Ladies and gentlemen, thank you for standing by, and welcome to Yum China fourth quarter and fiscal year 2020 earnings conference call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. To ask a question during the session you will need to press star one on your telephone. Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Ms. Debbie Ding. Thank you. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining Yum China's fourth quarter 2020 earnings conference call. Joining us on today's call are our CEO, Ms. Joey Wat, and our CFO, Mr. Andy Yeung. Before we get started, I'd like to remind you that our earnings call and investor presentation contains 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 statement 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 the non-GAAP and GAAP measures is included in our earnings release. Today's call includes three sections. First, Joey will highlight our accomplishments over this past year and review our strategy and key priorities.
Andy will review our financial performance and outlook in greater detail. Finally, we'll open the call to questions. You can find the webcast of this call and our PowerPoint presentation, which contains operational and financial information for the quarter on our IR website. Now, I would like to turn the call over to Joey Wat, our CEO.
Thank you, Debbie. Hello, everyone, and thank you for joining us today. I hope you and your families are safe and healthy no matter where you are. First, I want to acknowledge the great work of our 400,000+ employees and express my heartfelt appreciation. With their dedication, creativity, and tireless efforts, we have been navigating the difficult times and effectively managing our business. Looking back at the past year, we put the health and safety of our employees and customers as our number one priority. Our team kept most of the stores open, even at the peak of the outbreak. Our execution capabilities and agility helped us overcome many challenges. We captured off-premises consumption opportunities and drove recovery in dine-in volume. Sales and traffic recovered sequentially since the first quarter. Our operating profit remained solid and grew double digits year-over-year in the second half.
This is the result of strong execution and efficiency improvement. KFC remained resilient. We accelerate store expansion with attractive returns and maintain solid profitability. We made remarkable progress in strengthening the fundamentals of Pizza Hut across all aspects. That is reflected in the sales and margin improvement. Going forward, we will continue to fortify the resilience of Pizza Hut's business model. At the core of all these is our ability to innovate. KFC's premium Wagyu beef burger resonate well with consumers and was sold out within days. Their sweet pumpkin congee, is the perfect item for the winter. Portuguese chicken curry at Pizza Hut became an instant hit on the delivery menu. We demonstrate our commitment to be a responsible corporate citizen. The pandemic reinforced our determination to look after our employees.
We extended our family care coverage designed for our restaurant managers to 13,000 restaurant management team and supervisors and their families. Our efforts are recognized in the industry. For the third consecutive year, we were certified as the top employer in China and included in the Bloomberg Gender-Equality Index. We were also recognized for our commitment to sustainability, and we were named an industry leader in the 2020 Dow Jones Sustainability Index. Let's move on to growth strategy. Despite the challenges, we are optimistic about the future opportunities in China. We have been staying the course with our long-term strategy centering around three key growth initiatives. Let me give you some update on our latest thinking. First, store growth. We opened 1,165 new stores in 2020, marking the highest new store openings in the 33-year history of operating in China.
This is equivalent to opening one new store every eight hours. Our new stores' payback remain healthy at approximately two years for KFC and three to four years for Pizza Hut. We intend to sustain this store-building momentum into 2021 and beyond, and reach the next 10,000 stores much faster than the first. There's still plenty of white space in which we can expand. We are tracking over 700 cities in which we have no presence in China. To penetrate new markets, KFC is piloting small town model designed for the needs of Tier 6 cities or below. This model has localized menus, store layouts, and operating models that require less CapEx. We are encouraged by the initial result of these pilot stores, and we will open more small-town model stores in 2021 in KFC. In more established cities, we will increase store density with our multiple store formats.
As the mix of off-premise occasions continues to increase, we have further reduced the average store size and CapEx per new store. One example is Pizza Hut's hub-and-spoke model, which we introduced in 2019 Investor Day. I'm excited to report that with nearly 50 hub-and-spoke stores at the end of 2020, the results are very promising. We will roll out more of these stores and other small store formats and adapt our store models to evolving consumer needs. To create an even stronger foundation to accelerate expansion, we are stepping up investment in our infrastructure. More details will be provided by Andy later on. Second, portfolio growth. While KFC and Pizza Hut remain our key growth drivers, we are also leveraging Yum China's resources, execution capability, and learnings to develop our emerging brands. Great things are brewing in coffee.
We now have three distinct brands with clear segmentation and strategies. We are committed to accelerate expansion of our coffee business and make it a meaningful part of Yum China. KCOFFEE fulfills that daily ritual with good quality coffee at affordable prices at over 7,000 KFC restaurants in China. 140 million cups of KCOFFEE were sold in 2020, making us one of the top three players in terms of cups sold. COFFii & JOY has evolved to offer specialty coffee for coffee lovers while utilizing an asset-light model. We are working on improving the profitability of C&J and exploring other potential avenues of growth. Meanwhile, Lavazza offers premium coffee in an indulgent atmosphere. We now have five beautiful stores in Shanghai, and we are pleased with the initial results. We plan to accelerate openings in 2021 to test different store models, ranging from mini to flagship stores.
On the Chinese cuisine market, post-acquisition integration of Huang Ji Huang has progressed well. We have driven synergies in product innovation, franchisee development, and supply chain. Huang Ji Huang sales recovered sequentially and delivered solid profits since acquisition. We will further work on the menu and operations for our Chinese cuisine brands to drive store expansion and growth in the seasoning and packaged food business. The third growth initiative is digital and delivery. The COVID pandemic highlighted the power of digital from member engagement, delivery to operations. Our membership has grown to over 300 million. Member sales now account for 60% of our sales. Privileged subscription program is effective in boosting frequency. We sold 38 million subscriptions in 2020. The average spending of privileged members doubled during their subscriptions. More targeted promotions help us keep marketing expense down.
Delivery has been growing rapidly and even faster during the pandemic and now accounts for 30% of our sales. In 2020, we upgraded our rider platform with AI-enabled zoning, rider routing optimization, and real-time monitoring. In the test markets, on-time rate, customer satisfaction, and efficiency have improved. We also tested rider sharing between KFC and Pizza Hut in Eastern China. We will expand this initiative into more brands and more markets. In 2021 and beyond, we are allocating more CapEx to further strengthen our digital and delivery capabilities. To make our organization more efficient in the long run, we will deploy AI and automation in more of our operations and continue to advance end-to-end digitization from farm to fork. We are committed to driving long-term growth with the three growth initiatives. Investments across all three are necessary to build our leadership and agility. Let's move on to 2020 Q4.
I would like to make a few comments. First, sales improved sequentially from the third quarter, although the pace of recovery was impacted by regional outbreaks of COVID. October sales benefit from the National Day holiday, sales in November, December was pressured by increased regional outbreaks. Traffic at transportation hubs remained significantly below the prior year due to reduced travel. Dine-in remained pressured, recovered a bit sequentially. Delivery and takeaway remained popular options and account for over 50% of sales. Digital orders increased to 83%. Pizza Hut tableside mobile ordering has increased in popularity as we enhanced the user interface. It now accounts for over 35% of sales, up from just 7% in the prior year period. Operating profit grew to $180 million. Andy will cover the financial in detail in his session.
As we look into the first quarter of 2021, we see the resurgence of COVID-19 adversely impacting our business. Nationwide, authorities have tightened preventive measures and advise against travel, large gatherings, and dining out, especially during the Chinese New Year holiday period. Given the current situation, we see significant headwinds for the first quarter. Our teams are closely monitoring the situation and leveraging learnings from the past year. Our marketing programs encompass a wide array of compelling offers, targeting both dining and off-premise occasions and different party sizes. We will stay agile to adjust our marketing programs and operations to the evolving situation. Most importantly, we remain confident in the long-term potential of China and stay focused on generating sustainable shareholder returns. With that, I will turn the call over to Andy. Andy?
Thank you, Joey, and hello, everyone. I will first address key financials and developments in the fourth quarter, then provide some color on our 2021 outlook. Unless noted otherwise, all percentage changes are done before the effects of foreign exchange. Let me first cover our Q4 financial results. Revenue grew 5%, and same-store sales recovered to 96% of the prior year period. The sequential improvement was supported by continuous strength in delivery and takeaway, while dine-in volume gradually recovered. KFC same-store sales recovered to 96% of the prior year period, compared to 94% in Q3. Our transportation and tourist hub sales improved but remain challenging. System sales grew 3% year-over-year, reflecting the contribution of new build acceleration. Pizza Hut same-store sales recovered to 95% of the prior year, compared to 93% in Q3. Same-store transaction volume recovered to 98% of the prior year period.
Huang Ji Huang and the consolidation of Suzhou KFC contributed to 4% of total revenue. We opened 505 stores in Q4, which helped us achieve the record level new store opening for the year. Restaurant margin was 15.1%, up 2.7% compared to last year. I want to thank our team for the excellent work in driving operational efficiencies and managing costs. Cost of sales was 31%, 1.2% better than last year. This was mainly helped by lower poultry prices and more targeted value promotion at Pizza Hut. Cost of labor was 24.2%, almost flat year-over-year. Wage inflation and increase in rider costs associated with delivery volume increases were largely offset by labor productivity improvement and shortage in part-time workers. Occupancies and others was 29.7%, 1.7% better than last year, mainly attributable to reductions in advertising and savings in other operating costs.
We also received around $7 million in rental and government relief, which is expected to phase out in 2021. G&A expenses decreased 9%, mainly due to lower performance-related compensation, timing shift of government incentives, and cost control. Operating profit was $180 million, up 78%, mainly due to restaurant margin improvement. Please keep in mind that some of the factors driving Q4 profit are not expected to recur, such as lower advertising costs and performance-related compensation and one-time relief. Some of the productivity improvement due to labor shortage is also temporary, as we intend to increase staffing levels. Our effective tax rate was 28%. Net income was $ 151 million. Adjusted net income was $153 million. Excluding $23 million of net investment gains in Meituan, it was $130 million, up 65% year-over-year. Diluted EPS increased 43% to $ 0.35. Let's turn to our outlook for 2021.
Heading into the first quarter, cluster of outbreaks surged, impacting a large swath of the country, especially in Northern and Northeastern China, Beijing and Shanghai. Government implemented stricter public health measures across China, such as advisory against travel, large gatherings, and dining out. Several cities have also been put on citywide quarantine, including Shijiazhuang, a city of 11 million people. We anticipate significant headwinds for the first quarter. Our transportation and tourist locations, representing high single digit of sales, will likely be more significantly impacted. Government statistics show that the number of travelers was down over 70% in the first few days of the Chinese New Year travel this year, which started in late January. Overall, dine-in traffic has been affected. We expect trading during the important Chinese New Year holiday period to be subdued, with sales impacted by substantially less travel, smaller gatherings, and generally reduced social activities.
Sales in lower-tier cities, which represent over half of our sales, will also be impacted as fewer people will return to their hometown for Chinese New Year. As KFC has a higher percentage mix of store in lower-tier cities and transportation hubs, it will be disproportionately impacted. Q1 will be all hands on deck. In response to the headwinds, we have stepped up our value campaigns and tailor our marketing calendar according to city tiers and trade zones. We have also adjusted our operation and delivery resources to capture shifting dine-in and off-premise demands. We will endeavor to do everything we can to mitigate the headwinds. Please also keep in mind that January and the first quarter will be a tough comparison. Last year, COVID-related lockdowns started only in late January. On a year-over-year basis, last year's sales benefited from strong first few weeks leading into Chinese New Year.
We anticipate the recovery will remain nonlinear and uneven, influenced by regional outbreaks, reduced travel, and lingering effects on consumer behavior. In 2021, margin will remain subdued compared to pre-COVID-19 levels, as we face several headwinds. We expect full recovery of sales to pre-COVID-19 levels to take some time. Compelling value campaigns to drive traffic will continue to be our focus. We expect two-year wage increase since 2019 to be high single digits, including 3% in 2020 and mid-single digits in 2021. We are stepping up our efforts in sustainability. In light of the latest regulations in China, we are replacing plastic packaging with more eco-friendly materials. It's expected to increase our cost of sales by over $30 million in 2021. On a year-over-year basis, we are lapping over $100 million of COVID-19-related government and rental relief in 2020, which is mostly phased out now.
On the positive side, our commodity prices are expected to decline by low to mid-single digits, mainly driven by lower poultry prices. Since we usually lock our poultry contract one quarter in advance, prices may still fluctuate throughout the year. We will build on our momentum in 2020, and target to open approximately 1,000 new stores in 2021. We'll step up investment in digital, logistics, and other operational infrastructures to support accelerated growth. Total CapEx in 2021 will increase to approximately $600 million. This investment will impact profitability in the near term but will yield benefits in the long term. With that, let me cover our capital allocation framework. With over $4.3 billion in cash and short-term investments and strong cash flow, perhaps as much as $8 billion of capital will be deployed over the next five years.
As we think about our long-term capital allocation, our key goals are to deploy capital efficiently, to accelerate growth, and to create long-term value for our shareholders. Before I outline the use of cash, I want to emphasize that we will continue to run a prudent financial strategy, ensuring sufficient cash on hand for working capital and sufficient reserves to deal with potential contingencies. Organic growth remains the most important driver for our long-term strategy. As Joey mentioned, we aim to achieve the 20,000 store milestone much faster than the first 10,000 store milestone. We will prioritize our capital to support organic growth. Hence, we will more than double our CapEx over the next few years. A majority of our CapEx will be used for accelerating store network expansion and store remodeling for our core brands, KFC and Pizza Hut, growing them while keeping them fresh.
We also plan to invest several hundred million dollars in our emerging brands, especially the coffee business, building them into meaningful scale and a mature part of our business mix. While expanding network of physical store is an important growth driver, enhancing our digital and delivery capabilities and logistic infrastructure is equally important to our future success. To efficiently and adequately support a network of 20,000 stores would require a bigger, more robust, and more agile digital and physical capabilities and infrastructure. In addition, we also like to see quicker digitization, automation, and intelligence across our operations. We have earmarked over a billion dollar investment to advance our end-to-end digitization program, including digitizing our stores, marketing, supply chain, and back-office operations. Roughly another billion dollar has also been earmarked to expand our logistic infrastructure to enhance automation capabilities to drive efficiencies.
The rest of the capital will be allocated for shareholder returns and M&A. We resumed cash dividends in the fourth quarter and have returned $1.2 billion to shareholders since the spin-off. In the future, we expect steady returns to shareholders in line with our profit growth. We will also maintain a disciplined approach to M&A and investment while exploring opportunities to invest in brands with excellent growth potential, to acquire new capabilities and technologies, and to build and support our ecosystem. We believe this approach to capital planning will drive long-term shareholder returns. All in all, we are encouraged by the solid financial results we delivered in 2020. We will continue to invest for the long term. I'm confident that we are on the right path to emerge from the COVID pandemic stronger and better prepared for future growth.
With that, I will pass you back to Debbie to start the Q&A. Debbie?
Thanks, Andy. We will now open the call for questions. In order to give as many people as possible the chance to ask questions, please limit your questions to one at a time. Operator, please start the Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel the request, please press the pound or hash key. Please limit to one question at a time. If you have follow-up questions, please request to rejoin. Our first question comes from the line of Xiaopo Wei. Please ask your question.
Good morning. Good morning, Joey, Andy. Thank you for taking the first question. My question would be regarding the Chinese New Year. As Joey mentioned that there are very challenging environment in the first quarter. We know that Yum China and yourself are so good at handling the challenges as we can see last year. After learning a lot of experience in coping with the COVID situation in 2020, how could you do differently and make your business more flexible to capture any emerging demand and well protect yourself on the downside in terms of business in the upcoming Chinese New Year? Any color would be highly appreciated. Thank you.
Thank you, Xiaopo. The quarter one, which is driven mainly by the Chinese New Year, would be a quarter that's rather difficult to model. As I mentioned earlier, we do anticipate significant headwinds, and we do expect recovery will take some time because the situation is still fluid. Three things for sure in terms of trend. One is the surging cluster outbreak, and that result in tightened preventive health measure or advice against travel, large group gathering, and dining out. Second is the traveling and the social activities significantly reduced. We already have seen the first few days of the travel volume is down significantly. The lower tier city sales, which is more than 50% of our sales, particularly for KFC and large party size ticket, will be reduced. Also, we do also expect more competitor will stay open during Chinese New Year versus 2020.
The third thing we know is KFC is likely more impacted than Pizza Hut because of higher mix in the lower tier cities and transportation locations. The next important question is how are we going to deal with it? Certainly, we take all the learning from 2020. The overall tone and the importance and the priority is still the safety of our employees and customers, and on that foundation, the focus is to stay nimble and agile. We are closely monitoring the situation, and there are two focus here in terms of staying nimble and agile. One is to step up the value campaign and to line up all our digital and delivery resources, including our membership program, to prepare for the Chinese New Year. Second is we adjust our marketing calendar according to city tier, trade zone, party size, and location.
I suppose compared to the 2020 program is this time, when we plan the marketing campaign, you can see we have multiple scenario planning. That shall help us stay even more agile compared to last year. Last year, things happened before we know it's going to happen. We react really fast, and our team is doing a fantastic job. For this year, we have more scenario planning, and that shall help our team still react quite fast to the evolving COVID situation. Thank you, Xiaopo.
Yes. A quick follow-up on the new store. You did a great job in 4Q opening many stores, but if you look at the result, actually, we didn't see that the new store really dragged down the restaurant margin. Looking forward, shall we say that a new store will be the key driver for the growth without compromising our margin on a sustainable basis?
Thank you, Xiaopo. Quick answer as well. When we open stores, as you guys know us already, we have rough idea how many stores we want to open, but the most important decision is whether this is a good store or not. If we see opportunity to open the store, we'll open more or less depending on the quality. We always keep our quality. As you can see, we still are opening more stores in lower-tier city. Our quality control continue there. It's always the discipline approach that we have been following and will continue to pursue. Thank you.
Thank you.
Our next question comes from the line of Lina Yan from HSBC. Please ask your question.
Hi. Thanks management for the presentation, and congratulations on the very good results. My question is also related to the store opening. We have seen the very high-quality store opening in 4Q. I will also know, normally, there will be more remodeling in 4Q, and as Xiaopo said, new stores might not contributing so much to profitability. I'm wondering whether what we have seen in 4Q is sustainable, as asked earlier, when we expect the store opening might continue to beat expectations, whether it's going to lead to higher than The contribution to total revenue will increase as the driving higher profit growth as well? Thank you.
Lina, this is Andy. Thank you for your question.
Yeah. Thank you.
Let me first address the question about the store opening pace. Obviously, we are very pleased that we have opened 505 stores in the fourth quarter. I also want to remind folks that even though it's probably still higher than what we expected, but we have already told folks that because of COVID impact, the store opening will be more back-end loaded. With the little bit easings in the COVID situations in fall and winter, past year, our development team have re-accelerated the pace and tried to take advantage of that window and open as many a store as possible. We also try to push some of the store opening earlier in the fourth quarter, in anticipation of the Chinese New Year holiday period. As we mentioned, we expect to open 1,000 stores this year, and it's a very high pace, right?
You think about our store right now, we know we have a little more than 10,000 stores, and then stores are also opening almost 10% of new stores. It's putting perspective for you. Last year, we opened almost one store every, I think, eight hours, and so that's a very fast pace. We'll see. We'll maintain a fast pace, but probably not at the level that we're seeing every quarter, 500+ stores. I don't think that is sustainable, at least in the near term. We do have plans, as we mentioned on the prepared remarks, to accelerate store network expansion. We will put and allocate resources to do that. In term of the probabilities of the new store, as Joey mentioned, we have a disciplined approach to store opening.
If you look at the payback period for KFC, it's very strong, two to three year, and have been very consistent over the past few years. Pizza Hut, it's about three to five years, and also is very strong return. We have a lot of incentive to open as many stores as possible. Within that framework of disciplined approach to store openings, make sure that we have the right financial returns. The one thing, as you can tell, obviously, with that kind of fast pace of store openings, it better demonstrate our confidence in the market in China and also the potential opportunities here in China. We always encourage investors to look at the overall system sales, rather than sometimes too focused on the same-store sales growth. Because China is still a growth market.
Okay. Thank you very much, Andy.
Our next question comes from the line of Michelle Cheng from Goldman Sachs. Please ask your question.
Hi, Joey, Andy. Congrats for the good results. My question is about Pizza Hut. I think clearly last year, even the COVID-19 pressure was so significant, we see a strong margin improvement. Also into fourth quarter, we also see we actually opened many Pizza Hut stores. Can you share with us, after two years of revitalization plans, what are our new focus into 2021, and whether we will start to see improving same-store sales trend and also further margin upside? Thank you.
Thank you, Michelle. For Pizza Hut, I think overall, we did what we promised about sales first, profit later in our turnaround journey. Our second half OP more than doubled compared to the previous years. The focus of Pizza Hut in the last few years is about improving the fundamentals of the business, which we believe will have an impact for years to come. I think that set the tone about our focus going forward. Our focus going forward is to continue to improve across all these key aspects, to cement the changes made in the last few years and make Pizza Hut a resilient business model. I think this is a very important work because I think we believe we have a resilient KFC business now, and after a few years' hard work, Pizza Hut business will be also resilient as well.
In terms of focus, maybe I'll just highlight three things that we have worked very hard in the past three years, we'll continue to do that in the coming few years. One is the new menu. Our new menu roll out in late Q2. It's 75% item are new or upgrade compared to two years ago. Food is, I cannot emphasize how important it is, right? One example I mentioned earlier is the Portuguese chicken curry. It's fantastic food, and it's innovative, and we'll continue that innovation. The second highlight is our double-digit growth in off-premise dining, which including the delivery and takeaway. Because we all understand our concern towards dining business, rightly so. After a few years' hard work, you can see the mix right now is a lot healthier. It's 40% + of the total sales.
That also makes our overall business more resilient. Third, digital order. The digital capabilities are absolutely critical in any restaurant business right now. The ability to connect the online and offline operation is part of the efficiency, is part of the customer service experience. Let's take one example, the tableside ordering. We moved the mix of tableside ordering. Q4 actually is 37%. 37% of our orders on the tableside is done digitally, and that compared to 5% during 2019. We only start to work on this back to 2018. You can imagine that all improved the customer service and, of course, the labor cost. On top of that, the fourth thing, we also launched ready-to-cook steak and pasta to capture home consumption trends or demand, and that is partly as a result of the pandemic.
The growth opportunity has become even more visible, and we captured that. As a result of all these one, two, three, four, and more efforts and initiatives, we have seen the improvement of our value for money perception, and also overall customers' perception towards the food, the service level, the value, the dining environment. Therefore, the fundamental and the momentum is promising. As I mentioned earlier, sales first, profit later. Now the sales is in a decent place, and we start to see the improvement in profit, and we want a bit of both going forward. Thank you, Michelle.
Thank you, Joey.
Our next question comes from the line of Anne Ling from Jefferies. Please ask your question.
Thank you very much. I have a question regarding CapEx and also our investment. In the past now we have around $ 400 million-$ 500 million CapEx and depreciation roughly similar as well. With the step-up in terms of more store opening and also a step-up in the CapEx of $6 00 million, does it mean that we will have a disproportionate increase in terms of a depreciation from year 2021 onwards, i.e., EBITDA growth will be higher than that of the EBIT growth? Our $ 2 billion, $ 1 billion each investment in digitization and also on the logistics, does that include this $ 600 million CapEx plan? For each year, how much will we spend on this part, and how will it impact our P&L? Thank you.
Thanks, Anne. CapEx spending, I think, if you look at our historical CapEx spending, it have been very efficient and very stretched actually. If you look at over the past five years or three, five years, our CapEx spending was roughly $ 450 million plus or minus some.
We have been opening stores more and more. If you look back a few years ago, we were opening maybe 500, 600 stores a year, and now we're opening more than 1,100 stores in 2020. We were able to do more with less. The team have been very frugal in how they spend the money, looking into savings in store development and in infrastructure. What we want to do with this capital allocation plan is really reframe this plan to focus more on growth, driving more efficiency, and to think about this longer term. We will still have a very disciplined store investment strategy, as we have mentioned earlier, for new store opening. We will definitely look into ways to accelerate our market penetration, both in terms of lower-tier cities.
We have tracking 700 cities that we have not have a presence yet for KFC and 1,000 more for Pizza Hut. There's a lot of white space ahead of us. Then, for cities that have already a restaurant, we're likely going to try to increase density. Especially, we will invest more in store that cater to delivery and take away. Definitely, the majority of our CapEx spending is going to be in store expansion, accelerated store expansion for our core brands, KFC and Pizza Hut. If we look a little bit longer and we also try to grow our emerging brands, especially coffee. Like I mentioned in the prepared remarks, we want to grow that into scale and also become a material part of our business. We're going to invest more.
For investment in new emerging business in the near term, you're likely going to see an impact on some of the cost and expenses, because obviously ramping up a new brand requires some investment. The other one, I think for CapEx spending, as you mentioned, is digital. A billion dollar in digital is going to be a very large investment over the next few years. This is a very important transformation for the restaurant industry. For us, our company have undergoing that for a number of years, but we're going to accelerate that and in a much bigger way. You will see more technology being deployed throughout our operations. You will also see more automations deployed in our restaurant, in our supply chain. You will also see more intelligent data analysis that will help us in marketing, supply chain, and overall operations in the back office.
All this, you think about this, right? If you think about 30 years ago, CapEx is probably all invested in store opening. Today, investment in digital, the digital capabilities, having the right robust infrastructure to support a very large network of stores will really require significant increase in investment. We're basically trading capital for labor. You think about our store operations, we have able to run more store over the past few years with remarkably stable workforce, somewhere between 400,000 - 500,000 employees. All that is possible because the investment and the infrastructure that we have built. As I mentioned, store expansion is important. The depreciation investment in digital infrastructure is equally important to the success of our future.
In the near term, as we ramp up, as we mentioned, over the next few years, we're going to ramp up doubling our CapEx spending. That would have impact on depreciation. I think in the long run, you will see gains from other areas, productivities, quicker sales, and the long run would be a fantastic return for our investors. Hopefully that addressed your question, Anne.
I just have one little point to add for Anne. If we look at these savings in terms of efficiency from automation and technology investment, just think about this. 2015, we have roughly about 7,000 + stores. 2020, we have 10,000 stores. Our number of employees actually still stay at the number of 400,000 +. That gives you a sense of the achievement the last five years, and hopefully that gives you a sense about what kind of potential achievement we would like to achieve with the further investment in digital delivery and the supply chain infrastructure. Before opening the stores, we need to get the infrastructure in place in order to enable the acceleration of store expansion.
Otherwise, if the infrastructure is just catching up to the store expansion, then we are dragging our feet too well, if I could describe it that way, if that makes sense. Thank you, Anne.
Right. Also, I want to give you one more anecdotal evidence of how important digital and infrastructure investment is and how that help us to actually be more productive and keep costs down. You think about our membership program. We developed that and invest in that over the past couple of years. Our whole digital CRM program will help us to keep our A&P lower compared to our revenue growth. That's always possible because we have the ability to reach our customers and effectively utilize the technologies. You may see costs increase in a part of the P&L, but hopefully in the long run, you see also improvement on the other side. Again, as we mentioned, if you think about China today, over the long term, you'll see more labor shortage as the population age.
It's very important for us to stay one step ahead of the game and anticipate that and invest in productivity, technology, and infrastructure.
Andy, got it. Thank you.
Our next question comes from the line of Chen Luo from Bank of America. Please ask your question.
Thank you, Joey and Andy. I would apologize if my question has been addressed by previous speakers, as my line was disconnected during the middle of the call. I'm more interested on the food and paper cost side. We understand that the chicken cost is coming down pretty dramatically these days. Meanwhile, we are also stepping up our value initiatives. During our recent China checks, we also noticed that actually, we possibly have actually raised price a little bit for KFC at the beginning of the year. We guess this should be more than enough to offset the cost associated with our eco-friendly initiatives. Given all these kind of moving pieces, is it fair to say that food and paper costs is not going to be a major concern for 2021? Thank you.
Thank you, Chen Luo. I think that's right. If you think about the cost of poultry, it have came down over the last few months, and we have locked up the contract a month ahead of time. I think in the near term, that would be a tailwind for us in the cost of sales. However, as you correctly mentioned, and we have mentioned, we see quite a bit of headwind for the first quarter. Lower traffic in terms of transportation hubs, that's going to be lower traffic in the transportation hubs. This is for the CNY sectors. We also see other headwinds in terms of less social gathering, small size group, less social activities. We do see some headwind for our first quarter sales.
At this stage of the recovery, it's very important for us to continue to focus on value proposition to consumers. You should expect we will stepping up the campaign as you have seen in earlier part of the first quarter. Traditionally, we don't do as much value campaign for Chinese New Year, but this year you probably will see a bit more. On the other hand, I think the sustainable initiative this year, as I've mentioned, will likely cost us about $30 million for the full year in packaging by replacing plastic with other eco-friendly materials for packaging. I think it would be ongoing initiative to ESG. In the future, you probably will see additional initiatives as well. So it's not a one-off event for us in terms of ESG initiative.
All in all, I think for overall still ahead in the entire commodity prices, that would probably at least be in the short term.
Luo, I would like to just add a philosophical comment on food cost. Our Yum China employee all know that we believe in saving all the costs we could save, particularly the G&A hotel, meal, whatever. We don't save on the food cost for customers. It's our sincerity and our belief that we shall serve the best food we could to the customers. If we do get some savings from the commodity costs, we actually will reinvest the savings, big part of the saving, to treat our customers better as well. We believe, that is the right thing to do in the short term and in the long term. Thank you.
Thank you, Joey and Andy . Just a very quick follow-up, if I may. I understand that we see a lot of headwinds coming to Q1, but meanwhile, we also need to bear in mind that with a very weak February and March last year, of course, the government is taking some measures at the moment. Last year, we were talking about nationwide lockdown with almost everything being shut down for about two months. I do believe heading into February and March, things or counts will be looking much better. It's fair to say that we actually could see a year-on-year recovery in Q1, but maybe could be a bit difficult for us to return to the level that we saw in Q1 of 2019. Would that be a fair comment? Thank you.
Chen Luo, let me address this question. I really appreciate the challenge to model the first quarter. Internally, we also see a lot of moving parts. One thing I want to emphasize is that definitely, this year the number of infected cases are relatively limited, about 1,000+. However, it does not mean that the preventive measure will be the opposite because the learnings from last year, government authorities are more cautious and consumer are more cautious and taking a lot more preventive measures. As we have mentioned, if you look at the CNY, Chinese New Year period for travel, the government have put out advisory against new travel and encourage folks to stay put in the cities to celebrate Chinese New Year.
We have seen railroad traffic and, of course, air traffic as well, down more than 70% in just the first few days of very important Chinese New Year period. Chinese New Year period have been historically very important to our business, especially for KFC, which have high single digits of the sales, and especially in Chinese New Year period, double digits in terms of their sales are coming from the transportation hub and tourist locations. That would be disproportionately impacted. If you also look at the trading situation will be more complex. Historically, once folks go home, they celebrate, they go out with the families. You generally see a boost in sales at lower tier cities. Given the people are staying in the cities, that will be a little bit different situation.
Again, this would probably have a bigger impact on KFC because you have presence in more lower tier cities. That's one complexity there. The other complexity that goes on there is that, if you think about last year, we go into the first few weeks in January last year, we first saw momentum. Then a lockdown only happened in the late January. We don't have that benefit this year. That's another thing. Third thing is that, if you've got KFC, you have recovered very strongly in March and later part of 2020. The reason is because we were able to keep a lot of our store open. We're able to ensure safety of our employees and customer. We see tremendous boost in our delivery business.
Then, even though quite a few store were closed at that time, we're able to enlarge those trade zones to serve those customers. Now with most of our store open, fair few stores closed, less than 1% of stores closed because of the impact today. The delivery trade zone have been redrawn, so therefore same store capacity will be also more challenging. All in all, I think that's why we want to highlight that both in our prepared remarks, and also in our earnings brief so that we can give a fuller picture to folks outside of China, in Hong Kong, in the U.S. and Europe, so that they can understand, even though, the pandemic, the infected cases may be less, but the preventive measures, stricter preventive measures, and the impact on consumer behaviors are not less.
With the Chinese New Year complexity, even more challenging for people to model. We try to give you a good sense, that is quite a lot happening in the first quarter.
Luo, the TC and TA of last year Q1 summarize what Andy just described, because although the same store sales for Q1 last year was -11%, which is a pretty decent number given the pandemic, due to all the things that Andy just described. The TC was down 30%. However, with everything that we did, including when people are going back to work because many of our stores still open, we benefit a lot from it. Also, we focus on the high ticket item of delivery. The TA increased by 27%. TC was down 30%, TA was up 27%. That support the same store sales for last year Q1. You could imagine for this year, such benefit of the ticket increase will be very difficult to lapse. Thank you.
Thank you, Joey and Andy. Actually, I took a train from Shanghai to Hangzhou last week, so I can understand how empty railway stations are at the moment and all the challenges that you are facing. We really appreciate all the high effort that you are making to sustain the business. Good luck. Thank you.
Thank you.
Thank you. We try to be straightforward and present the fuller picture here on the ground.
Our next question comes from the line of Lillian Lou from Morgan Stanley. Please ask your question.
Thanks, Joey and Andy. Most of my question answered. I have a simple follow-up question. Joey at the beginning mentioned this year and going forward in the next couple of years, multi-format store going to be a focus. Trying to understand the economics of the small format, i.e., the small town format. The unit sales basis, how much it lower on per unit sales versus our previous average? I understand if we look at the unit store sales, pre-COVID-19 level is about $1.1 million per year per store. Just trying to get some picture of how lower it could be when we get more new stores in the smaller format. Thank you.
Thank you, Lillian. I just have two quick comments. One is, forever, Yum China, at least while the business is going through such high growth, we are always struggling to balance the system sales versus same-store sales growth. It's absolutely the right thing to do to drive the system sales when we can open that many stores, but it has certain pressure on the same-store sales growth as well. We have to continue to do the right thing by hopefully delivering both system sales and same-store sales growth. For the smaller store, the revenue is smaller, but we can open more stores while the profitability level is comparable to a big store, and that, I think, is very important. Therefore, net net, the system sales is improving when we open more smaller stores.
Not only now, in the past, we actually already have multiple store formats, big stores, smaller stores, depending on the locations. It's just right now when we are going into Tier 6 city and below. We open even smaller store and with lower CapEx, but the return will still be comparable.
Right. I just add a little bit to what Joey mentioned. Obviously, with the store format, we would like to see a smaller sales footprint. We have a disciplined process, and that help us to be comfortable that the profitability will be comparable and the return to our investment will be comparable. I think there are a couple of reasons besides the smaller store to penetrate the lower tier cities. We are also developing smaller stores that are geared toward more delivery and takeaway, especially in the urban center area. I think it's important to note that for delivery and takeaway, there are certain network effects, right? The closer, more dense your network is, that helps your customer service improvement, the delivery speed, and it also drives incremental sales because folks, you ask them to walk 2 km probably not going to do a takeaway, right?
If you want delivery for 5 km , they're probably not as good either. When you can shrink that into 3 mi and you can shrink the working distance to 500 m, a lot more folks would probably be happy to do that. That is some of the things that we're doing, and we have been doing that for the last couple of years. Obviously, the COVID-19 pandemic have accentuated and accelerated that consumer behavior change. We're going to accelerate that kind of development as well. Hopefully, we have addressed your question.
Thanks a lot, Joey and Andy. Yes. Thank you.
Thanks.
Thanks, Lillian.
Our next question comes from the line of Sijie Lin from CICC. Please ask your question.
Thank you, management, for taking my questions, and congratulations on the strong results.
Sorry, Sijie, we have very hard time to hear you. Would you mind speak up a little bit, please?
Oh, sorry. Could you hear me now?
Better.
Okay. Okay, sure. Thank you for taking my questions. I have one question on margin. KFC's margins, they recorded a year-over-year decline in Q3, but recorded a significant YoY increase in Q4. I wondered that what's the reason behind this, and will this continue into next few quarters? Thank you.
Well, thank you, Sijie. In terms of margins, obviously, as we have mentioned a little bit in the prepared remarks, there are some of the factors in the fourth quarter that was not expected to recur. For example, some of the government and rental relief, and then we're also looking at some of the timing shift in government incentive. That may not recur in next year, and likely not incur in next year, especially for the COVID-related rental relief and government relief. The other second part of that is that our labor productivity improvements have been very strong. However, part of that is also due to some labor shortage, part-time workers. That, as we have mentioned before, it's going to be temporary, and when we increase our staffing level, that may also ease a little bit.
All in all, I think our team have done a tremendous job in controlling costs. Some of those cost control will continue into next year. We have a little bit discussion about commodity prices. Commodity prices also ease a little bit in the fourth quarter, so that also helps our cost of sales despite we stepping up promotional activities. That's another part of that. I think in short is that some of those cost savings, some of those margin improvements, productivity improvements, will carry forward next year. Some of them would likely be a more temporary situation. All in all, I think this year in 2021, the focus will really be continue to drive that sales and traffic recovery. We should expect stepping up in cost of sales in term of promotional activities. We also should expect an increase in advertising spending.
Again, because this two-year period lap impacted by COVID-19, our same store growth was not as strong as the past couple years. If you look at our cost of wage, the increase will come at it for two years. That's why in our prepared remarks, we caution folks that in 2021, margins overall compared to pre-COVID level will still remain subdued. One thing is that we still have some way to go before we see sales recover to the pre-COVID level. That's why despite some of the productivity improvements, some easing in commodity prices, we are still overcautious on the margin front.
Thank you. Thank you, Joey. It's Andy.
Thank you.
Sure. Thank you very much.
Our next question comes from the line of Terrance Liu from CLSA. Please ask your question.
Okay. Thank you, management, for taking my questions. I'm just curious about your statement on your coffee business. Based on our standing previously, I think you have been talking about refining the business model and then, I think store format for your coffee business, especially as to the COFFii & JOY. I think Andy just mentioned a couple of times that you will accelerate the expansion of your coffee business in this couple of years to scale up to your meaningful scales. I'm wondering, does this mean that you are satisfied with the current business model or the store format, or you have already found a replicable model for your COFFii & JOY business going forward? Could you just elaborate more about your strategy as to your coffee business for next three to five years, especially in terms of the store openings and any sales contribution?
Anything you can share with us is highly appreciated. Thank you.
Thank you, Terrance. Let's talk about C&J a little bit, and then we'll move on to Lavazza. C&J, we so far have roughly about 50 stores, and we have been working on the business model, and then refine it and build on it. The focus is on getting the fundamental right. For example, we build the data, we build the delivery, we improve the store economics. To give you a sense, the Q4 2020, the delivery business is already 30% sales of the C&J, which is much, much higher compared to the year before. The delta here is the availability of the system, and also food and et cetera. For C&J, we are also building the B2B business. It has a three-year partnership with another company so that we supply coffee in the office that's provided by our partner.
That partnership is about opportunity for 100 sites, and we'll continue to explore that. The potential avenue of growth is on store expansion opportunity, but also on the store economics. Once we have 50 stores, we have certain scale, then we can really work on the economics. It's very hard to really have a true sense of economic when we have a few stores. Let's move on to Lavazza. Lavazza, we only have five stores right now in Shanghai. However, the improvement of economics, the speed of improvement is quite fast. As I mentioned earlier, we are actually quite happy with the result. The brand is very well received by the customer. Because of the technology and all the fundamental we work on C&J, and that help the delivery data of Lavazza immediately as well.
Our delivery business for Lavazza, even with five stores, is already a quarter of the sales. Of course, we are also building the CRM, and we already start to improve the economics. The Lavazza business for 2021, we do plan to accelerate the opening quite fast in 2020. We shall go out of Shanghai for Lavazza this year as well. I think without going into more and more detail, I'll pause here.
I will add a couple of things. I think as Joey mentions, we see the fundamentals at C&J is improving. If you look at a store open more than a year, I think they have returned to positive SSG in late 2020. With better sales and better mix of products, we also see more store are going to break even. That's, I think, overall a positive trend there. For Lavazza, it obviously was a very new initiative, but I think what we can say is that the reaction from consumer and the initial sales number were better than what we have initially forecast. Still early in the game for coffee for us, but with great confidence.
More importantly, I think we internally have decided coffee is a very important category for us in the longer term, and we will invest what needed to make it successful and material and an important part of our business going forward.
All right. Thank you.
Okay. Thanks, Andy and Joey.
Thank you.
I would now like to hand back the conference to today's speakers. Please continue.
Thank you for joining the call today. We look forward to speaking with you on the next earnings call. That concludes today's call, and have a great day.
Thank you.
Thank you, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.