A cheerful Colonel Sanders beckons passersby into a KFC at the front of the bustling Shanghai Train Station, just as the fried chicken icon does at more than 4,000 KFCs in the United States. Inside, the restaurant chain’s American faithful would be in for a surprise. Along with U.S. staples such as fried chicken and French fries are offerings you won’t find in other countries, such as tea eggs, salted egg yolk rice rolls, sweet pumpkin congee with lotus seeds, and red bean drink with sweet fermented rice. For the Chinese New Year this month, KFC concocted three new local hotpot-flavored dips to go with its cooked birds: spicy, hot and sour, and tomato.
That spirit of experimentation—it came up with 500 new or updated products last year alone — has helped to turn KFC China’s parent Yum China into the country’s largest restaurant chain with more than 10,500 stores, ahead of rivals McDonalds (around 4,000) and Starbucks (more than 5,000). A push by Shanghai-headquartered Yum China to open another 1,000 new stores this year – adding to the 1,165 it started last year in the middle of the COVID-19 pandemic – along with a brisk economic recovery from Covid-19 in China helped lift its New York- and Hong Kong-traded stock to a record close this month. Yum China – spun off from Yum! and run as an independent company since 2016 – has enjoyed a 36% rise in its share price in the past 12 months, double the 18% increase of rival Starbucks and Yum!’s paltry 2%.
The executive credited with Yum China’s success: Joey Wat. The wiry, globally minded businesswoman stands in physical contrast to Colonel Harland D. Sanders who founded KFC in Corbin, Kentucky in 1939 and was famously protective of its back-home flavors. It was seven years after his death in 1980 that KFC became the first major global restaurant brand to enter the China market. “Joey represents what I believe will be a new breed of CEOs coming out of China – globally sophisticated yet bring China’s innovation to the global business community,” says Shaun Rein, founder and managing partner of China Market Research Group in Shanghai and author of three books about China business. “Food businesses like fried chicken also taste better right out of the cooker so dine-in will remain strong despite the rise of delivery services,” said Rein, whose firm has earlier worked with Wat and Yum China.
Wat, who ranks No. 13 on a new list of China’s most successful businesswomen published by Forbes China this month, joined KFC China as president in 2014 and moved up though senior positions quickly, becoming CEO of Yum China in 2018, the position she now holds. Wat had long been in retail before signing on with Yum, though. In 2004-2014 she worked in top U.K. posts at AS Watson of Hong Kong-headquartered Hutchison Group controlled by billionaire Li Ka-shing. Her last
position there was managing director of Watson U.K., which runs Superdrug and Savers, two retail chains specialized in drug, health and beauty products that were in need of turnarounds. Before joining Watson, Wat was a McKinsey & Co. consultant in Hong Kong, where she grew up after an early childhood in nearby Fujian province. At Yum China, she has overseen successful store renovations and digital expansion. In the fourth quarter of 2019, revenue rose by 6% to $2 billion and net income gained 22% to $90 million; Yum China was on a healthy track heading into 2020.
The arrival of the pandemic last January triggered a quick shift to crisis management. Wat was in Davos when a lockdown began on Jan. 23, and flew back immediately to Shanghai. “We stayed calm and agile,” she recalled. “We did whatever we needed to do and made decisions, because not making a decision is a decision by itself.” That included shutting down about a third of its stores in the early phase of pandemic. The revenue from the other two-thirds and cash reserves helped Wat avoid layoffs. “Cash certainly helped us to stay calm,” she said.
That Covid bump didn’t slow Wat down. Most stores were able to reopen within weeks. Then in April, Yum China acquired a controlling stake Huang Ji Huang Group, a Chinese-style casual dining business with more than 640 restaurants in China and internationally for an undisclosed amount. Another big move last year: Yum China in September arranged a secondary stock listing in Hong Kong that raised $2.2 billion for expansion. Its share price gains there – as well as New York — are enriching shareholders such as Invesco, BlackRock and Primavera, which hold a combined own 25% of the company.
While pursing big milestones such as the Huang Ji Huang acquisition and Hong Kong listing, Wat, 49, managed at the same time to stick to an earlier playbook that proved successful. Yum China was able to introduce 500 fresh items in a pandemic year because of an aggressive digital push that’s created 300 million loyalty members. “Even when we didn’t have normal advertising to launch new products, we launched it through our membership,” she said. One of last year’s new menu items — tea eggs — remains a top seller this year. Building out nationwide delivery has also continued. A $74 million investment in 2018 in China food delivery powerhouse Meituan during its IPO at HK$69 a share – a sign of partnership — has also paid off big in the capital market; it closed at HK$429 on Friday. Continued investments in digital and marketing tie-ins and promotions with online film companies like iQiyi have kept KFC “top of mind while creating a treasure chest of data analytics,” Rein said.
This year, Yum China is tracking 700 cities where it has no presence, part of its expansion of another 1,000 stores. Wat will have the wind in her sails owing to China GDP growth of as much as 9% in 2021, according to a forecast by Morgan Stanley. Growth for all of last year was 2.3%, and its economy was one of only a small number to expand following successful efforts to control the spread of Covid-19. Hundreds more new products — including Wuhan spicy noodles to honor the Covid-
19-ravaged city’s recovery –and long-time embrace of sports sponsorships such as 2022 Beijing Winter Olympics are likely to help.
Beyond KFC as well as Pizza Hut – another important Yum China brand — Wat is also hopeful about coffee, a niche dominated by rival Starbucks. “Coffee is a proven market. It’s competitive there. We are a newcomer and have a lot to learn.” Yum China last year sold 140 million cups of its “K Coffee” in China – versus 137 million in 2019. Wat has high hopes for a partnership unveiled last April with Italian family brand Lavazza this year. Besides coffee, Yum China-run Lavazza restaurants serve Italian snacks such as focaccia and cannolo alla crema. “We like to eat, but we don’t want to get too fat,” she said. “That’s the thing.”
Through Yum China grew in 2020 in part through its Huang Ji Huang purchase, Wat hasn’t done much M&A otherwise over the years. “We are open minded about new technology — whatever can deepen the strategic moat between us and our competitor industries,” she said. “Doing M&A always sounds like glorious. But we have to be cautious about the temptation. The emphasis for me is always on capabilities, because there are always so many opportunities out there. We’re not suddenly going to do anything funny just for the sake of diversity. I think that’s quite important,” she said. Analysts say its shares may continue to rise in part on that kind of focus. J.P. Morgan in a report dated Feb. 4 put a price target of $70 on its U.S.-traded shares, up from a previous $67.
Yum China’s board of directors isn’t anywhere near gender-balanced: only two of 11 members are female. Yet the company itself is also notable for the large female share of its workforce – 60%, starting at the top with Wat. “We are naturally biased toward women” given that overall balance, she smiled. Yet, she added, “The results speak for themselves.” A key to success is helping women to advance is a management focus on subconscious bias. When Yum China hires people, it focuses on potential of the candidate and the expected result, she said. It’s wrong to attach expectations to people based on gender when judging their performance, Wat believes. On a day-to-day basis, that means training managers to have empathy.
“Leave people alone for a day or two” when they look tired, she said. “I know how difficult it is when my baby is sick. I could not be 100% for that day. After that, everything is fine. It’s all intertwined,” she said. “I don’t like the question: ‘How do you balance family and work?’ There’s no balance. That’s the reality.” The payback to the company from empathy “is the friendship that we love to see as a company and as a friend,” she said. That’s a lot of payback: Yum China’s headcount stands at 400,000, nearly as large as the 425,000 employed in the U.S. by America’s No. 1 employer, Walmart.
Though optimistic about 2021, Wat warned during an earnings call on Feb. 3 warned of “significant headwinds” amid a temporary COVID-19 comeback that hurt domestic travel in January and early February. A dip in Yum China’s stock price afterward didn’t last long. They gained 15% in the following nearly two weeks to close at an all-time high of $64.35 on Feb. 16. To paraphase Wat, ‘the result speaks for itself.’
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