Yum China CEO says consumers are growing more ‘rational’

While economists and investors fret over China’s low consumer confidence and sluggish growth, Yum China CEO Joey Wat says the Chinese consumer is growing more rational — and has been for years.  

Weighed down by investors’ concern about the broader Chinese economy, shares of Yum China have fallen 27% over the past year, dragging its market value down to $17.51 billion. For comparison, Licensor Yum Brands, which spun off the Chinese unit in 2016 and has a global footprint, has seen its own stock rise 8%, giving it a market value of $38.87 billion.

Despite Wall Street’s worries, Yum China’s sales are growing. In the fourth quarter, the company’s revenue climbed 19% to $2.49 billion, fueled by new store openings. Its same-store sales rose 4% for the period, topping StreetAccount estimates of 3.3%. Wat pointed to the restaurant industry’s strong recovery from the Covid-19 pandemic, but also acknowledged a bigger consumer shift.

“I think the Chinese consumer has become more rational over the last few years,” she told CNBC.

Housing costs in top-tier cities such as Shanghai and Beijing have grown even more expensive in recent years, putting pressure on consumers’ disposable income, according to Wat. But in lower-tier cities, such as Chengdu, Yum China is seeing stronger sales growth because housing is cheaper and consumers have more cash to spend.

Cities in China are often classified into tiers based on factors such as population and gross domestic product, although there’s no official ranking system.

“We have a really good business model, not only in a top-tier city, but all the way to the tier five, tier six city,” Wat said.

The overwhelming majority of Yum China’s current footprint is made up of KFC locations, but the company also runs Pizza Hut restaurants and Lavazza…