The two major fast food chain giants have successively released their 2023 transcripts.
Recently, McDonald's (NYSE: MCD) and Yum! Brands China Holdings Limited (Yum! Brands China, 09987. HK, NYSE: YUMC) have released their quarterly and full year financial reports for 2023. In 2023, McDonald's recorded a revenue of 25.494 billion US dollars, a year-on-year increase of 10%; Net profit was 8.469 billion US dollars, a year-on-year increase of 37%. In the fourth quarter, McDonald's recorded a revenue of 6.406 billion US dollars and a net profit of 2.039 billion US dollars.
McDonald's Revenue Table
Yum! China, the mainland operator of KFC and Pizzahut, will have a revenue of US $10.978 billion in 2023, up 15% year on year; Net profit was 827 million US dollars, a year-on-year increase of 87%. In the fourth quarter, Yum! China's revenue was 2.493 billion US dollars, a year-on-year increase of 19%; The net profit was 97 million US dollars, a year-on-year increase of 81%. At the same time, Yum! China's operating profit increased by 76% to $1.1 billion, core operating profit increased by 79%, restaurant profit margin increased to 16.35%, and digital order revenue exceeded $9.2 billion, accounting for approximately 89% of the company's restaurant revenue.
Yum! Brands China Revenue Table
Although McDonald's has not disclosed detailed data on the Chinese region, both McDonald's and Yum China are aware that Chinese consumers are becoming more rational and price sensitive. In their 2024 plan, accelerating the opening of stores in China and reaching a wider audience has become a major driving force for their performance growth. At the financial report conference call, McDonald's CEO Chris Kempczinski reiterated his expectation of reaching 10000 stores in the Chinese market by the end of 2028. Yum! Brands China CEO Qu Cuirong stated that she hopes to expand the number of stores in China to 20000 by 2026.
Store expansion boosts performance
As an important performance indicator in the chain industry, same store sales are an important reference for measuring the performance trend of a chain enterprise.
From the perspective of same store sales, in the fourth quarter of 2023, McDonald's global same store sales increased by 3.4%, and all sub markets showed positive same store sales. Among them, the US market rose by 4.3%, the international operating market grew by 4.4%, and due to the impact of the Middle East war, the international development license market only grew by 0.7%. Although McDonald's revenue still achieved positive growth in the fourth quarter of 2023, there was a significant slowdown compared to the growth rate of over 10% in all segmented markets in the fourth quarter of 2022.
The performance throughout the year was slightly better than in the fourth quarter. Throughout 2023, McDonald's global same store sales increased by 9.0%, with strong performance in all sub markets. Among them, the US market rose by 8.7%, the international operating market grew by 9.2%, and the international development licensing market grew by 9.4%. Still lower than the annual growth rate of 10.9% in 2022. From a regional perspective, except for the North American market where the annual growth rate of same store sales increased from 5.9% in 2022 to 8.7% in 2023, the growth rate of same store sales in the other two markets has decreased.
Same store sales
Yum! Brands China's same store sales increased by 4% in 2023, higher than the -4% increase in the same period in 2022; In 2023, it was 7% for the entire year, which is higher than the -7% for the same period in 2022.
If we only look at this data, it seems that the two companies are showing different trends, but in 2023, both McDonald's and Yum! China are opening stores in China at a faster pace than ever before. According to data, McDonald's added a net 1547 stores globally in 2023, of which 925 were located in China, accounting for 59.8% of the total, and nearly 70% of the net opening in the international franchising market where the Chinese market is located. Yum! Brands China is also crazy, setting a historical record with a net increase of 542 companies in the fourth quarter and a net increase of 1697 companies for the whole year.
With the growth of stores, the revenue of both companies also increased. Yum! Brands China pointed out in its financial report that based on fixed exchange rates, the company's system sales in 2023 increased by 21% year-on-year, mainly due to a 9% net increase in new stores, a 7% increase in same store sales, and a low base in 2022.
Regarding the future, Qu Cuirong said, "Looking ahead, we are very optimistic about the vast growth opportunities in the Chinese market. Currently, we only serve one-third of China's population, and our ambition is to serve half of China's population by 2026."
Although McDonald's has not released specific data on the Chinese market, Chris Kempczinski expressed satisfaction with McDonald's performance in the Chinese region during the earnings conference call, seeing strong growth in the Chinese market. In 2024, McDonald's will open 1000 stores in China and strive to expand its business to lower tier cities. McDonald's expects to add over 1600 new restaurants in 2024, and based on fixed exchange rates, the net expansion of restaurant units will contribute nearly 2% to the overall sales growth of the system in 2024.
Chris Kempczinski also mentioned McDonald's global acquisition of a minority stake held by Carlyle in McDonald's strategic partnerships in mainland China, Hong Kong, and Macau. At the end of January this year, McDonald's completed the acquisition of related equity, and McDonald's global shareholding in McDonald's China increased from 20% to 48%. "We are still optimistic about the prospects for China, which is why we are increasing our holdings in the region," said Chris Kempczinski. "With the growth of consumer wealth and the Chinese economy, we will continue to see good performance in this market, and we will have the opportunity to continue to develop and penetrate many places without McDonald's in this market."
Going down to search for incremental markets
In the past year, not only McDonald's and Yum! Brands China, but also the domestic catering industry has been accelerating the opening of stores. Encryption and sinking have become key words for the catering industry to maintain growth and competitiveness.
Speaking of the current environment in the Chinese market, Chris Kempczinski stated that the confidence of Chinese consumers is under pressure, and overall market promotions are becoming more frequent. McDonald's needs relevant measures to maintain its brand competitiveness. Although he did not directly discuss sinking, he stated when talking about the target consumer group in the US market that the future battlefield will revolve around low-income consumers. "We will pay more attention to consumers' affordability and consider it as an absolute price," Chris Kempczinski said. "In the future, we may introduce some things with lower absolute prices."
According to the 2023 financial report of Yum! China, its same store sales increased by 7%, but at the same time, transaction volume increased by 12%. Qu Cuirong stated that in recent years, Yum! Brands China has been maintaining a certain level of average customer value. The average customer price in 2019 was 37 yuan, in 2020 it was 40 yuan, and in the following two years it was 39 yuan and 42 yuan, respectively. In 2023 it was 41 yuan. "Our strategy has always been to keep the average customer price relatively stable."
Meanwhile, Yum China is still accelerating its sinking. According to data, as of the end of 2023, Yum! Brands China had 14644 stores. Among them, there are 10296 KFC stores and 3312 Pizzahut stores. Qu Cuirong introduced that Yum! Brands China currently operates in 2000 cities in China, with over half of its new stores located in lower tier cities to meet the long-term consumption upgrading needs of the region.
Although Qu Cuirong has repeatedly stated that there is not much difference in the average customer price between lower tier cities and first - and second tier cities, the higher revenue of stores in lower tier cities is mainly due to lower operating costs such as rent and labor. But she also stated that the market for entry-level price related combination products is a huge and underserved niche market.
In the third quarter financial report of 2023, Yum! Brands China mentioned that the company is expanding its price range to attract a wider customer base. For example, in Pizzahut, the market segment of pizza is occupied by offering more choices of pizza with prices below 50 yuan. At KFC, the product range ranges from beef burgers and other products to a three point value package priced at 19.9 yuan, which can meet the preferences of different customers.
With the further decline in product portfolio prices, increasing customer traffic has become particularly important for Yum! China. Under the pressure of customer traffic, Yum! China may further reduce its delivery fees while launching more promotional activities and products. Qu Cuirong stated that she will continue to adjust the delivery fee to make it more consistent with the known market level. "This will bring us an increase in traffic, especially in niche markets with lower average customer value and those who are more price sensitive."