Welcome to the
Yum! China Experience
Introduction
Tim Jerzyk
Vice President, Investor Relations
Information herein is as of February 1, 2005
This announcement contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements include those identified by such words as may, will, expect, project,
anticipate, believe, plan and other similar terminology. These “forward-looking” statements reflect
management’s current expectations regarding future events and operating and financial performance
and are based on currently available data. However, actual results are subject to future events and
uncertainties, which could cause actual results to differ from those projected in this announcement.
Factors that can cause actual results to differ materially include changes in global and local business,
economic and political conditions in the countries and territories where Yum! Brands operates, including
the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in
commodity, labor and other operating costs; changes in competition in the food industry, consumer
preferences, spending patterns and demographic trends; the impact that any widespread illness or
general health concern may have on our business and the economy of the countries in which we
operate; the effectiveness of our operating initiatives and advertising and promotional efforts; newproduct and concept development by Yum! Brands and other food-industry competitors; the success of
our refranchising strategy; the ongoing business viability of our franchise and license operators; our
ability to secure alternative distribution to our restaurants at competitive rates and to ensure adequate
supplies of restaurant products and equipment in our stores; publicity that may impact our business
and/or industry; severe weather conditions; effects and outcomes of legal claims involving the company;
changes in effective tax rates; our actuarially determined casualty loss estimates; changes in legislation
and governmental regulations; and changes in accounting policies and practices. Further information
about factors that could affect Yum! Brands’ financial and other results are included in the company’s
Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.
3
China’s Results & Potential Brought “Division” Status
2004 F
Chairman,
CEO
NEW
China
Division
International
Division
Taco Bell
Pizza Hut
KFC
Long John
Silver’s/
A&W
---------Multibranding
$200+ million
Op Profit
350+ New Units
4
China Headlines the Yum! Growth Story
11
Build
Build Dominant
Dominant
CHINA
CHINA
Brands
Brands
2
Drive PROFITABLE
International
Growth
3
Run
GREAT
Restaurants
4
Multibrand
GREAT
Brands
5
Build Dominant Brands in China
Sam Su
President, Yum Restaurants China
Despite Success, a Big Opportunity Remains
China’s Urban Consumers:
500 million
YUM! U.S.A.
U.S. Population:
290 million
YUM! CHINA
7
And Deserves a Big Goal
“To become the best restaurant company
not only in China but the world.”
Yum! Restaurants China
Team Mission Statement
At PepsiCo Spin-off (October 1997)
8
Key Decisions Stand Out in China’s Success
‰ Moved KFC: Mainstream QSR positioning
‰ Grew people capability ahead of the business
‰ Invested early in distribution capability
‰ Spread KFC to many cities
‰ Pizza Hut: 5 star experience at 3 star price
9
Accelerating but Focused on Profitability Always
New System Restaurant Openings
Operating Profit
($million)
Record
Openings
39
GR
A
%C
354
266
128
'99
302
161
120
167
'0 0
206
302
39
'01
'02
Includes mainland China, Thailand, KFC Taiwan
'0 3
'04
'99
56
'0 0
63
'0 1
'02
'03
'0 4
10
Leadership: 17 Years in the Making
#1 QSR
#1 Casual Dining
“Life is tastier with KFC”
“Happy Moments at Pizza Hut”
AUV = $1.2 million
AUV = $1.1 million
11
With a Sustainable Competitive Advantage
ˆ
Outstanding Tenured Team
– on the ground in Shanghai
ˆ
Brand Positioning & Menu Vision
ˆ
Nationwide Distribution System - Yum controls
ˆ
Unit Economics that support expansion
ˆ
Largest Retail Development capability
ˆ
$60+ million G&A commitment
– more when factoring in our partners
12
Neither Satisfied nor Finished
Taco Bell Grande
Pizza Hut Home Service
East Dawning
13
Brand Building
Angela Loh
Chief Marketing Officer
Yum! Restaurants China
Category Leaders
#1 QSR
#1 Casual
Dining
“Life is tastier with KFC”
“Happy Moments at Pizza Hut”
AUV = $1.2 million
AUV = $1.1 million
15
Brand Outperforms Competition in Key Attributes
‰ Food-related attribute has strongest correlation with
overall satisfaction
‰ KFC achieves a “win” on 6 of top 7 highest correlated
attributes
16
Building a Big Brand at KFC
Community
Involvement
In-Store Experience
Menu designed for Broad Appeal
World Class Operations
17
New Product Pipeline Support All Categories
‰ Permanent offerings and limited-time-only news
‰ Balanced across all dayparts
ƒ Breakfast
ƒ Core eating occasions (lunch, dinner balance)
ƒ Snacks, desserts
18
Community Involvement, not Gimmicks
‰ First Light Foundation
ƒ Awarding scholarships, building schools
‰ Chicky school program
‰ 3-on-3 Basketball tournament
ƒ Year 1 — 9,000 teams in over 150 cities!
19
Staying Ahead of Trends
‰ Balanced Eating and Lifestyle
ƒ Health and Nutrition Council
ƒ Health and Nutrition White Paper
ƒ Health and nutrition leaflet
ƒ Grassroots sports program
20
Pizza Hut, Casual Dining’s Leader
Communication
Complete casual
dining experience
Menu structure
World Class Operation
21
PH Menu Design Strategy
‰ Pizza-centric sharable Food
‰ Complete casual dining experience
ƒ Appetizer, soup, salad & dessert
22
Complete Casual Dining Experience
‰
Upscale décor package
‰
With 5-star feel
‰
Event driven in-store activities
‰
Tailored daypart menu design
23
Inspiring Communication
‰ Escape from daily routine/ordinary
‰ Festival/holiday fun moment
‰ Exotic/interesting
24
Supply and Distribution Capability
Lily Hsieh
Chief Support Officer
Yum! Restaurants China
Supply Chain and Logistics a Core Strategy for China
Supply Chain Management
Procurement
Vendor Development
Quality Control
Logistics
Distribution
Warehousing
26
A Capability 17 Years in the Making
‰ HUGE barriers to overcome
ƒ No history of QSR
ƒ Supply chain nonexistent
ƒ Low standards
ƒ Challenging logistics
27
Invested Early in Building a Supply Chain
‰ Started in-house capability
‰ Trained and developed suppliers
‰ Introduced standards
‰ A foundation ready for scale growth
28
Be Where the Stores Are and Will Be
‰ Supporting rapid business growth
Cities with KFC Restaurants
ƒ Across all brands
50
ƒ Across expanding menus
280
47
42
ƒ Across all of China . . .
28
93
Day 1 ’00
20
’00
’01
’02
’03
’04
Now
29
We Manage the Vast Majority of Spend in China
Poultry
Processed food, packaging
Equipment
Decor
Vehicles
Premiums
30
Strong Vendor Development Process
‰ Only Yum! qualified suppliers
‰ Up-front audits ensure Yum! standards met
‰ Regular audits, annually at a minimum
‰ Refresh supply-base pool, evaluate new vendors
‰ Standards reinforced at 3 levels: Gov’t, Industry, Yum!
31
Large-Scale Supply Base
‰ # Suppliers
550 +
‰ # SKUs
4,000 +
‰ Annual spend
$400 million +
32
Building Logistics Capability Another Long Journey
‰ Why we do it ourselves . . .
ƒ No qualified third-party provider
ƒ Recent entrants yes, but manufacturing focused
ƒ Three-temperature requirement – dry, chilled, frozen
ƒ Challenge of serving 1,000s of drop-off points
33
Logistics a Capability that Enables Rapid Growth
34
Broad Coverage, Followed Growth in Inland Provinces
20+ Warehouses
Heilongjiang
Jilin
Xingjiang
Beijing
Inner Mongolia
Tianjin
Hebei
Shanxi Shandong
Ningxia
Qinghai
Gansui
Jiangsu
Shanxi
Tibet
Henan
Hubei
Sichuan
Anhui
Shanghai
Jiangxi Zhejiang
Hunan
Guizhou
Yunnan
Liaoning
Guangxi
Fujian
Guangzhou
Taiwan
Hainan
35
Going Forward
‰ Continuous fine tuning
‰ Even stronger supplier partnerships
‰ Even stronger logistics infrastructure
‰ World class restaurant sourcing and distribution
36
Development Capability
Charles Jemley
Chief Financial Officer
Yum Restaurants China
Rapid Expansion Story Will Continue
‰ Category-leading, sought after Brands
‰ Unit economics delivering excellent returns
‰ Unrivaled Development capability
38
At KFC, Full Speed Ahead
‰ New-unit volumes: U.S. $1 million
‰ Cash investment significantly below U.S. levels
‰ New-store margins at today’s standard or better
Great returns
39
New-Unit AUVs Have Stabilized
KFC New-Unit AUVs vs. Previous Year’s Openings
100%
100%
88%
80%
New Builds
’01
’02
’03
’04
151
226
230
284
40
Not Just a Big-City Story — Even Penetration
% of New Builds by Tier
Tier 5
Tier 4
10 %
20 %
Tier 3
Tier 1, 2
17 %
58 %
57 %
53 %
’02
’03
’04
41
Big Cities, “Small Cities” Same Results
AUVs vs. Tier 1 Standard
10 2%
109%
115%
90%
Tier 2
Ratio to Req’d return 2.4x
Tier 3
2.5x
Tier 4
3.0x
Tier 5
2.6x
42
Impact from Expansion Used to Our Advantage
‰ Built into our economic model, strategically applied
‰ Build adjacent units to relieve pending capacity constraints
ƒ Optimize service levels
‰ Operations teams ready for growth
ƒ High post-launch sales retention
43
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
44
Slightly Different Twist at Pizza Hut
‰ Deeper in big markets first
ƒ Pace of acceptance and scale
‰ Thoughtfully entering “Up and Coming” markets
‰ No credible competition on the horizon
45
Unequaled Resource Commitments
‰ Today . . . 400+ development professionals on the ground
ƒ Largest in China by far
‰ Extensive people development programs
ƒ Building technical expertise and market knowledge
‰ Incentive programs extract the best out of our teams
ƒ Development and operations inextricably tied to each other
46
Well on Our Way Towards Commitments
New Restaurant Openings
‘05 F
KFC
330+
Pizza Hut Restaurants
25+
Taco Bell Grande
Pizza Hut Home Delivery
Other Segment(s)
Yum! China Division
?
10+
?
375+
47