Thank you for joining us, and welcome to the Yum China Third Quarter 2022 Earnings Conference Call. I will now turn the call over to Ms. Michelle Shen, Director of Investor Relations. Please proceed.

Thank you, Ashley. Hello, everyone. Thank you for joining Yum China's Third Quarter 2022 Earnings Conference Call. On today's call are our CEO, Ms. Joey Wat; and our CFO, Mr. Andy Yeung. We are dialing in from different locations today. If we experience any technical difficulties during the call, please remain on the line as we reconnect. Before we get started, I'd like to remind you that our earnings call and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. This call also includes certain non-GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non-GAAP and GAAP measures is included in our earnings release. Today's call includes three sections. Joey will provide an update regarding our performance in the third quarter. Andy will then cover the financial performance and outlook in greater detail. Finally, we'll open the call to questions. You can find the webcast of this call and the PowerPoint presentation, which contains operational and financial information for the quarter, on our IR website. Also on the site, you can find a video we prepared that showcases our latest stores, offers and activities. Now I would like to turn the call over to Ms. Joey Wat, CEO of Yum China. Joey?

Thank you, Michelle. Hello, everyone, and thank you for joining us today. We achieved outstanding performance in the third quarter with fantastic growth, both top line and bottom line. This demonstrates our ability to operate in an uncertain environment by learning, adapting, and strengthening business fundamentals. During tougher times, our resilient business model and agility helped us manage the negative impacts. As COVID conditions were relatively calmer in July and August, we captured sales opportunities during the peak summer season. System sales recovered with a 5% year-over-year growth. Operating profit surged by 77% year-over-year to $316 million, even higher than 2019 levels. Great teamwork made this possible. Key elements in our winning formula include our in-house and tailor-made supply chain, industry-leading digital and delivery capabilities, cost restructuring, and solid execution. Let's move to KFC and Pizza Hut. We have been innovating new products to satisfy customer cravings. In the past two years, we have established a strong presence in new categories such as beef burgers, whole chickens, and durian pizza. This was enabled by a powerful supply chain through securing supply at scale, streamlining production, and optimizing costs. Let me share our success stories. At KFC, our extra juicy beef burgers rapidly captured meaningful market share. Since adding them to the permanent menu in May 2021, we have sold over 100 million burgers. That's about five beef burgers every second. For the full year, we expect to generate close to CNY 2 billion in sales from beef burgers. We cater to Chinese tastes by making the patty super juicy using our specialty ovens. Customers love our burgers for their great taste and value for money. We source our Wagyu beef locally from Northeastern China and have signed a multi-year contract to secure supply. Our juicy whole chicken has also quickly gained popularity since its launch late last year. Year-to-date, we have sold over 80 million whole chickens. Whole chicken is a versatile product, good for both dine-in and take-home consumption. We use a different breed of smaller chicken that is the perfect size for an individual meal and particularly juicy. And it's good for sharing on the dining table at home as well. At Pizza Hut, durian pizza has become a customer favorite. In fact, during the Q3 promotion, every fourth pizza we sold was a durian pizza. Our limited-time durian trio pizza, which includes three types of durian, was especially popular with durian lovers. Customers are increasingly value-conscious, yet we do not compromise on quality. Last quarter, we shared about KFC's widely popular Crazy Thursday campaign. Since 2018, we have been offering delicious food, including the latest innovation, at amazing value. The campaign continues to be a phenomenal event, generating a significant boost in sales every Thursday. Our customers create witty and playful social media content using the Crazy Thursday theme. Many of these postings have gone viral, creating huge hype for us. Now to drive weekend traffic for families and kids, we have introduced a Sunday Buy More Save More campaign in July. Customers can get a bigger discount when they buy more, up to 50% off for eight items. This new promotion has built wonderful momentum with good value perception while protecting our ticket average. Apart from abundant value, we also launched a golden fried chicken breast burger. This is our first successful chicken breast burger. We added an extra step in the preparation process to make the breast meat super juicy and tender. This entry-price burger widens our choices for customers and is a great product for lower-tier cities. We try to keep our brands appealing to youthful customers. In September, we transformed select Pizza Hut stores into social hubs for gamers, partnering with the popular RPG game, Genshin Impact. We decorated stores, updated restaurant crews, and offered exclusive gifts. The campaign generated extraordinary social buzz. In just three minutes, we sold over 300,000 themed combo meals. And our Super App recorded its highest activity ever. I'm looking forward to more successful events with this partnership. Let's move to digital and delivery. We have been enhancing our delivery and digital ecosystem to make our business fundamentally stronger. Customers love coming in. Delivery sales are growing fast. Empowered by our dedicated delivery riders and leading digital capabilities, delivery grew by 19% year-over-year and reached 38% of the sales mix in Q3. Together with takeaway, off-premise sales were over 60%. Our ability to capture off-premise demand has not only enabled us to effectively serve customers but also cushion store closure impacts due to COVID conditions. This 60% off-premise sales is fundamental to our business model because it really protects our sales and profit despite the fluid situation. We have been maximizing delivery coverage and flexibility using AI technology. Most recently, we launched Smart Delivery to dynamically adjust delivery coverage for each store by daypart, taking into account the operating hours of nearby stores. The upgraded system helped us serve more customers more efficiently. Our digital capabilities serve as key touchpoints with customers. In Q3, we reached two milestones in our digital ecosystem: our loyalty program reached 400 million members; and cumulatively, since 2018, KFC sold over 100 million privilege subscriptions. Our privilege subscriptions offer great value for money and have been expected too in driving frequency and spending. Our digital capabilities are also crucial to streamlining restaurant efficiency. Digital orders optimize in-store labor efficiency and account for more than 90% of sales in the quarter. Pizza Hut's table-side mobile ordering sales have grown exponentially from just 2% at its launch in 2018 to 45% in Q3 2022. This helps mitigate rising wage inflation and frees up crew members to enhance customer service. To improve the digital experience, we introduced intelligent order sequencing at KFC in Q3. Now let's move on to coffee, our third growth engine. Lavazza is making solid progress along its clear four-pillar strategy. The pillars include brand building, menu upgrades, expanded digital and delivery capabilities, and store development. Here's how we built this out. Branding. Lavazza has a century-long reputation for coffee expertise. We will continue to accentuate its brand positioning as the leading Italian coffee brand, offering an authentic Italian experience. Menu upgrade. We are broadening food and drink offerings with more unique Italian products, including Kafa premium single-origin beans and tigelle, which is an Italian flatbread with meat or egg stuffing, similar to our Chinese dishes. We also launched localized products such as coconut latte and osmanthus latte. Osmanthus is a fragrant flower used in many Chinese desserts. These new products capture the latest coffee trend and have been well received by our customers. Digital and delivery. We are building our membership program and digital fundamentals to improve customer experience and attract online traffic. Delivery reached almost 40% of the sales mix in Q3. Store development. Now with 78 stores, we have further refined our store models, paving the way for growth. We have made great progress so far, but work remains. These things do take time. We want to grow this brand right, with every step at the right time. In close partnership with the Lavazza Group, we are confident in building a successful Lavazza business in China. We decided to wind down our COFFii & Joy operation from branding to site selection to operations and more. We learned a lot with COFFii & Joy. This invaluable learning experience will help us capture growing opportunities in the coffee market. Going forward, we will grow our coffee business with two distinct market positioning: K Coffee, focused on value and convenience; and Lavazza, focused on authentic Italian coffee. To summarize, our innovations and hard work during the pandemic years have made our business fundamentally stronger. We are confident in our team's ability to find opportunities in adversity and unlock further potential in China. We will continue to execute our RGM framework, which stands for resiliency, growth, and moat, to strengthen our competitive position and capture long-term growth. With that, I will turn the call over to Andy. Andy?

Thank you, Joey, and hello, everyone. Let me now go through the third quarter performance in detail. We saw sequential improvement in the third quarter. System sales returned to growth year-over-year, and restaurant margin was the highest since 2018, well above our expectations. We focused on driving sales through new products and compelling value. Same-store sales recovered to the same level a year ago. From a timing perspective, the trend remains volatile, impacted by frequent COVID outbreaks. In July and August, we saw a sequential recovery in same-store sales, with August exceeding the prior year. This was mainly due to lapping the Delta variant outbreak in August 2021, which heavily impacted Eastern China. However, in September, same-store sales declined mid-single digits as COVID-related health measures tightened in many areas. Around 900 stores were temporarily closed or provided limited services in September compared to around 400 stores on average in July and August. On the margin side, we continue to identify cost-saving opportunities, drive labor productivity, and rebase our cost structure. Let me go through the financials and our cost control initiatives. Unless noted otherwise, all percentage changes are before the effect of foreign exchange. Foreign exchange had a negative impact of approximately 6% in the quarter. Third quarter total revenues increased 5% year-over-year in reported currency to $2.68 billion due to the contribution of new units and the consolidation of Hangzhou KFC. This was partially offset by temporary store closures and foreign exchange translation. In constant currency, total revenue grew 11%. System sales grew 5%. Same-store sales were flat year-over-year. By brand, KFC same-store sales were flat with same-store traffic at 93% of the prior year's level. Ticket average grew 8% due to the increase in delivery mix, which has a higher ticket average than dine-in. Abundant value campaigns, like the Family Bucket and Buy More Save More, also strongly contributed to higher ticket. Pizza Hut same-store sales grew 2% year-over-year. Same-store traffic grew by 2%, while ticket average was flat. High delivery mix, which has a lower ticket average than dine-in, was offset by discount management. Restaurant margin was 18.8%, 660 basis points higher than last year. The year-over-year increase was mainly due to higher productivity, temporary relief, and sales leveraging. These were partially offset by inflation in commodity, wage, and utility costs. Rider cost also increased due to high delivery volume. Our team worked diligently to improve our cost structure, so let me next go through each expense line item and the actions we have taken. Cost of sales was 30.7%, 150 basis points lower than last year. We focused on the most effective campaign to drive traffic, which allowed us to be more cost-efficient while ensuring quick value for money. We also managed commodity price inflation to low single digits. Cost of labor was 23.5%, 210 basis points lower than last year. This was mainly due to improvements in labor productivity and relief recognized in the third quarter of $17 million. These were partially offset by increases in rider cost from a higher delivery sales mix and wage inflation of 2%. We improved labor productivity by optimizing staff scheduling and hiring, sharing restaurant management teams across stores, and leveraging digital tools to automate processes, such as digital ordering and inventory management. There was also a lapping impact due to higher staffing levels in 2021 caused by the sudden Delta variant outbreak. Occupancy and others was 27%, 300 basis points lower than last year. This was mainly due to our cost-saving initiatives and lower rental expenses as a percentage of sales. In addition, we pulled back on marketing and advertising. Rental expenses were lower in the quarter due to rental relief of $30 million, smaller store formats with lower upfront investment and better store economics, and negotiating more rental relief with variable components. G&A expenses increased 16% year-over-year, mainly due to increased compensation and benefit expenses, the consolidation of Hangzhou KFC, and incremental expenses from emerging brands. There were also one-time expenses associated with primary listing conversions in Hong Kong. Operating profit was $316 million, a 77% increase year-over-year. The net contribution from Hangzhou KFC consolidation was 6% of total operating profit in the quarter. It includes amortization of intangible assets acquired, which will continue until the end of this year. Below the operating line, we incurred a mark-to-market net loss on our equity investment in Meituan in the quarter. It was lower than the $32 million net loss in the same period last year. The effective tax rate was 29.9%, 160 basis points higher than last year due to Hangzhou KFC consolidation. Prior to consolidation, the equity income from JVs was not subject to tax, resulting in a lower tax rate. We expect the full year effective tax rate to come in around the low 30s. Net income was $206 million, a 72% increase year-over-year. Diluted EPS was $0.49, more than double the prior year's period. The mark-to-market loss in Meituan negatively impacted our EPS by $0.03. We have returned around $560 million to shareholders in cash dividends and share repurchases year-to-date. We temporarily slowed repurchases in the third quarter prior to the dual primary conversion. Helped by our strong balance sheet, we will continue to execute our disciplined and balanced capital allocation strategy. Our operating cash flow remains strong. In the third quarter, we generated free cash flow of $558 million. Let us take a look at the fourth quarter outlook. The external environment remains challenging. COVID-related preventive health measures have skewed in October. In October, around 1,400 of our stores on average were temporarily closed or offered limited services. Downward pressures on the economy, cautious consumer spending, and inflationary environment are also happenings that we continue to face. Our same-store sales in the third quarter were below the pre-pandemic level. We expect a full recovery of sales of same-store sales to take time, and the path to remain uneven and nonlinear. I would also like to remind everyone that the fourth quarter is seasonally a lower quarter in terms of sales and profit. So sales volatilities could have a more potent impact on profitability. There was around $30 million in temporary relief in the third quarter, most of which is unlikely to repeat in the fourth quarter. The appreciation of the U.S. dollar against the yuan may negatively affect our reported numbers. And we continue to dial back some austerity measures to balance cost reduction and service level. Now despite headwinds, in the third quarter, we resumed the pace of store openings and opened 621 net new stores year-to-date. By relentlessly optimizing store economics with lower upfront investment, our new store performance continued to be strong. Store payback remained healthy at 2 years for KFC and 3 years for Pizza Hut. This gives us strong confidence for further expansion. We will continue to implement our disciplined and systematic store opening approach, opening new and profitable stores at a robust pace. As the fourth quarter is usually the peak season for store openings, we are confident in reaching the full-year target of 1,000 to 1,200 net new stores. Lastly, let me touch on our primary listing conversion in Hong Kong. It became effective on October 24 along with our inclusion in Southbound Stock Connect. We expect the new status will provide additional access to investors to our shareholder base and increase liquidity. So to round up, we have learned to navigate through uncertainties and volatilities in the past two years. COVID conditions will continue to remain challenging, but we're adapting to the new normal. Our resilient business model and agility allow us to pivot quickly and effectively develop new streams. When the market is relatively calmer, we are able to capture the upside and deliver strong results. In the third quarter, we have once again demonstrated our transformative fundamentals, cost control, and solid execution. We are confident in our ability to achieve long-term growth in China and generate sustainable returns to shareholders.

Thank you, Andy. We'll now open the call for questions. Ashley, please start the Q&A.

Your first question comes from Chen Luo with Bank of America.

Congratulations on the very strong Q3 results. Given the very fluid situation amid the COVID outbreak and restrictions in China, my question will focus on margins. We have seen very impressive margin expansion in Q3 results. And over the past three years, we have also observed a pattern that usually, during the first few quarters of a big COVID outbreak, such as the Wuhan one or the Delta outbreak in Q3 last year and the Omicron outbreak early this year, we might see a few quarters of margin erosion. But our very agile and quick adaptation in the following quarters, we managed to achieve margins that could be even higher than the pre-pandemic level. And let's assume that next year, we are not going to see another big wave of outbreak that would lead to massive lockdowns in our core markets such as Eastern China. Is it fair to say that we can actually achieve a restaurant margin that is largely comparable to the pre-pandemic level, which is around mid-teens? So this is my question.

Chen, thank you for your question. Obviously, our team has done a fantastic job delivering solid margins amidst a very difficult and challenging situation. Now our margin improvement is due to some of these fundamental transformations that would last going forward. Some of this is more temporary, and some of these austerity measures may dial back as things return to normal. Now if you look at our margin improvement, it was largely driven by high productivity, right, and also, for the quarter, some temporary relief and sales leveraging. So when we look at the initiatives that we have undertaken over the past couple of years, we have mentioned that we have taken initiatives to rebase our cost structure and also drive efficiency gains. You see a lot of new product innovation in terms of our assets, how we manage pricing, and also the cost inflation and commodity prices. We also leverage our supply chain, which continues to be our core strength in terms of managing supply and mitigating some of those impacts from high commodity prices, which allows us to continue to innovate and quickly roll out new products that meet consumer demand. The other one is that we have continued investing in technologies to automate our system processes, to help improve labor productivity. As we have mentioned in the previous quarter, we're beginning to roll out a management tool for our stores so that our management team can be shared across multiple stores. In addition, in terms of rental expense, we have worked hard to restructure the rental cost structure with landlords, resulting in lower rental costs as well as more variable and flexible rent structures. These are fundamental transformations as we continue moving forward. Same for our digital investments. Over the past few years, we have heavily invested in digital that allows us to, for example, during the pandemic, have direct outreach to our consumers and roll out new products and marketing campaigns efficiently. If you look at our membership program, it continues to be a very strong foundation for ourselves, accounting for over 60% of our sales. So those will continue to help us going forward to maintain efficiencies and operating efficiency. However, as we mentioned before, some of this is temporary. For example, the rental relief and some assistance with labor costs, especially some government incentives, generally don’t last forever. Additionally, we tend to adjust wages in the third quarter for our market, so some of these may need adjustment eventually. So all in all, I think you can expect some of these fundamental changes to stay, while some of these temporary measures may subside over time.

I would like to just add some color in terms of our management team's thinking and also the business model, and why that helps protect the margin now and in the future. We believe that our company and management team is anti-fragile. Whatever challenges come our way, we can convert these challenges into our stepping stones to move further and higher. Our management team keeps trying to do the right thing. In terms of the business model, as I mentioned in my presentation earlier, it's essential to recognize that our off-premise business now represents 60%. What does that mean? If we look at KFC, it's actually 65% off-premise, up from last year, which was 60%. Now Pizza Hut tells an even more impressive story since its off-premise sales is 50%, compared to only 30% before the pandemic. Given the fluid situation and the pandemic, these numbers are incredibly important because when faced with challenges, that 60% will increase due to natural sales transfer from dine-in to off-premise business. This protection is crucial, as margins are difficult to maintain without strong sales leverage. So it's not just the margin line we prepare, but also the sales side that we collectively safeguard through the hard work over the last three years.

Joey and Andy, your margin management capability is truly impressive. Congratulations again.

Thank you.

Thank you.

Your next question comes from Lillian Lou with Morgan Stanley.

My question is also a follow-up question on margin management but maybe from a different angle because, Joey and Andy, you mentioned about the sales leverage and also the line items, management on cost side. So maybe look at all the initiatives in the third quarter and also during the pandemic in these three years; you have been focusing on really rejuvenating the menu and the new product launch, as well as smaller stores and a very effective promotional campaign. When you are designing this, what's your thinking behind? Especially, I'm trying to understand that with our new stores now incrementally a higher portion of small stores, would that fundamentally change our margin profile going forward? And also, especially in the third quarter, you have more promotional campaigns, but in return, actually, it didn't suffer on margins, instead, it improved the margin. So I'm trying to understand a little bit further how you achieve that from these efforts.

Thank you, Lillian. In terms of margins, I want to emphasize at least in the short term, the fluctuations in our sales are highly correlated with the COVID situation. The biggest driver when sales decrease is actually lower same-store sales. Higher store sales generally drive higher restaurant margin. Even without the pandemic, we see margins fluctuate through the year, with the third quarter generally being a higher sales period. Our store format remains very healthy in terms of unit economics, and some hard work has been put into store format design, operations, and menu mix to make it work. We still have a lot of cities and townships to serve. Our new store performance continues to be strong, with a payback period of 2 years for KFC and 3 years for Pizza Hut, which allows us to feel confident about further expansion. Our approach to new store openings is very disciplined and systematic, ensuring that we not only open new stores but also profitable ones. Regarding the impact of external conditions, the delivery mix will depend on the consumer demand.

Yes, let me add some color regarding the relation between promotion and margin management. As mentioned earlier, we consolidate our promotion mechanism, focusing only on fewer, more impactful campaigns such as Buy More Save More. They effectively drive our sales during the weekends. However, we are also very meticulous in managing our product strategy. For example, the whole chicken has seen excellent sales. We have sold 80 million whole chickens this year. Why did we choose roast chicken instead of fried chicken? One reason is that oil is very expensive right now, and roasting the chicken reduces our costs while offering a healthier option that customers appreciate. Additionally, our commitment to protect our employees' jobs during tough times helps us maintain a stable workforce, which is beneficial for the company in various ways. Overall, our dedicated efforts contribute to a strong operational model that positively impacts our margins.

Your next question comes from Xiaopo Wei with Citi.

Joey, Andy, I will also ask a question about the margin, but I will take another approach, maybe looking at the bigger picture of what happened in the past two years. If we look at what happened in the past two years since COVID, we are seeing you open more stores. But in the third quarter, it's the first time that we are seeing amazing restaurant margin with some very short window of rebound about all the consumption, et cetera. But I can see that you greatly captured that upside of the consumption rebound. Should we say that the new store openings, which were an investment for the future, are starting to work well in that situation? Looking forward, when COVID is phasing out, will the contribution of new stores to profitability be more pronounced than before? Another question related to this is the delivery sales contribution. KFC hit 37%, which is amazing, very close to Pizza Hut. I do remember years ago, you mentioned that KFC would never reach this high in terms of delivery sales contribution. Can we expect that KFC fundamentally has transformed, and we are expecting higher-than-expected delivery sales contributions looking forward, possibly approaching 40%?

There's a lot of discussion about margins today, and we are pleased with our margin performance in the third quarter. As we mentioned, we have been able to capture not only the sales upside but also regain the sales leverage. Our new store performance continues to be robust, and for new stores we opened this year, a majority of them turned to restaurant breakeven or better within three months. We have put in a lot of effort to find the right format for our stores and we currently have very healthy unit economics. The payback period remains healthy at two years for KFC and three years for Pizza Hut. In the short term, we'll see that delivery mix may be more dependent on the COVID situation. We’ve seen a shift to higher delivery sales, which indicates that our off-premise business is now accounting for a majority of sales. We will continue to develop our digital infrastructure to enhance the customer experience.

Your next question comes from Michelle Cheng with Goldman Sachs.

My question is about store expansion. Given this very strong profit margin, do you have any initial thoughts on the expansion plan into 2023? Are there any chances we could further accelerate expansion, given we know all the smaller players are suffering? More specifically, by brands, aside from KFC and Pizza Hut maintaining relatively stronger momentum on expansion, how do we think about other brands, since we are reshuffling other brands quite aggressively in the past few quarters?

Michelle, regarding new stores, as mentioned, our new store performance continues to be strong. Every year, we set a reasonable target, but we will adjust based on market fundamentals and potential impacts from COVID. Our disciplined approach will allow us to accelerate store openings when the economics are favorable. We see many opportunities for KFC in the greenfield, as there are more cities and townships we can expand into. Pizza Hut also has opportunities, particularly in cities where KFC has penetrated but Pizza Hut has not. There’s strong potential for store expansion, and we continue to maintain our disciplined approach. We assess our brand portfolio and focus on areas where we can see growth while winding down less effective brands. We will focus on the growth of Lavazza and K-Coffee as we enter different segments.

Michelle, I'll just add a few comments about the store expansion. First, we are opening even more smaller stores. For Pizza Hut alone, around 5% of the new stores opened this year are either smaller or satellite stores, and KFC is about half. These small stores work particularly well in lower-tier cities, and that's where we will continue our store expansion. Opening new smaller stores is also contingent upon product support and operational enhancements provided to accommodate their unique challenges. For example, we have introduced products with lower price points specifically targeted for new stores in lower-tier cities. We focus on ensuring that the smaller stores are complementary to our overall operational strategy.

Your next question comes from Anne Ling with Jefferies.

Regarding the cost side, we track chicken prices, which we saw a 20-odd percent increase. At the same time, costs also increased. I understand that management has a great way to utilize the whole chicken parts. But moving into 2023, when do you see this increase in terms of the cost, such as chicken costs or other commodity costs, impacting your P&L? Or maybe you could share with us what your current agreement is with your supplier.

When discussing commodity pricing, we do see commodity price inflation, including poultry prices, which have been increasing. Our supply chain has largely locked down many of the supply agreements, so there will be some lagging impacts from inflation on our P&L. Due to rising inflation, our supply chain teams have deployed long-term contracts whenever feasible to help mitigate cost increases. As for labor inflation, we expect it to remain in the mid- to high single digits. It’s essential for us to continually invest in technology to drive labor productivity and improve operational efficiencies.

Anne, I would just add that we utilize every part of the chicken except the feathers. We have a dedicated team focused on pricing and product innovation, allowing us to leverage various types of proteins, including beef, pork, fish, and duck, to promote flexibility in the offerings based on pricing and quality available in the market. This approach enables us to adapt quickly and provide incredible value to our customers.

Your next question comes from Christine Peng with UBS.

So my question is on the product side. I supported a very interesting new product, which Joey mentioned, namely the beef burger. This product has been on the menu since May 2021, so it appears to be a long-standing product instead of a limited-time offer. If that is the case, Joey, can you share with us the rationale behind this product in terms of supply chain management and the overall future plan for it? Will the burger potentially become a significant category for KFC going forward? What should we expect regarding structural impacts on competition and margins as it grows?

Thank you, Christine. The beef burger is already a significant product in KFC's portfolio. Our sales figures exceed our expectations, contributing to around 3% to 4% of KFC sales mix, which is substantial compared to the original recipe chicken, which is about 6% to 7%. The product launch strategy was carefully designed to include a range of beef burgers at different price points, which gives consumers an excellent choice while maintaining high-quality standards. Our unique cooking method focuses on achieving a juicy burger by utilizing specialized ovens and has received positive feedback from customers. It's atypical for a chicken brand to venture into beef burgers, but we believe that offering this product expands our customer appeal significantly.

Joey, let me add a bit here as I’m a dedicated fan of KFC. The introduction of the beef burger provides a fantastic variety for our customers. It allows consumers to enjoy choices that extend beyond our traditional offerings, and I believe we have successfully met diverse consumer preferences with our beef burger range. This positioning will help drive frequency and customer loyalty.

Your next question comes from Veronica Song with Credit Suisse.

Congratulations on a very strong set of results. I have a question regarding the COFFii business. So as Joey mentioned, we are winding down the COFFii & JOY business and focusing more on K-Coffee and Lavazza. Could you share more color on the current situation or achievement of Lavazza, especially in terms of store expansion and any color on store economics? How can we adopt the valuable experience we learned from COFFii & JOY and KFC to drive Lavazza's success?

The decision to wind down the COFFii & Joy business was made so we could allocate our resources more focused on Lavazza and K-Coffee. Coffee is a different market, and we have learned a great deal from COFFii & Joy about developing and delivering premium coffee experiences. Lavazza aims to provide authentic Italian experiences with high-quality coffee to meet the evolving preferences of Chinese consumers. We have expanded Lavazza's store count significantly over the past year, and despite challenges from COVID, we have nearly doubled our store presence this year to 78 stores. Our team has been innovative, rolling out multiple new coffee products to enhance the customer experience. We are confident that with continued focus and leveraging of our experience from COFFii & Joy, we can support Lavazza’s growth moving forward.

Thank you, Ashley. Thank you all for joining the call today. We look forward to speaking with you on the next earnings call. If you have further questions, please reach out through the contact information in our earnings release and on our website. Have a great day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.