Ladies and gentlemen, thank you for standing by, and welcome to the Yum! China 20 2Q1 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. Please be advised that today's conference is being recorded.
And I would like to hand the conference over to your first speaker today, to Ms. Debbie Ding. Thank you. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining Yum China's Q1 2020 earnings conference call. Joining us on today's call are our CEO, Ms. Joey Hua and our CFO, Mr. Andy Yang.
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.
Reconciliations of the non GAAP and GAAP measures should be is included in our earnings release. Today's call includes 3 sections. First, Joey will provide an update regarding recent developments in the coronavirus situation. Then she will offer some highlights around our Q1 results. Andy will then cover the financial results and provide an update on our full year outlook.
Finally, we'll open the call to questions. You can find the webcast of this call and a platform presentation, which contains operational and financial information for the quarter on our IR website. Now I'd like to turn the call over to Ms. Joey Hua, CEO of Yum China. Joey?
Thank you. Thank you, Debbie. Thank you all for joining us today. I hope all of you near and far remain safe and healthy. Before covering our quarterly performance, I would like to update you on our actions regarding the COVID-nineteen situation.
Throughout this crisis, we make sure that our top priority was the health and safety of our employees and customers. As stores were closed, we worked with local authorities to ensure quick implementation of health measures. We wanted to ensure 3 things: a commitment to value, commitment to supply, and a commitment to quality. We wanted to make sure that in a time of crisis, KFC Pizza Hut and our other brands will be there to provide reliable quality meals to our customers, especially those in the front line fighting this outbreak. About 65% of our stores remain open throughout this period.
Even when infection cases were rising and store closures accelerating, our employees and delivery riders continue to show up. They wore masks, observe strict hygiene and serve our customers, providing a vital service in this time of need. Employees are the backbone of our business. We support them and their families by extending holiday pay even if the stores were closed. We encouraged our employees to look after Charter.
We strengthened medical insurance coverage for staff and more importantly their families. We expanded coverage to parents of our restaurant managers up to the age of 75. This is important as providing for parents is a key cultural duty for us in China. This is simply the right thing to do. Providing this support gave our managers the peace of mind to focus on work and contribute to our long term success.
Also in response to the pandemic, myself, Andy, senior executive and board members have agreed to forego 10% of our salaries for the rest of this year as contributions to fund additional assistance for frontline employees and their families impacted by COVID-nineteen. Since all this started, I have been humbled and impressed by the dedication, resilience and creativity of our employees. Even as Wuhan was in lockdown and our stores closed, our people helped with the delivery of meals to frontline medical staff. We provide over 170,000 meals at no cost to over 1450 hospitals and health centers in 28 provinces. On Women's Day on 8th March, a day we usually drive holiday sales, we make a decision to close all stores that day in Wuhan that had just opened or reopened.
We instead dedicate these stores to serving 1,000 of free meals to medical workers that have come from all over China to support Wuhan. With a reputation for quality, safety and value built over 30 years in China, our brands resonate well with consumers. This trust is a key enabler of success of our pivot to delivery and takeaway programs during this quarter. Importantly, we lift our mission to be the world's most innovative pioneer in the restaurant industry. We pioneered content less delivery and takeaway.
Pizza Hut increased its takeaway offerings and started delivery of ready to cook steak. We adapt quickly to changes in consumer needs, relying on our solid execution and market leading digital capabilities. Recently, the situation appears to have turned a corner. Approximately 99% of our stores are open, with some stores often delivery and takeaway only or operating with shortened hours. Our Wuhan stores are mostly back in business.
We look forward to again giving our customers what they expect from Yum! China, good food, great value, pleasant dining, the convenience and value of our digital experience. Nevertheless, the recovery is not guaranteed nor linear. Volume has not yet returned to pre operate levels. There remain differences across regions and brands as the country gets back to work, social distancing, telecommunicating and reductions in travel may become the new normal.
This could fundamentally impact the way we work and the services we provide. 2020 will be a very challenging year. I'm grateful to lead the dedicated team at Yum China, our culture of innovation, our strong operational excellence and our leadership in digital and delivery in our industry position us to thrive. This crisis also offer us opportunity to grow, to create and to build a stronger young China. Now let's move to our Q1 performance.
System sales were down 20%. Approximately 35% of our store base was closed during the peak of the outbreak. Stores that operated suffer outbreak related declines in sales. We opened 179 new stores, mostly at KFC. Mostly almost all of our new builds were completed in January, with store openings gradually resuming in late March.
Same store sales declined 15%. Sales declines were particularly pronounced at our tourist and transportation locations with regional and tier differences. We mitigate sales declines with menu innovation and a shift to delivery and takeaway. Our business model proved resilient. With the dedication of our employees across dining, delivery and takeaway and a strong digital platform, we were quick to adapt.
From inventory management to rental relief, we tackled every opportunity. With help from suppliers and landlords, as well as the support from government authorities, we achieved $97,000,000 in operating profit in Q1. We were diligent and flexible in managing inventory issues, while maintaining our strict food safety protocols. For example, we used excess creamier ice cream inventory from Hokkaido as raw material for our 8 Tots and Milk Tea. This created a high quality product for customers and prevent unnecessary waste.
Delivery and takeaway make an important contribution to operations during the crisis. Delivery was crucial to driving online orders to our stores, while takeaway offered a safe alternative as dining services were limited or closed. Delivery sales grew 40% and delivery sales mix grew to 35 percent compared to 19% mix last year. In late January, we rolled out contactless delivery on our super app at both KFC and Pizza Hut. Contactless delivery's emphasis on safety is both popular and responsible.
Over 60% of all on channel orders at KFC and Pizza Hut selected the content less option with adoption peaking at over 80%. Having dedicated riders was crucial in supporting our business during this time. Our commitments around value, surprise and quality would not have been possible without our amazing riders. This emphasis on safety and rider supply drove our own channel growth above that of aggregators during the quarter. Successful takeaway requires digital pre order capability, a suitable menu and packaging, and most importantly, a strong value proposition.
KFC and Pizza Hut has all these things. I'm very proud of our Pizza Hut brand, which more than doubled takeaway contribution in the quarter, establishing a clear third option on top of dining and delivery as to the resilience of this brand. Turning to digital. Communicating with our customers quickly and transparently was important to building trust and engagement during the outbreak. We leveraged our vast member platform to provide information on our safety protocols and store operations.
Our membership program continued to grow with over 250,000,000 members at the end of the quarter. Member sales exceed 60% of KFC due to the increased shift to online sales. Digital orders account for over 84% of KFC sales and 65% at Pizza Hut. Mobile preorders rose as consumers increased use of takeaway services. We continue to drive menu innovation and value even during the crisis.
During the quarter, our primary focus was safety and providing tasty food. We emphasized our core products and deferred some new innovations. We continue to delight and surprise with several new products, such as tea infused hotboiled eggs, which is a traditional Chinese side item and very popular particularly in East and Southern part of China. At KFC and also we have Qingduan during the Qingming Festival as well, which is a kind of food just for the Qingming Festival. And in Pizza Hut, we launched a crayfish mozzarella pasta, which is.
We also continue to provide smart abundant value, which was important in an environment of economic stress. Our signature Crazy Thursday campaign at KFC and RMB25 1 person set meal at Pizza Hut, In Chinese, we call it. All these value campaigns were well received. In late April, we just launched test for our plant based chicken nuggets in some of our Tier 1 stores. We are excited about this new innovation in meat alternatives.
Shanghai presale coupons for this test sold out in just 1 hour. Now let me make a few brand specific observations. 1st, KFC showed its resilience again. Our digital delivery and takeaway offerings provide a strong basis of support for the business, even during a crisis. Our flexible workforce and variable rent structure by the outbreak as consumers congregated less and practice social distancing.
We will continue to focus on building a young family friendly dining environment, while strengthening our offerings for individuals and take away. Throughout the crisis, we continued to develop new and emerging brands. We formed a joint venture with Lavazza and opened the 1st Lavazza Asia flagship store in Shanghai. As part of this pilot program, this store showcases the premium and authentic Italian coffee experience La Vazza has developed over its 125 years history. We combine this with Yum China's scale, operational capabilities and in-depth knowledge of the China market.
On April 8, we completed the acquisition of HuangJi Huan, a pioneer of Chinese similar pork casual dining, Mengpu. It has over 6 40 mostly franchised stores, both in China and internationally. In addition to this acquisition, we established a Chinese dining business unit comprised of our 3 core Chinese dining brands, Little She, East Dining and Huangshuang. I'm confident that the Chinese and Western brands in our portfolio will synergize to delight consumers with the delicious food and the digital customer experience. With that, I'll hand over the call to our CFO, Andy.
Andy?
Thank you, Joey, and good morning, everyone. I will first address key financials and developments in the Q1 and provide perspective on our full year outlook. Unless noted otherwise, figures mentioned refer to the Q1 of 2020. All figures are before foreign exchange rate effects and all comparisons are year over year. The Q1 financial results.
Total revenues declined 21% due to both temporary store closure and same store sales declines arising from COVID-nineteen outbreak. Public health efforts to combat the outbreak resulted in significant store closure and reduced customer traffic. Same store sales decline was driven by reduced dine in sales, partly offset by delivery and takeaway growth. Temporary store closures were taken out of the same store sales calculation and included once they reopened. KFC same store sales decline of 11% was driven by reduced dine in traffic.
Ticket average benefited from increased mix to delivery and takeaway. Speedhub's same store sales decline was 31%. Reduced dining traffic was also primary driver. However, given some KFC, the increase in delivery and take away mix contributed to lower ticket average. January sales for both brands was strong leading into Chinese New Year, but was severely impacted later in the month as news of the outbreak became widely reported and social distancing and other restrictions were implemented.
As infection rate declined and same store reopened, our sales showed recovery, although we are still below pre outbreak levels. New store openings were robust in January before the Chinese New Year period. Outback related traffic restrictions and construction worker supply thereafter impacted the pace of our store opening. Restaurant margin were 13.6% at KFC and 0.3% at Pizza Hut. Declines in restaurant margins across both KFC and Pizza Hut were primarily driven by sales leveraging, partly offset by our effort to cost control costs.
Specifically, cost of sales was 32% and a 1.5% year over year increase. Commodity inflation for the quarter was 3%. Through decisive actions at the store level and working proactively with our supplier, we were able to manage down inventory write offs and store level waste, normally associated with store closure and sales fluctuation. Cost of labor was 25.5%, a 3% year over year increase. Year on year rate inflation was 4%.
Increased portion of delivery sales contributed to higher labor cost percentages. Employees have extra holiday pay and with additional labor hours for increased safety protocols at our stores. We manage our cost of labor by quickly adjusting schedules. Our digital scheduling tools and Pocket Manager, a real time app, were instrumental in sustaining high level of productivity across both brands. Lastly, temporary relief from social insurance payments provided by the government was approximately $20,000,000 Rental expenses.
Over the past few years, we have made a concerted effort to increase the variable components and lower the fixed components of our rental expenses to improve the resiliency and flexibility of our operations. In general, approximately 40% of our rental expenses are tied to revenues, which declined proportionately to lower sales in the quarter. In addition, we negotiated approximately $15,000,000 in rental reduction. G and A costs were lower by 11% year over year, benefiting from cost control as well as certain one time government relief programs, including temporary reductions in social insurance payments and accelerated payments of certain government incentives that we received in the Q1, which would usually have been received in the 2nd or third quarter. We recorded impairment charge of $9,000,000 Bottom line, we achieved operating profit of $97,000,000 We are incredibly proud to have achieved profitability in such difficult circumstances.
Effective tax rate was 32.7%, higher than usual, primarily due to the mark to market loss from our equity investment in Maytrend that is not taxable, but reduced our pre tax income. Income was $62,000,000 driven by the operating profit just mentioned and the $8,000,000 mark to market loss from our investment in Meituan. Diluted EPS and adjusted diluted EPS were both $0.16 in the first quarter. Next, let me cover our balance sheet and capital allocation. Cash and short term investment remains strong at $1,540,000,000 The COVID-nineteen outbreak has a significant impact on our operations and results in the Q1.
While the situation in China is gradually stabilizing, we remain cautious as our restaurant traffic is still below pre outbreak levels. We expect an extended recovery period and the pace will be uneven across regions, dayparts and segments. We will continue to implement aggressive measures to control our costs. On the other hand, global inflection continues to rise. It remains difficult to predict the full impact of the pandemic on the broader economy and how consumer behavior may change.
The outbreak has highlighted the importance of having a prudent financial policy. With a challenging year ahead, we need to proactively maintain a strong balance sheet, while positioning ourselves to take advantage of growth opportunities. Therefore, and other one time relief that are likely to reduce if not terminated in early 2Q. We continue to experience significant disruption to our business from the outbreak. Some stores are still closed or operating under limited hours or services.
The traffic at restaurant is below pre output levels as people avoid going out and practice social distancing. The recovery of weekend leisurely volume have been weaker than weekdays volume. Traffic at transportation hub and tourist locations has also been extremely soft. The recovery trend is gradual and choppy. While we will be taking decisive actions with regard to cost management, Sales leveraging will continue to pressure margins.
At the current sales run rate, since the outbreak and excluding one time relief, we have not reached levels required for sustained profitability. Our store PUL program, previously interrupted, is restarting. We are not revising our target of 800 to 850 new stores for the year. However, we will evaluate conditions as the year goes on. We will be visiting the target as needed.
The outbreak highlights the importance of online to offline integration. Our investment in digital, technology and supply chain continues. Together with investment in new store and remodeling, our 2020 CapEx plan is unchanged in the range of $500,000,000 to $550,000,000 We expect wage inflation to stay at mid to high single digits this year. Commodity inflation is still a challenge. Despite volatility across most commodities, protein supply in China remains tight.
Our best estimate of 2020 commodity inflation now is for lowtomidsingledigits. We expect 2020 to be difficult, A new normal characterized by reduced travel and social activity may persist. As we look forward to recovery, we will continue to focus on serving our employees, our customers and the community in which we operate. At Yum China, we're here for the long run. Now before I turn the call to Debbie for the Q and A session, I will update you on some investment we have made.
In addition to the acquisition of Wangzhi Wang that Joey mentioned, we have entered into agreement to purchase an additional 25% equity stake in Suzhou KFC for approximately $149,000,000 We expect to close such a section in the second half of this year, subject to relevant closing conditions. Upon closing, Yum! China will hold a consolidating 72% equity stake in the entity. Now with that, I will pass you back to Debbie to start the Q and 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 question to 1 at a time. Operator, please start the Q and A.
Thank you very much. Ladies and gentlemen, we'll now begin the question and answer session. We have multiple questions in queue. Our first question is from Xiaopo Wei from Citigroup.
Good morning, Joey and Andy. First of all, thank you for hard work and social responsibility during the COVID-nineteen outbreak. We are seeing very resilient performance, especially KFC. So my question is, what's your observation on the consumer behavior changes during the crisis? And Andy also mentioned the new norm and Joey mentioned a lot of innovations.
What you're thinking of reinvent yourself in the business, especially for Pizza Hut? So we believe that Pizza Hut is focused on cattle dining, but it will be more impacted than KFC. Is any aspiration from the crisis which will position yourself better for the recovery of Pizza Hut looking forward? Thank you.
Thank you, Xiaopo. Throughout the crisis, I think the in terms of customer response, the first response obviously is about the focus on hygiene and safety, which our business has very long traditional in this area, and we obviously are very well positioned to enhance that. And then in terms of other behavioral change, basically the value for money and the desire for new food is still there. But most importantly is availability of food, because right now it's better, but back to February or last week of January, it's very important to provide a service. And our team has worked very hard to keep as many store open as possible.
On top of that, we leverage our digital and delivery and takeaway business model to serve our customer while protecting our employees. So the innovation is important as well. And then going forward, is there any sort of behavior change in the medium term, etcetera? The social distancing will linger a little bit. We continue to see that, particularly we can see the sales challenge still during the weekend.
Because for weekday, we are okay now. We are pretty much back to last year level, but weekend is still a challenge and holiday is still a challenge, which is quite different from past sales pattern. On top of that, the traffic helps because of the reduced traveling, the traffic hub business challenge. So the weekend, the dining and the transportation hub. Looking forward, how do we reinvent ourselves, particularly for Pizza Hut?
Let me talk about the 3 themes and then I'll go to Pizza Hut a bit more. There are 3 focus, menu, innovation, digital innovation, that's 1. 2nd, value for money. 3rd is cost saving. It's not only about the robust business model, cost saving is also about we save every bit we can save and pass on the savings back to the customer to further include the value for money for the customer.
So in the long term, while we are in the short term doing the menu innovation, value for money and cost saving, in the long term, we are also building an even more agile and robust business model. When it comes to Pizza Hut, as I mentioned earlier in my presentation earlier, I'm very proud of Pizza Hut in this crisis, because Pizza Hut business has higher percentage of dine in business. So naturally, it was more impacted because at worst time, the dyeing business, even though if we manage to open a store, the dining business were not allowed to operate. And KFC, because of QSR and because high percentage of takeaway, our sales during the worst time was impacted slightly less. However, it has always been one of the strategic initiatives to build the takeaway business for Pizza Hut.
We actually started 2019 Chinese New Year, try to push for the takeaway business. It achieves certain traction, so we get to 5% roughly of the sales is from takeaway. And before the 2020 Chinese New Year, we have planned and we have prepared to take advantage of Chinese New Year to accelerate the takeaway business. And then the COVID-nineteen hit, it actually gave Pizza Hut opportunity to accelerate the takeaway business even more. So for Q1, the takeaway business for Pizza Hut roughly about twice as before, so it's like 10%, 11%.
But that's for Q1 on average. During the worst time of crisis, the percentage was even higher. To do a takeaway business, it's not only just tell the customer to do the takeaway business, it requires a few things. 1, it requires a digital order capability, the mobile order capability and we got that ready right before the Chinese New Year. It also require very strong value for money because that's what customer for takeaway business want.
And they also require a flexible menu, a slightly different, more simpler menu. During the crisis, because of the sudden closure of the store, we have industry challenges. But instead of just facing a challenge, we took advantage of this as opportunity to create some new item with the inventory that we have and then make it into takeaway menu. So the innovation agility happened right there. And with that, the takeaway business right now is a meaningful part of the business, which is fantastic.
And this is something I believe I shared with our investment community before. We won the delivery business, which is a dominant part of Pizza Hut business already. We also won takeaway business because it does not require the delivery charge. While we are trying to strengthen the dining business. So I hope that gives you a sense of the challenges of the changes of customer behavior and our focus on building our sales back and then a little bit color on Pizza Hut business.
Thank you, Xiaopo.
Great. Thanks. Our next telephone question is from Brian Bittner from Oppenheimer. Please ask your question, Brian.
Thank you. Thanks for the question. Do you expect any store closings from your competitors because of this crisis? What is your insights regarding the ability for all of the industry capacity in China to survive this pandemic? And then secondly, you did not change your guidance for store openings for 2020.
Can you just maybe talk a little bit more about how confident you are that you can indeed achieve these store opening goals in 2020? Thanks.
Thank you, Brian. It's a really good question. We believe that we have turned a corner, but I hate to remind everyone that we're still in the middle of it. It's not over yet. We are still cautious that Q2 and Q3 will still be challenging for our industry in China.
The reason I'll get to the competitor a bit, but let me give you the context first. For the Q2, we expect May June will be very challenging for our industry, because sales is recovering, but still at pre outbreak still lower than pre outbreak level as Andy mentioned earlier. And in terms of cost structure during Q1, I think most of the industry player managed to get some help from the landlord and from the government or even in some situation, some company can manage to have certain agreement with the employees in terms of flexible pay. But that all these sort of one time relief that I mentioned, they are likely to go down if not going away by Q2. And that situation is likely to happen during May June.
So that's point 1. Point 3 sorry, point 2 is, what about Q3? Will Q3 be better? Hopefully, however, in our industry, we benefit from the summer because of children's holidays because of children's holiday that usually give us 20% to 30% uplift of sales. But this year, the summer holiday for the kids will be shortened.
To what extent is still not clear across the board, but it will be shorter. So that will be challenging. So this is the context. And then come to your question, Brian, about the store closing from competitors and etcetera. We have seen some business, mainly the smaller competitors are going in such difficult time, some very famous name one.
So right now, this is the test for financial prudence, I suppose. But as I mentioned, it still would take some time to see the full impact. Coming to your question about store opening, we have not changed our guidance because while things are very tough, we are cautious, but we are also optimistic at the same time, because it is the time for us to continue to build our brand, further refine our business model and also it's possible that there will be some locations or store sites that become available, particularly the high quality ones, if they become available, our financial presence will be helpful to allow us to still expand and invest in new store, because we are here in China market for long term. And we in the long term, we still believe in the market potential. And thus, our unchanged guidance on new store.
Andy, do you have anything to
add? Sure, Zhou Yi. So two points, right. So as we mentioned, we're investing for the long term. So our fundamental view on China has not changed.
We still think there's a lot more opportunity there. So although in the Q1, we have done roughly 180 new store openings. We're slightly below last year's schedule. And as we mentioned before, it's mostly impacted by the post COVID-nineteen outbreak, obviously, traffic situation there in terms of workers can be going to work especially on construction site. So we will try to make that up make up the lost time in the coming quarters.
And so far, we have not we targeted our 2020 newbuild target. So and the same goes for other CapEx spending. So if you look at our importance how important IT, online operations, supply chain, all these things are during the crisis. And I think in the long term, I think those trends will continue. So we're seeing acceleration in from moving from offline to online, moving more to delivery takeaway.
So we need that infrastructure to support our long term growth opportunities. So we will stick to $500,000,000 to $550,000,000 in CapEx spending this year as well. So hopefully that helped you or answered your question.
Thank you, Andy.
It does. Thank you. Thank you, Brian.
Our next or last question is from Michelle Chang from Goldman Sachs. Please ask your question, Michelle.
Yes. Hi. Thanks, management. I want to follow-up a little bit on the recovery path. Since, Joe, you just mentioned that industry has been will be quite challenging into Q2, Q3.
But can you please share your thoughts about our recovery path for different brands? When do you think the same store sales to recover to last year level? And how to drive this improvement? And also, I think in announcement you mentioned uneven recovery across region, daypart segment. And so can you share more color about these and potentially also the consumer groups like younger generation, families, etcetera?
Thank you.
Thank you, Michelle. For recovery path, as I mentioned earlier, the immediate focus right now is still about protecting our staff and also open as many stores as possible and also reopen the buying business in some store that we were still not allowed to open. So that's immediate. And then in terms of focus, immediate is about getting the traffic back because for Q1, for both brands, particularly for KFC, our traffic was very heavily impacted. But we make up for the loss of sales with much higher ticket average by going to corporate catering, etcetera, etcetera or big item ticket delivery.
So right now, it's still about getting the traffic back. We are happy to the trend improving during March and then April, because April right now, the same store sales is slightly more than 10%, which is an improvement compared to March. But in the medium term, the journey continue because our traffic is not back to last year yet, as I mentioned earlier, particularly during the weekend and then transportation help. And the question is what to do. So when I talk about manual innovation, I probably should have elaborated a little bit more.
So for example, for both KFC and Pizza Hut, we adjust our marketing calendar. I'll give you an example. Traditionally, we put a lot of these value for money promotion during weekdays, particularly for Pizza Hut, because weekday sales is slightly lower, and in Pizza Hut case, the weekday sales is lower than weekend. So we'll put the value program during weekdays. However, now time has changed.
And as I mentioned, the problem over weekend, so we even for the same margin campaign, we'll be shifting the weight of the value program to weekend and holidays to stimulate the sales to get the traffic back. So it's sort of a small tweaking, but incredibly important to get our bullet to focus on the right area. Secondly, in terms of menu and innovation, food, exciting food. I mean, in Chinese, we call it small fortune, small happiness. During the crisis time, we launched Taoyuan, which is a very traditional snack, right, the 8, the TA, customers were surprised and delighted how do you guys manage to launch new product in the middle of crisis and they were happy.
And it's wonderful to be in full business that to see that we can put a smile on people's face during such difficult times. So whether during good time or bad time and good food will make people happy. And this month, we test launched the plant based chicken nugget, very, very popular, so popular that even our own staff cannot have a taste of that, because the Q4 was strong in 1 hour. And as of right now, this week, Monday, we just launched Ohhua sweet tofu, well actually more than sweet, it's spicy and it's salty, different flavor across China. But this is like an amazing breakfast item and a traditional one.
And it is the item that will bring back so much childhood memory for every Chinese because we have our Tohuwa movie kit, but it's pretty much very hard to find right now because it's very it's street food. So we put the item on our menu and the response is fantastic. So really look forward to that. So good food. And then the value for money, good price, because now or in the medium term or even longer term, there's such uncertainty of future.
And even for people who might be a bit relaxed with the money in the pocket right now might think twice. So during such difficult time, the value for money becomes even more important. With the non raised price, Dohua is still priced at RMB 7 slightly more than 1. Well, actually, exactly at US1 dollars So the value for money will continue that we can only make it possible if we look at our entire cost structure and look at all the possible area of improvement so that we are committed to pass on the saving back to the customer. It's a commitment from our entire company, not only the customer, but frontline employees.
During the very difficult time we expanded medical coverage and we protect all our frontline staff pay even when the stores are closed because we understand the importance of our employee and our customer during bad time and good time. So there's no magic nor there's some fancy strategy there. It is about our commitment in the short term and long term to deliver customers something that they like so that they can enjoy affordable and enjoy affordable and delicious food, either in our store or at their home or at whatever convenience take away. So, Michelle, thank you very much.
I just have a couple of things to add, right. So, as we mentioned on press release, our current at least in this month, right, so far, our traffic is still down compared to the pre op rate level. I think more than 10% same store sales compared to last year. And then we also constrained that as Joey mentioned, right? So we have a sizable portion of our business is in the transportation hub and tourist location.
As you probably know, most airports are still have very limited services. Same goal for the high speed train services. Quite depressed. So if you look at our recovery trajectory, for example, like in January, we go into the January before the Chinese New Year very strong and then we were significantly impacted outbreak. The trough was in February and then we're beginning to recover as the outbreak ease and people beginning to return to work.
And we've benefited quite a bit because we have kept most of our stores open during that period of time. And we're one of the few options and safe and healthy options for folks to get food, right? And as we mentioned, like in the previous update, 20% year over year, like, top like same store sales declined in March and then now we are about 10%, right? So but we're still constrained. Tourists locations, are still restricted quite a bit in terms of traffic.
And then we look forward to the recovery. I think the timing of those locations, how they will recover, I think is still a little bit uncertain at this moment. And then also, as Joey mentioned, there's some social behavior change that are still lingering from the outbreak. So the distancing is still being practiced here in China. People on the weekend, even when they go to restaurant, they try to avoid congregations in large quarts, right?
So I think that how long that would last and how long take for us to go to the normal prior to the outbreak, I think there's still quite a bit uncertainty and it's hard to predict at this time, especially given the situations globally and how that reverberates back into the Chinese economy and how that will change consumer behavior, I think we still have yet to see clearly at this time.
Thank you, Andy. Michelle, I do notice that at the end of your question, you asked about the regional and tier. There is difference. This region has recovered the best and then some region and northern part of China is still slightly behind. In terms of city tier, our lower tier cities are doing slightly better than the top tier cities for few reasons.
The main reason is Tier 1 city like Beijing, particularly Beijing, Shanghai, Guangzhou, Shenzhen, particularly Beijing, these Tier 1 cities have this proportionally higher percentage of sales from transportation hubs. Since the transportation hub business are still heavily impact, we are talking about half of the business being impacted in transportation hub and thus impact the overall top tier city business recovery. For lower tier city business, it has been quite resilient for other reason as well other than the lack of transportation help. In lower tier cities, during the most difficult time, it was not uncommon and actually it was reported by some media outside China. If you go to if you went to a small city at that time, it was very likely that KFC was the only store that was operating.
And even right now as the country is recovering from the competition in the lower tier cities still favor us because of our strong reputation in hygiene and food safety, and that's the difference. So thank you, Michelle.
Our next question is from Annie Ling from Jefferies. Please ask your question, Annie.
Hey, hi, management team. Thank you for taking the question. I have two questions. First is on the cost side. Management mentions about like all these cost increase.
Just want to check like whether this include all these like one time relief in Q1 and possibly in the Q2? And if you look to like share with us what is the nature? You just talk about some of these like pension relief and all that. Would you share with us like what would you itemize what are this nature on this part and whether it's included in our assumption and all that. And then also in terms of the commodity price increase, we understand it seems that based on some of the latest trend, the chicken price actually start to come down these days.
So is it fair to say that we should be seeing some delay impact from last year's higher inventory costs that first half we might see a higher like commodity price increase and then subsequently it will be lower. How do we see this cost trend by half year basis? And lastly, in terms of the upcoming labor holidays, do we have any expectation? I mean, is it fair to say that this will be a good test in terms of like to test out how quickly the consumer can come back? Thank you.
Okay. Thank you, Andy. This is Andy. And so I will try to address your question regarding the cost increases, the one time leave in the Q1 and then how does that look like in the Q2. So as we mentioned in the prepared remarks, we did receive some relief from the government in terms of social insurance payment.
There was a general reduction of that across China. We benefit from that as well. And so there's approximately $20,000,000 of that in the cost of labor and then another probably a few $1,000,000 in our SG and A. We also received rent reduction, right? So from the landlord in the quarter, it's about $15,000,000 So those in total is roughly about $40,000,000 in one time.
Now if you look at the social insurance payment reduction program, I think that's going to expire in early Q2. I think April is the last month that we would probably receive that relief. Now same for rent and most of our landlord have agreed to rent reductions during the crisis. But as the economy has obviously beginning to recover, we do not expect if there's any rent reduction to be the same magnitude as we have received in the Q1. Now and we also have about $15,000,000 worth of government incentive that we received in the Q1 that we normally receive in the second or third quarter.
So if you do that, you'll notice that we benefit in the Q1, but on the year over year comparisons will be more difficult for us going into the second and the third quarter. Now I think you also have mentioned the commodity price, chicken in particular. I think as we mentioned, we do expect cost of sales at single digit level. You're right. I think the demand and the demand declines and logistic issues resulted from the COVID-nineteen have caused a temporary glut of supply in poultry during that period of time.
And so the price did come down a little bit. But if you look at however, the overall commodity prices is still at a very is still at a very high elevated level. If you look at, for example, pork price is more than double year over year, still very high level. The reason is because overall, protein we make protein products remain very tight in China despite the crisis. So and then if you think about the feedstock that are going to raising chicken and pigs and all that, it still remains very tight because transportation hub, transportation and international transportation are being impacted by COVID.
So it may have an impact later on as well. So as we have mentioned before, our contract annually set at least a quarter ahead of time. So I think we will see how this is going to pan out. But I think overall, I think our expectation is that protein prices in China, chicken, pork and etcetera, will remain elevated in the near term or term. So if we also looking at the impact of Holiday Shifts, I think first of all, I think the coming up is next week, we have the May 1 Labor Day or a long weekend.
I think if you look at it's a tricky one, right? Because obviously, on one point, we have been cooped up in our houses for a long time, and then we want to go out and sightsee and do all kind of tourist attractions. On the other hand, the government also aware of the large congregation of people at this point, probably not a preferred option. So we do see some cities in China have implemented a different schedule for kids for the holiday period. So that they try to alleviate that congestion during holiday opening.
And so I think it will be interesting to see how consumer behavior actually going to work out for the long weekend coming up. But overall, I think we also are looking into other holiday and kind of shift that would have impact on our business. So if you think about school year this year have shift quite a bit. So a lot of schools have reopened, but I think a number of cities also announced that they're going to shorten the or delay the summer vacation holiday, but that is going to have an impact on our business. Obviously, historically, summer, when kids are out, people are traveling, that generally is a peak season for us.
So the shift in school holiday may have impact for the summer for us.
Yes. And just for the May 1 holiday, on top of what Andy just mentioned, the transportation hub business will still be struggling. The reason is schools are opening up particularly for the younger kids after the May holiday. So that means that parents and kids are not encouraged to travel outside their city before the school started. So our translation hub business in the train station are likely to continue to suffer a little bit even during the May holiday.
Thank you. Okay.
Got it. Thank you.
Our next selling question is from Sara Senatore from Bernstein. Please ask your question, Sara.
Hi. Thank you. I wanted to step away from the current environment and just ask about the portfolio you're building, Lovaza now and then Coffee and Joy, the recent acquisition of Huangdi Huang, sorry if I butchered that, increased equity stake and I think an investee. So just how should we think about these acquisitions in terms of contribution to growth over time? Because I think historically some of your smaller concepts have not performed as well as KFC or even Pizza Hut.
And maybe just the trade off between making these investments now and suspending your share buyback as we think about how you're allocating capital? Thank you.
Yes. So thank you, Sarah. I will try to address your questions. So in terms of our overall brand portfolio, for example, so you can think of it as sort of 3 main grouping for us, right? We have the Western Food, which is consists of KFC, Pizza Hut and Taco Bell.
And our announcement of the equity investment in Sogou KFC is to strengthen our control. So Sogou KFC was a joint venture. We are able to negotiate a favorable term for us for these transactions. And so it's so we take that opportunity to gain control of the JV. And I think over time, it would be incremental to our operation, okay?
So and I think going forward, I think we'll also look into other potential opportunity obviously to continue to grow our Western Food portfolio in this 3 core front. Now if we look at the Wangji Wang acquisitions, that is sort of a complementary to our existing leadership operation. So it forms our Chinese cuisine. And as we have mentioned, it's important to gain a larger share of stomach from Chinese consumer. Chinese food remains the largest portion of the restaurant business.
So we'd like to gain some expertise in that area. It's a very large and growing market. So if you think about the investment for 1Q1, which is slightly less than $200,000,000 I think that's a good investment in terms of leveraging our existing infrastructure to scale that franchise business. And I think in the long run, it will help us to build expertise in Chinese cuisine product and services. It's an important long term growth driver for us, okay?
In terms of coffee, I think coffee is mostly an organic initiative. So KFC so KFC coffee is sort of a sub brand within KFC and rollout that across our restaurants have been very successful, right? So we have so I think so far like 137,000,000 cup of coffees, so making us one of the largest coffee sour in China. And C and J is a concept that we launched a little bit more than a year ago or almost 2 years now. It's still in a developmental phase.
While it's not possible and you should not expect building a new brand to be possible in the 1st year or 2. But we are very disciplined. So if you have look at our store number and new bill number, we have been extremely disciplined and our concept is always to try and experiment with the product offering with the format of the store. Once we have a winning formula, then we would scale it up quickly. Given our capability in building the store and building our infrastructure, I think that will be really good.
But the first thing is finding the right product, the right mix of a model for Xinjiang. Now Lavater. Lavater is a joint venture we have set up. It's a wonderful brand, a wonderful coffee brand globally. And right now, we have one top for this joint venture and it has been pretty well received since our like soft launch, right?
And we will continue to develop that pipeline. So in terms of our capital allocation strategy, we number one priority for us as we always mentioned is OVAM growth. So we'll continue to invest in store opening, remodeling up our store. And then and the second part is that we continue to invest in some of these growth initiatives like coffee, like Chinese cuisine. And if look at the third one is obviously we're very committed to return excess cash to our shareholder.
Over the past couple of years, we have we also obviously, we have a share repurchase program that was like $1,500,000,000 We still we have repurchased almost $800,000,000 plus of our share. We still have about $600 and some $1,000,000 in the program. I think once the situation stabilize and become clear and we would we'll continue that commitment to return excessive cash to shareholders. But we'll only do so when it's appropriate and prudent. During this time of crisis or during time of uncertainty, I think we have proven that a strong balance sheet is extremely important, especially for a restaurant operator.
So that's number one priority for us to make sure that we have the balance sheet to maintain normal operations to deal with any contingency that may have arrived and then continue to invest for our long term growth opportunity, right? So that's our priority. I hope I addressed your question, Sarah.
Yes. Thank you.
Our next question is from Christine Tang from UBS. Please ask your question, Christine.
Thank you. I think most of the questions I have have already been addressed by management. But if I could ask the last question I have towards Joey. So given all the changes you are seeing in the restaurant industry during the COVID-nineteen, especially given your resilience during this crisis, should we expecting even higher than 2019 extension pace as you look into 2021 in terms of the store opening, etcetera? Thank you.
Thank you, Christine. You are familiar with our business and we always emphasize that we sort of have a rough guidance of the number of new stores, but we don't really give it as a sort of a target to business. We make the store opening decision from bottom up perspective. So if we can find enough store that meet our financial assessment and the growth assessment, we'll open the store, because financially, we're prudent enough, we have the capital. But if the store itself does not pass the test, we don't.
So therefore, it's very difficult to sort of have a very, very specific target. If we see the opportunity, of course, we'll take it, but we never really push our team to chase after the target. I mean, it's always good to have a bit more certainty. However, we have been doing it because we emphasis on the quality of the store more than the quantity of the store. And for us, the quality of the store is not something that we compromise.
So I guess the short answer is, it's possible if we find the opportunity. But if we do not find opportunity, we won't force ourselves or push our team to do it.
Right. And Niall, this is Sandy. I want to emphasize that for even though we provide sort of a solvent target each year, but that is just sort of like a guideline aim that have our team to aim for. We have a very internally very disciplined process to make sure that the store that we opened are financially viable projects. So it's very good that our team, our demand team have done a very good job over the past few years opening store.
And as you can see from our financial performance, those stores have very good payback. So if you look at KFC, it's roughly 2, a little bit more than 2 years. And then if you look at Pizza Hut, it's about 3 to 4 years. So very good by industry standards and we'll try to maintain that. We'll be
speaking with you on the next earnings call. That concludes today's call. Thank you and have a good day. Thank you very much.
Thank you, everyone. Ladies and gentlemen, you may all disconnect.