First of all, the conclusion is that KFC's price increase carries risks, but it may not necessarily be a bad thing for the catering market.
Hello everyone, I am Xiaohe. Welcome to this episode of Consumer Reference.
KFC has confirmed a price increase. Specifically, the average increase in this price adjustment is 2%, with a specific adjustment range ranging from 0.5 yuan to 2 yuan. KFC stated that this is to better adapt to changes in market costs.
What needs to be seen is that market costs are decreasing.
According to data from the National Bureau of Statistics, in November, CPI increased by 0.2% year-on-year and decreased by 0.6% month on month. Among them, food prices decreased by 2.7% month on month. Additionally, rent is also decreasing. KFC's parent company, Yum! Brands China, has also announced that the rental to income ratio for 2023 will be 8.9%, the lowest in a decade.
And Yum China's profits are in the growth range. In the third quarter, Yum! China's operating profit was $371 million, a year-on-year increase of 15%.
This company is optimizing supply chain costs. In terms of labor costs, Yum! Brands China has launched solutions such as one store manager managing multiple stores, automation, and light labor store types to reduce costs. KFC is also introducing platform riders to reduce the delivery cost of takeout.
Yum China's scale is also expanding. As of the end of September, the total number of Yum! Brands China stores reached 15861. Among them, there are 11283/3606 KFC/Pizzahut stores. In the third quarter, Yum! China's revenue increased by 5% year-on-year to $3.07 billion.
But why does KFC still raise prices?
Yum China may want to earn more money for market value. On December 24th, after the company disclosed the price increase of KFC, Yum China's stock price rose 1.77% to HKD 379.600 per share. However, this price still has a long way to go from the 2021 high of HKD 529.317 per share.
Nowadays, the capital market believes more in the profit narrative.
This has already affected the strategies of various companies. A senior executive from Jitu told reporters that because the capital market is more concerned about profits, they have temporarily suspended entering new markets in order to stabilize stock prices. Jitu, listed on the Hong Kong Stock Exchange, is the largest express delivery company in Southeast Asia. Yili and Mengniu are also emphasizing profits and expanding dividends. These three stock prices have all fallen significantly from their highs.
In order to stabilize the stock price, Yum! China has also proposed to expand dividends. Raise the dividend target for 2024-2026 from $3 billion to $4.5 billion. This requires more profit, so KFC raised its prices.
Looking back, why is this considered a risk?
Due to the increasingly intense price war in the catering industry, even the Beijing Shanghai catering market has shrunk. In May, the average price of Xiabu Xiabu single package decreased by more than 10%. In June, the price of Hefu Lo mein products fell again by about 30%. In 2023, the average customer price of Hai Di Lao has dropped below 100 yuan (99.1 yuan). The price war of 9.9 yuan for Kudi will last for at least three years.
KFC's average customer price has dropped for over a year now. The average customer price in the third quarter was 38 yuan, a year-on-year decrease of 3%. Yum!'s Pizzahut even directly lowered the price of some snacks to 9.9 yuan.
Therefore, KFC has also left room for this price increase, stating that the "Crazy Four" special offer, "Crazy Day" promotion, "OK meal" and "children's meal" will maintain the original price unchanged. Discounts can also be offered at any time.
Can KFC persist in raising prices in the price war? People are waiting and watching, after all, if there is only a price war, the catering industry has no future.