Yum! China M The localization strategies adopted by Pizza Hut in China include: acDonald's is the number one in the world's food and beverage market. But in China, the champion is Yumni Restaurants (Chinal Investment Company Limited. By 2007 Yum! had established over 1800 KFC restaurants, 260 Pizza Huts, 42 Pizza Hut Delivery stores, and 8 East Downing, covering more than 400 cities in all provinces and regions in Mainland China excluding Tibet, and employing over 140 thousand people. For many years, the company has been ranked number one among the top 100 restaurants in China by China's Ministry of Commerce. In 2006, the total revenue of Yum! China was RMB 16.9 billion. Yum China's growth is the fastest among the restaurants under Yum! Brands, Inc. globally. In China, in terms of the number of stores and sales volume, KFC's figure almost doubled that of MacDonald's. The British Economists revealed in August 2005 that there were then 34.000 catering stores under Yuml Brands Inc. all over the world, 2.000 more than that of MacDonald's • Localization of materials. When it entered China, Pizza Hut imported 70 percent of its materials. Now 95 percent of its materials are localized. Large-scale localization of materials not only greatly increased material freshness but also saved a lot of logistics and purchasing costs. which eventually benefited the consumers in terms of pricing Product localization. After establishing itself in China, Pizza Hut has launched a series of Chinese delicacies. such as the "Prosperous Year Cured Meat Plaza combining eastern and western flavors, and the Sichuan General Pizza' containing hot and spicy Sichuan flavor. The combination of thousand-year-old Chinese culinary culture and pizza which provides consumers with local flavors and international culinary tastes is liked by consumers. Led by Su Jingshi, CEO of Yumnl Brands Inc. Greater China Division, Yum China is the key to Yum! Brands Inc.'s success KFC restaurants in China contributed one third of the total profit excluding the US market, and they are expanding at a rate of 70 percent. The CEO of Yum! Brands Inc, Novak says "China is the market with the highest Return On Investment (ROI) for us. Localization of talents. Chinese knows Chinese consumers better. Pizza Hut has always been aiming for the localization of middle-level and senior managers An innovative business model is the key reason for Yum! China's growth, something not understood by many Yum! teams in other countries. Franchising Globally. Yum! relies more on franchising to expand its business. 75 percent of its stores are franchised. However, in China, Yumi prefers not to franchise. By now, franchisers constitute no more than 5 percent of KFC in Mainland China As for Pizza Hut, not a single franchiser is allowed. Why? In its early days in China, Yuml expanded its business by cooperating with local partners. Because of the long time imperfect legal environment and unsound franchising management system in China, Yum! lost control over those franchisers, and faced a drop in the quality of food and service. As a result, Yum! China forsook the franchising model that it had been applying skilfully on other markets, and switched to direct sales-a model it was not familiar with "Change for China's sake While MacDonald's was marketing its exotic culture, Yum! China was trying to establish itself as China's top brand that appeals to Chinese. It started changing from the core of its catering industry-its product. KFC developed its product types from 4 to more than 50, including meat. seafood, vegetable, and dessert. and continued to include more food from China's eight major types of cuisines introducing on an average two new products a month. Every morning, KFC provides consumers with nutritious Chinese breakfast The seling point of Yumt China is not its food, but its adaptation to the demands of the Chinese market and changing for the sake of China. AAK In. KRC i In May 2004. Yum! China drove out Jardine Group, the only franchiser of Pizza Hut in Mainland China, who had been running Pizza Hut in southern China since 1993. In as early as 1906, Yaml stopped its cooperation with Swire Pacific Limited, who has been KFC's Hong Kong franchiser since 1985 Yuml Chine was determined to change the theme of Pizza Huts from Teisure to delightful in DIIV from the first day. Yuml has built up and is now running its own logistics network. This is different from what it is doing in other countries--where it outsources the logistics to third party logistics service providers or food service companies Due to the huge scale of our company's business, there is no third party logistics enterprise or food service company in China that can cope with our scale," explained by Todd Nelson, the chief manager of Yum! Logistics China. In September 2003, KFC opened its new restaurant in Kelamayi City, Xinjiang Uygur Autonomous Region. The new restaurant brought in RMB 100,000 on the same day and very soon began to make single-store profits. In order to maintain the business in this remote city, KFC had to transport the chicken and other materials from Urumqi, the capital city of Xinjiang, which took four hours and it was a tough journey. That was a new test on KFC's logistics system, 2002. But Jardine roup wt an Pizza Huts in southe China did not cooperate. Restaurants under Jardine's control were 15 percent more expensive than other Pizza Huts, and they ignored the brand image of "delightful dining proposed by Yum! China's headquarters. Fortune commented that Su Jingshi's flexible management model is the key factor for Yumi's success in China. "From the first day in China, we realized that we could not transplant foreign experience to China without proper adaptation." says Su Jingshi, as a brand dealing with consumers directly, we soon realized that we could not simply view international experience as a set of methods, but have to integrate different experiences, and combine with features of the local market." In early 2005, Yum! announced that its China Division would separate from Yum! Restaurant International (YR) which was in charge of Yum! Brand's international business besides the US, and directly report to its American headquarters In 2005, the franchising model was put on Yum!'s agenda again. KFC experimented with granting franchises to some foreign businessmen in China. Then, Yum! introduced the don't start from scratch" policy, that is, Yuml established the stores, trained the employees, and then sold the business to franchisees. In Xujiahui Commercial Center, Shanghai, one has to hunt meticulously for a MacDonald's outlet. On the other side. however, there are five KFC restaurants located in Metro Tower, the headquarters of Yum! China. The US headquarters saw it as an unreasonable internal competition, while Yum! China regards it as a way of leaving no room for rivals. Local supply chain After MacDonald's came to China In 1990, it was inclined to ask American firms to provide materials for their business in China. KFC, however, had already realized that having a local supply chain would be the key factor for long-term competitiveness of fast-food outlets. 185 percent of our chicken is from China. We have been building this supply chain

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