Elevating Food to New Standards
Pizza Hut Home Service
          New Traditional Dough Pizza
East Dawning Innovation
East Dawning Innovation


    Key challenges in the development of a Chinese QSR concept

       Commercialization of Chin...
Yum! China
Manufacturing
Yum! China Manufacturing

   Why manufacturing ourselves?

     When there are no supplier options to execute our
     str...
Yum! China Manufacturing

   When there are no supplier options to execute our
   strategy (Dough Balls for Pizza Hut Home...
Yum! China Manufacturing

   When there is a proprietary product and we can do it
   better and more cost effectively than...
Yum! China Manufacturing


   When manufacturing is a key enabler of our business
   model and no capability exists in Chi...
Support Capabilities Summary

   Strong logistic capabilities to support our growth

   Food safety and quality a “top cor...
High-Return
High-Return
Development




         Lily Hsieh Chief Financial Officer
Profitable Expansion Continues

   Expanding multiple category-leading brands

   Unit economics yield excellent returns

...
Unmatched Resource Commitments

   Today . . . 600+ development professionals on the ground

   Extensive people developme...
Strong Unit Economics
            Mainland China KFC Traditional Unit



      Average Unit Volume             $1.0 to 1.2...
Broad Reach, Extending to 475+ Cities

                    # of      Total       Number
                   Cities   Popula...
Penetrating Beyond the Big Cities

                  % of Total New Builds by Tier




                                   ...
Going Beyond Traditional Units


    Bringing our Brands to a wider variety of destinations

                             ...
New Opportunities in Drive-Thru




        Car ownership rising sharply

        Foot traffic still important to unit eco...
Maintaining Discipline in Our Rapid Expansion


      Build adjacent units to relieve pending capacity
      constraints

...
Rigor Every Step of the Way

     Market mapping and trade zone identification

     Site selection and acquisition

     ...
Leverage Development Capability for
Emerging Concepts

   Pizza Hut Home Service                 East Dawning




        ...
Expecting Another Solid Year of Expansion

               New Restaurant System Openings




                             ...
Summary

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

   Development capabilities...
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YUM 09/23/08

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YUM 09/23/08

  1. 1. Yum! Brands China Investor/Analyst Conference 23 September 2008 Shanghai, China
  2. 2. Today’s Agenda Introduction and Yum! Overview Tim Jerzyk Building Big Brands Angela Loh Support Capability Joaquin Pelaez High-Return Development Lily Hsieh China Business Perspective Sam Su
  3. 3. Power of Yum! GLOBAL PORTFOLIO GLOBAL GROWTH GLOBAL CASH GENERATION
  4. 4. Not Your Ordinary Restaurant Company % of Total Operating Profit 2013 F 2008 F 30% U.S. 28% China 40% China China 41% U.S. U.S. 30% 31% YRI YRI Note: Excludes corporate allocation
  5. 5. Long Runway for Growth 5+ 5+ billion billion 18,000 1.3 1.3 Restaurants billion billion 12,000 Restaurants 300 300 million million 2,600 Restaurants U.S. Mainland China YRI Restaurants Per 60 2 3 Million People Note: Traditional units only (2007)
  6. 6. Leading International Retail Developer International New Builds 1,358 1,300+ 1,189 1,181 1,077 ’04 ’05 ’06 ’07 ’08 F Net Unit Growth +5% +6% +5% +6% +6% Strong and Consistent Track Record
  7. 7. Huge Global Potential Middle & Upper Class Growth 3 Billion Developing Countries 1 Billion Developed Countries 2000 2030 ~90% of Growth Coming from Developing Countries Source: World Bank Global Development Prospects 2007
  8. 8. Asia Pacific to Contribute Majority of Growth Middle & Upper Class Growth by Region Developed Countries +0.2 Billion Europe/Central Asia +0.3 Billion Asia Pacific +1.1 Billion Middle East/Africa +0.1 Billion Latin America +0.3 Billion Source: World Bank Global Development Prospects 2007
  9. 9. Developing Country Growth 5 Year Net Growth International Units in Developing Countries(1) (2002-2007) 3,084 7,164 4,148 China 2,558 1,687 763 876 4,606 3,272 1,397 330 433 (1) Units as of year-end 2007 using World Bank definitions of developing countries Source: Public disclosures
  10. 10. 4 Key Strategies to Drive Growth 2. Drive Aggressive 2. Drive Aggressive 1. Build Leading Brands 1. Build Leading Brands International Expansion International Expansion in China in Every in China in Every and Build Strong Brands and Build Strong Brands Significant Category Significant Category Everywhere Everywhere 3. Dramatically Improve 3. Dramatically Improve 4. Drive Industry-Leading, 4. Drive Industry-Leading, U.S. Brand Positions, U.S. Brand Positions, Long-Term Shareholder Long-Term Shareholder Consistency and Returns Consistency and Returns and Franchisee Value and Franchisee Value
  11. 11. . . . with Substantial Infrastructure and Long-Term Competitive Advantage Unparalleled Country-Wide Country-Wide Unparalleled Talent & Distribution Distribution Talent & Experience System System Experience Unmatched Unmatched Targeted Targeted Development Development Manufacturing Manufacturing Capability Capability National Scale — 500 Cities
  12. 12. Building Big Brands Angela Loh Chief Marketing Officer
  13. 13. Unique Approach to Brand Building East Dawning
  14. 14. Category Leaders #1 QSR #1 Casual Dining “Life is tastier with KFC” “Happy Moments at Pizza Hut”
  15. 15. KFC’s Positioning: New QSR for Chinese Consumer Traditional QSR New QSR Core QSR strengths QSCV Maintain the core (QSCV) Focus on few products to Offer variety generate volume Focus on product taste Focus on product consistency (industrialize) Offer balanced choices Encourage balanced meals & Value drivers (“up size”) regular exercise Educate consumer on Eat lots of same product healthy life style frequently
  16. 16. KFC outperforms McD’s in major Food-Related Measures… Top 2 box% KFC McD Chicken expert 66* 45 Food expert 56* 45 Good taste 71* 55 Food variety 65* 54 Interesting new products 64* 47 Data source: BIT July 2008 *Significant difference, N=1900 in 47 cities 95 confidence level
  17. 17. … and in most Brand Imagery Attributes Top 2 box% KFC McD Fun and energetic 58 56 The leading QSR brand in China 63* 53 63 67* A brand I can trust 46 60* The QSR brand I like most 43 50* Advocate healthy life-style 44 58* Deeply rooted in China Data source: BIT July 2008 *Significant difference, N=1900 in 47 cities 95 confidence level
  18. 18. Building a Big Brand at KFC Community Involvement In Store Experience Menu designed for Broad Appeal Rooted in China integrated into their life
  19. 19. Building a Big Brand at KFC Community Involvement In Store Experience Menu designed for Broad Appeal Rooted in China integrated into their life
  20. 20. KFC Menu Design Strategy KFC is the chicken expert, but not chicken only Different cooking platform to enhance variety Meaningful side items/snack to support balanced choices Relevant menu for different daypart/occasion Product Innovation adapted to local taste
  21. 21. Building a Big Brand at KFC Community Involvement In-Store Experience Menu designed for Broad Appeal Rooted in China integrated into their life
  22. 22. A Step Ahead on In-Store Experience Passionate crew brings Customer Mania to life Up to date interior design Dedicated hostess program in every store Chicky program, a big hit with Kids 2 birthday parties per day on average in each store Chicky show during holidays Kids fun club to incorporate educational content
  23. 23. Building a Big Brand at KFC Community Involvement In-Store Experience Menu designed for Broad Appeal Rooted in China integrated into their life
  24. 24. Community Involvement, Not Gimmicks First Light Foundation - Awarding scholarships, building schools Chicky school program - Support by Educational Bureau on program design 3-on-3 Basketball tournament - Year 1 – 9,000 teams in over 150 cities, 48,000 participants - Year 2 – 13,200 teams in over 232 cities, 65,000 participants - Year 3 – 17,500 teams in over 300 cities, 80,000 participants - Year 4 – 21,000 teams in over 369 cities, 126,000 participants - Year 5 – 24,033 teams in over 400 cities, 140,000 participants
  25. 25. Building a Big Brand at KFC Community Involvement In-Store Experience Menu designed for Broad Appeal Rooted in China integrated into their life
  26. 26. KFC Brand has Emerged Stronger than Ever How we did it Development capability held penetration Strong belief in product innovation World class operation to support new sales layer (Breakfast, delivery) Robust local store marketing resource (Over 80 LSM coordinators / 9,300 hostess in the field) New success in youth segment
  27. 27. Pizza Hut, Dual Channels Brand Building Casual Dining Brand Home Delivery Brand Inspiring Functional Communication focused marketing Hot and on time Complete casual dining with 5 star service experience Menu designed Menu structured to explore for efficient, complete Western culture home meal replacement More than just pizza, a unique 1st Best delivery brand western casual dining experience with everyday affordable value
  28. 28. Pizza Hut Menu Strategy Home Delivery Brand Casual Dining Brand Pan, stuff crust and thin & New traditional dough, fast crispy dough bake Complete Casual Dining Risotto & pasta line to experience (appetizer, soup, enhance varieties salad, drinks & dessert) Appetizer, soup, salad and Exotic & interesting dessert make meal complete
  29. 29. Pizza Hut, Dual Channels Brand Building Casual Dining Brand Home Delivery Brand Inspiring Functional Communication focused marketing Hot and on time Complete casual dining with 5 star service experience Menu designed Menu structured to explore for efficient, complete Western culture home meal replacement More than just pizza, a unique 1st Best delivery brand western casual dining experience with everyday affordable value
  30. 30. Pizza Hut, Differentiated Experience Home Delivery Brand Casual Dining Brand Upscale décor package One national phone number Event driven in-store activities Well trained call center staff Hostess program to enhance “5-Star” feel Neat, clean & tidy delivery staff Tailored Tea Time menu design Delivery time promise
  31. 31. Pizza Hut, Dual Channels Brand Building Casual Dining Brand Home Delivery Brand Inspiring Functional Communication focused marketing Hot and on time Complete casual dining with 5 star service experience Menu designed Menu structured to explore for efficient, complete Western culture home meal replacement More than just pizza, a unique 1st Best delivery brand western casual dining experience with everyday affordable value
  32. 32. Pizza Hut, Differentiated Communication Casual Dining Brand Home Delivery Brand Retail message driven Escape from daily routine / ordinary Deliver functional benefits Festival / holiday fun moment Exotic / interesting Focus on leaflet PR effect for community involvement
  33. 33. Pizza Hut, Dual Channels Brand Building Casual Dining Brand Home Delivery Brand Inspiring Functional Communication focused marketing Hot and on time Complete casual dining with 5 star service experience Menu designed Menu structured to explore for efficient, complete Western culture home meal replacement More than just pizza, a unique 1st Best delivery brand western casual dining experience with everyday affordable value
  34. 34. East Dawning – The Choice of Chinese QSR East Dawning A promising future Higher frequency Sister to KFC Healthy, balanced in nature
  35. 35. East Dawning – Asset
  36. 36. East Dawning – Nutritious Breakfast Savory Chicken Rice Roll House Specialty Soft Bean Curd Congee with Fry Dough Mushroom
  37. 37. East Dawning – Mouthwatering Main meal Guizhou Chinese Ground Pork Tomato Beef Sichuan Spicy Sausage/Ham with Chicken Noodle Spicy Pork Chicken Rice Set Wing Rice Rice Set Rice Set Set
  38. 38. East Dawning – Tempting Snackables Steam Pork Dumpling Spicy Chicken Wing BBQ Pork Puff
  39. 39. East Dawning – Inviting Sweets/Drinks Mango Pudding Sesame Ball Summer Drink Crushed Ice Varieties with Milk
  40. 40. East Dawning – The Choice of Chinese QSR Chinese Fast Food meets KFC’s Standards
  41. 41. Building Dominant Brands in China Differentiated brand vision, based on consumer needs Stay relevant, ahead of trend Build core competency around food innovation
  42. 42. Support Capability Joaquin Pelaez Chief Support Officer
  43. 43. Support Capabilities That Set Us Apart Logistics Quality Systems Innovation Capabilities Manufacturing
  44. 44. Yum! Logistics China A Powerful Advantage Distribution Centers: 11 Satellite DC: 5 Processing: 2
  45. 45. Yum! Logistics China Brand Stores SKUs KFC 1,951 2,264 Pizza Hut Casual Dining 293 934 Pizza Hut Home Service 43 150 East Dawning 8 108 Total 2,295 3,456 . . . Last year our team traveled 31 MM kms, ~ 5X around the world Data thru July 2007
  46. 46. Upgrading Distribution Assets Upgraded and New DCs: Beijing, Shanghai, Guangzhou, Xiamen, Qingdao, Nanjing, Wuhan Shanghai Dough Commissary Current Upgrades and Construction Underway: Hangzhou, Chengdu Hangzhou Egg Tart Factory Future Upgrades: Shenyang, Xi’an, Harbin Cost: ~$5 million of CAPEX
  47. 47. Why Upgrade? Investing for Safety, Security, Growth Food safety / Ensure cold chain Secure freezer space for the future Plan for future store / volume growth Increase efficiency Prepare for store and brand growth 5 + 5 year plan Provide staff with improved work environment World-class distribution system to support world-class restaurant operation
  48. 48. Yum! Logistics China World Class Facilities
  49. 49. Food Safety and Quality Systems
  50. 50. Yum! China Food Safety Quality Systems Recent media attention has highlighted food safety and quality issues in China Seafood products Toys Pet foods Toothpaste
  51. 51. Commitment to Food Safety Much work has been done to improve food safety policy in China Has become top priority for the central government Importantly, our supplier base has shown high commitment to our standards and practices The whole industry is moving in the right direction
  52. 52. Yum! China Model Is Based on Traceability from Farm to Table Yum China Food Safety HACCP Based Program (Traceability based program) Restaurant QA Restaurant Microbiological HACCP Micro and and Chemical Performance Temperature Criteria criteria criteria
  53. 53. Yum! China Food Safety & Quality Model Restaurant Supplier Raw Yum China Education Enforcement Support Selection and Materials Standards Risk Assessment Control Certificate
  54. 54. Yum! China Food Safety & Quality Model Supplier Selection and control Re-qualified the right suppliers based on food safety, food quality, supplier quality programs and commercial standards Qualify suppliers based on Food Safety and quality capabilities and their implementation of HACCP programs Implemented at Yum! China a robust specification system
  55. 55. Yum! China Food Safety & Quality Model Raw Materials Control More specific criteria used for suppliers when purchasing raw ingredients Potential exposure to chemicals and pesticides Microbiological limits Irrigation water quality Labor and hygiene standards More surveillance at scheduled frequency Evaluation of how supplier’s food safety and quality program work Yum! sampling and testing of ingredients at our Food Safety Lab Enforcing regulatory compliance
  56. 56. Yum! China Food Safety & Quality Model Yum China Standards Specification Issue specification QA Audits HACCP Yum! Food Safety to qualified and compliance •Technical Lab Random suppliers based Testing •Functional Identify Critical Elements for Food Supplier Safety, Functional provides Performance and certificate and Not done prior to Sudan incident Traceability performance data Confirm certificate for key items New System in Place
  57. 57. Yum! China Food Safety & Quality Model Education Integrated educational requirements beyond primary suppliers Implemented Yum! China’s crisis management program Instituted HACCP discipline across all suppliers in Category I and including commissaries Created our Food Safety Experts Consulting Committee Communicated with our consumers, JV partners and all constituents about our efforts and commitments.
  58. 58. Yum! China Food Safety & Quality Model Enforcement Monitor: Adulterants and contaminants surveillance Sent letters of non compliance all the way to disqualification to those suppliers in violation of our standards Performance and set incentives for suppliers for high and low compliance Specification compliance and traceability based on HACCP
  59. 59. Yum! China Food Safety & Quality Model Restaurant Support Dedicated Field QA team (108 professionals) in all markets Support all restaurant openings Technical audit is conducted on every single restaurant 4 times per year Conduct technical audit ad product cuttings in the field Visit local authorities and develop good relationship Provide on site technical expertise on food safety, product knowledge to the restaurants
  60. 60. Yum! China Food Safety & Quality Model Restaurant Support Created the Food Safety and Regulatory Office Collected and updated the database on food law/regulation/standards and ensure full compliance Conducts random testing 10 times per year on our raw materials Participates in the formulation of Chinese food standards Operates the Yum! China Food Safety Advisory Committee (3 conducted) Communicates with officials, media and consumers on food safety issues
  61. 61. Lessons Learned Thus Far Our Food Safety approach has been suggested as a strong model for China Collaborating with officials at the central and local level to improve food safety practices across China Leadership commitment from the top (gov’t, industry) essential Demonstration of corporate leadership with actionable plans has earned credibility with consumers and regulatory officials Suppliers learning a great deal about traceability As a whole, the industry is moving in the right direction
  62. 62. Food Innovation Capabilities
  63. 63. Food Product Innovation Food innovation a core value in Yum! China Clear goal: Deliver great tasting, differentiated food for all brands and occasions Grounded in consumer insights, clear menu vision Menus with breadth in variety, quality, occasion Strategic brand fit Local know-how developed well over a decade Team understands local palate and cultural differences associated with food in China
  64. 64. Food Product Innovation Each brand focuses on business pillars and day parts Typically launch 80 + new products annually across our brands 170+ products in our pipeline at any time Yum! China has become an innovation leader for Yum! worldwide Pizza Hut Delivery Pizza Hut Casual Dining KFC Roasted products Beverages and Desserts Leveraging our know-how for big payoff: Chinese QSR
  65. 65. KFC Innovation Second Proteins Chicken Sandwiches
  66. 66. KFC Innovation — Soups & Salads, Snacks & Portables
  67. 67. KFC — Beverages & Desserts Hot & Cold Drinks Egg Tarts
  68. 68. Pizza Hut Casual Dining Elevating Food to New Standards
  69. 69. Pizza Hut Home Service New Traditional Dough Pizza
  70. 70. East Dawning Innovation
  71. 71. East Dawning Innovation Key challenges in the development of a Chinese QSR concept Commercialization of Chinese cooking techniques Food preparation and assembly in the BOH (Back Of the House) to meet the speed of service expectation of 90 sec.
  72. 72. Yum! China Manufacturing
  73. 73. Yum! China Manufacturing Why manufacturing ourselves? When there are no supplier options to execute our strategy When there is a proprietary product and we can do it better and more cost effectively that suppliers When manufacturing is a key enabler of our business model
  74. 74. Yum! China Manufacturing When there are no supplier options to execute our strategy (Dough Balls for Pizza Hut Home Service) Dough Commissary
  75. 75. Yum! China Manufacturing When there is a proprietary product and we can do it better and more cost effectively than suppliers (Egg Tart Commissary) Hangzhou DC and Egg Tart Factory
  76. 76. Yum! China Manufacturing When manufacturing is a key enabler of our business model and no capability exists in China
  77. 77. Support Capabilities Summary Strong logistic capabilities to support our growth Food safety and quality a “top corporate priority and a company mindset” Strong innovation capabilities for all our brands leading the pace in many business segments Developing self manufacturing capabilities where no capabilities exit
  78. 78. High-Return High-Return Development Lily Hsieh Chief Financial Officer
  79. 79. Profitable Expansion Continues Expanding multiple category-leading brands Unit economics yield excellent returns More than traditional units Penetrating large and smaller tier cities Unrivaled development capability
  80. 80. Unmatched Resource Commitments Today . . . 600+ development professionals on the ground Extensive people development programs Technical know-how and execution Incentive programs extract the best out of our teams Database of 475+ cities 2,500+ new build decisions provide rich catalog of learning
  81. 81. Strong Unit Economics Mainland China KFC Traditional Unit Average Unit Volume $1.0 to 1.2 ($ million) Average Transactions (‘000) ~300 Cash Margin 25% Cash Investment $490 to 540 ($000) Strong Return – Sales Are 2X Investment
  82. 82. Broad Reach, Extending to 475+ Cities # of Total Number Cities Population of City Tier Entered (MM) KFC Units 1 4 52 610 2 26 81 687 3 43 65 340 4 85 59 348 5, 6 318 81 331 TOTAL 476 339 2,316
  83. 83. Penetrating Beyond the Big Cities % of Total New Builds by Tier 46% Tier 3,4,5,6 Tier 1,2 57% 54% 57 % 2006 2007 2008 YTD
  84. 84. Going Beyond Traditional Units Bringing our Brands to a wider variety of destinations Units Railway station 35+ Bus station 15+ Airport 20+ Drive-Thru 25+
  85. 85. New Opportunities in Drive-Thru Car ownership rising sharply Foot traffic still important to unit economics
  86. 86. Maintaining Discipline in Our Rapid Expansion Build adjacent units to relieve pending capacity constraints Proactively optimizing service levels Helps solve queue wait time New-unit impact built into our economic model
  87. 87. Rigor Every Step of the Way Market mapping and trade zone identification Site selection and acquisition Project approval Construction and opening Post opening analysis Feedback loop, huge catalog of learning
  88. 88. Leverage Development Capability for Emerging Concepts Pizza Hut Home Service East Dawning Development teams already on the ground Leveraging the same extensive city, trade zone database
  89. 89. Expecting Another Solid Year of Expansion New Restaurant System Openings 506 475 409 396 354 302 302 266 167 '00 '01 '02 '03 '04 '05 '06 '07 '08 F
  90. 90. Summary Development continues to be a key growth driver Driven by strong returns Development capabilities Team/disciplined process/database a big competitive advantage Capability ready for new brand expansion

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