BEIJING, October 3 (TMTPost)— Yum China Holdings, Inc, the largest restaurant company in China, is set to boost its venture with Lavazza, an Italian coffee brand with more than 120 years of history, as part of efforts to pursue its expansion in China.

Credit：Yum China

At 2023 Investor Day launched in Xi’an, the capital of northwestern China’s province Shaanxi, Yum China updated its RGM strategy and introduced financial targets in the next three years. The company aims to increase the number of retail stores to 20,000 by 2026, achieve high-single-to-double-digit compound annual growth rate (CAGR) for system sales and operating profit and double-digit CAGR of earnings per share (EPS) from 2024 to 2026, compared  to base year 2023 and in constant currency. It also seeks to return US$3 billion to shareholders through quarterly dividends and share repurchases over the same three-year period, doubling the shareholder return of the past three years.

Look forward 2023, Yum China expects same-store sales to continue recovering steadily throughout the full year, maintaining a pace of approximately 90% compared to the 2019 level. The company increased its net new stores target for 2023 to 1,400-1,600, up from the previous target of 1,100-1,300. It maintained its capital expenditures target of approximately $700 million to $900 million for 2023.

RGM, which stands for Resilience, Growth and Moat, is a strategy that Yum China started to implement in 2021.  Thanks to execution of the original RGM strategy, Yum China expanded footprint, achieved robust performance and remained profitable during the past three years, the CEO Joey Wat commented. The chief executive unveiled RMB 2.0 strategy, which represents a shift its strategic focus. “Going forward, we are transitioning our RGM strategy to place greater emphasis on growth. By leveraging flexible store formats and strategically partnering with franchisees, we are expanding into more locations,” Wat said.

Accelerating opening Lavazza store is a key part of Yum China’s updated strategy. At the event, Yum China announced its joint venture with world-renowned Italian coffee brand Lavazza has made encouraging progress in the past two years, now operating over 100 coffee shops in 11 cities along with a growing retail business. The company said it will upgrade the Lavazza store design and invest in branding building.

Stores in China has a fivefold increase since 2021, and revenue in the first half of 2023 more than doubled from a year earlier, said Adrian Ding, Yum China’s general manager for the Lavazza venture. Ding said the venture seeks to build emotional engagement with consumers through co-branding and will amplify brand exposure via sponsoring sports events, including the Rolex Shanghai Masters tennis tournament. Yum China will refine Lavazza’s menu with a mix of authentic Italian and locally-inspired beverage and food items, including Lavazza’s single origin Yunnan packaged retail coffee, according to Ding.

Yum China partnered with Lavazza in May 2020 to establish a flagship coffee shop in Shanghai, the first premium coffee shop in China.  The next year, the two companies announced a US$200m investment to grow the concept of premium coffee shop to 1,000 stores by 2025. In the year 2022, the number of Lavazza café outlets increased 46% over 12 months to reach 85 stores across China, but remained significantly behind the 2025 growth target.

In July, Lavazza reached the 100-store milestone and started sell coffee bean in retail, first supplying coffee beans to Pizza Hut to upgrade the coffee at Pizza Hut, Yum China’s CEO Joey Wat said at an earnings call for the second quarter results. Wat vowed that Lavazza will continue to make good strides forward, noting that besides the coffee shop business, the coffee brand also sells coffee beans and capsules to premium hotels, restaurants and other channels. The chief executive said she is optimistic about the sales trend and added the net new store opening of all the brands under her company this year is well on the track to set an annual record rate.