Hello, everyone, and thank you for joining Yum China's fourth quarter 2019 earnings conference call. Joining us on today's call are Ms. Joey Wat, CEO of Yum China, and Mr. Andy Yeung, CFO of the company. Before we get started, I'd like to remind you that our earnings call and investor presentation contain forward-looking statements, which are subject to future events and uncertainties. Our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary 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 and reconciliations thereto. Today's call includes three sections. First, Joey will cover Yum China's 2019 and fourth quarter highlights and recent developments of the coronavirus situation.
Andy will cover the financial results and 2020 outlook. We will then open the call to questions. You can find the webcast of this call and a PowerPoint presentation, which contains operational and financial information for the quarter on our IR website. At this time, I would like to turn the call over to Ms. Joey Wat, CEO of Yum China.
Thank you, Debbie. Hello, everyone, and thank you for joining us today. Before we dig into the details of the quarter, I want to step back and offer some perspective on the past year and on our long-term strategy. We achieved solid performance in 2019. This was supported by our unique competitive advantages, including our leading development and supply chain expertise, as well as our ability to innovate. Customers are drawn to us for four reasons. One, our delicious food. Two, great value. Three, a pleasant customer experience, which is enhanced by our digital efforts. Four, convenience through delivery and mobile ordering. Let me very briefly review the progress we made in 2019 in each of these strategic areas. I will start with the fundamental core of our business, the food. Our customers expect delicious new menu alternatives, and we exceeded those expectations last year.
Whether it was the shrimp or crayfish burgers we introduced at KFC in Q1 or the double chili chicken in Q3 or the Christmas snow pizza featured at Pizza Hut in Q4, we are continuously refreshing our menu. To support menu innovation, we opened our Innovation Center in Shanghai last February. That facility represents our full commitment to sustain our leadership in offering delicious, high-value menu alternatives. Second, we are focused on offering great value to our customers. We offset higher food costs with greater efficiencies in order to keep price increases to a minimum. We kept customers engaged through various smart value promotions and digital offerings. Finally, we used the promotions in a more strategic and targeted manner. Crazy Thursday at KFC and Scream Wednesday at Pizza Hut remain effective, and we continued to spoil our members with exclusive or tailored offers.
Third, our digital engagement is key to creating a closer relationship with our customers, driving loyalty and traffic. In general, digital significantly improves our marketing efficiency. With digital membership programs, we can understand customer behavior, their likes and dislikes, price sensitivity, et cetera. You name it. We can tailor promotions down to the individual. In our experience, this is far more powerful than any sort of mass marketing we can do. We introduced useful functions such as YUMC Pay. In addition, our exciting offers within the privilege program drove frequency, value perception, and customer loyalty. One example of the power of digital is coffee marketing, which is primarily driven by digital initiatives. In 2019, we sold 137 million cups of coffee at KFC, up 48%. Fourth, finally, we are committed to creating more convenient ways for customers to access our menu.
Delivery continued to ramp significantly during the year and account for 21% of sales. Sales via our own channels grew faster than that vi1/3-party aggregators. Our convenient mobile ordering and kiosk ordering are becoming more popular. They also free up our store staff for other in-store functions, making our restaurants more efficient. Each of these strategic initiatives enable us to meet or exceed our goal in 2019. We opened over 1,000 new stores. This was the highest annual store openings in our history. We also remodeled almost 1,000 stores, solidifying the appeal of our new designs. Over half of the remodels were the new design at Pizza Hut. Same-store sales growth was 3%, reflecting strength at KFC and revitalization at Pizza Hut. KFC and Pizza Hut combined digital membership grew by over 1/3 to 240 million. Those numbers contribute half of our sales.
Importantly, all of these result in solid profit growth. We also continued to develop our emerging brand portfolio. Little Sheep has 300 stores in 11 countries, including New Zealand, Myanmar, which are new markets we entered in 2019. We opened 40 COFFii & JOY units, bringing us to 53 total in 10 cities. Taco Bell now has seven stores in Shanghai. In addition to the customer-facing digital and delivery initiatives, we are further leveraging technology across our entire business. We are using technology to enable our operations to be nimble and flexible. That, coupled with our in-house and integrated supply chain, enable us to launch new products and promotions at national, regional, or even store level with increasing speed and efficiencies. Our IT investment is also enabling greater efficiency in staffing. We have utilized AI-based technology to implement store-based hourly sales forecasting, which supports labor scheduling and inventory management.
We also started to roll out smartwatches, enabling our GMs, our managers, to closely monitor the ordering and serving status in our restaurants. We will step up investment in IT infrastructure and supply chain. This is money well spent, as it helps us to create a tremendous amount of flexibility and agility in our daily operations. Now, let's drill down to the fourth quarter performance. We are pleased with our strong performance in the fourth quarter. We delivered our 13th consecutive quarter of system sales growth since the spin-off, with positive same-store sales and expanding margins. Let's start with menu innovation. To this end, we launched several exciting limited time offers, LTOs, during the quarter. At KFC, we launched new products for our premium burger line, including the turkey and spicy chicken burger, and the thick-cut Australian steak burger. Both are proving quite popular.
Breakfast continued to be one of our key growth drivers and grew faster than other day parts. We launched semi-sliced beef congee, [Non-English content] , to enrich our Chinese menu offerings. We also drove strong sales growth in coffee with new products such as flat white and caramel macchiato. We also launched hot taro tea drinks as new additions to the oolong tea series, [Non-English content] , which is available in all 1,400 dessert kiosks across the country. At Pizza Hut, we launched various new products such as the snow cheese beef pizza, roasted turkey side, and sea salt caramel milk tea to capture the festive spirit. Steak sustained its momentum as well. Sales grew mid-teens and accounted for 13% of our Pizza Hut sales now. Our digital and delivery strategies are designed to ensure great customer experience on top of great food.
Here's the progress we made this quarter. Our privilege subscriptions continue to be very popular, with over 3 million sold during the quarter. Since we launched our first privilege program, we have sold 15 million subscriptions. Privilege sales continue to increase in the mix of total sales. In November, we used our partnerships and our super app to capitalize on the hype around Singles' Day, the so-called Double 11 shopping holiday. We enabled consumers to indulge themselves across the Yum China family of brands. The results were outstanding. Notably, KFC doubled GMV compared to last year and ranked number one on Tmall in the restaurant category. Pizza Hut grew GMV by over 1/3 and ranked number one on Meituan in the food category.
Digital orders, which includes delivery, mobile orders, and kiosk orders, reached 61% of sales, and digital payment exceeds 90%, both well ahead of last year. Let me cover some details of the performance of our two largest brands, starting with KFC. KFC reported another strong quarter despite a tougher lap compared to the prior quarters in 2019. We maintained solid momentum with 10% system sales growth. This was driven by same-store sales growth of 3% and accelerated new store openings. On a full year basis, KFC opened 742 new stores, which is equivalent to two stores per day, and entered over 100 new cities in China. We offset elevated chicken prices with diligent cost control and creativity in our menu. One example of our creativity is the wing tip bucket. We used alternative chicken parts to develop a tasty new product that also represents good value.
We delivered operating profit growth of 20% in constant currency. Next, Pizza Hut. Pizza Hut continues to cement the progress being made in its revitalization program. In Q4, we achieved traffic growth in both dine-in and delivery. Margin also improved. In addition to digital marketing campaigns, Pizza Hut also enhanced tableside mobile ordering. This better user experience resulted in an uptick in usage. Delivery grew to 28% of sales, mainly driven by our own channels, thanks to our digital platforms. We are enhancing our asset portfolio through accelerated remodels. We remodeled 281 stores in the fourth quarter, bringing the total to 513 for the full year. Over 1/3 of the Pizza Hut stores now feature the new design. Overall, we are seeing progress at Pizza Hut in operating metrics and consumer satisfaction, which tell us we are pursuing the correct long-term strategy for this brand.
In 2020, we will continue to excite customers with good food and good value, including a menu revamp. Before I hand the call to Andy to go through the financial results, I would like to update you the health situation in China and what we are doing. First of all, our top priority is the safety of our employees and customers. We are closely monitoring and implementing the requirements of local government and health authorities. Because the situation is fast-changing, we are implementing all measures as rapidly as possible. Fortunately, we have outstanding operations and supply chain teams that we can mobilize. For example, our procurement team secured enough face masks for all our staff. All restaurant staff and riders are required to wear face masks and measure their body temperature.
We have stepped up cleaning and disinfection of all areas and equipment in our restaurants. We are complying with local authority health requirements. We also took the opportunity to improve our operation by launching contactless delivery. This arrangement helps to reduce the risk of human-to-human infection and protect our staff, riders, and customers. Having been in China for over 30 years, we are determined to overcome this challenge and do our part to assist the communities we serve. With the support of our staff in Wuhan, we are providing free KFC and Pizza Hut meals to the medical staff at seven hospitals in the city. This represents over 1,000 meals per day. We also have donated RMB 3 million to assist medical workers involved in fighting the outbreak. Chinese New Year is an important trading period for us, usually driving first quarter performance.
This year, the outbreak right before Chinese New Year is causing significant interruption to the business. We expect there will be material impact to our first quarter and full-year sales and productivity. Nevertheless, we believe that our operating excellence and financial strength enable us to withstand challenges like this. We remain fully confident in the long-term opportunity of the China market. With that, I will hand over the call to our CFO, Andy Yeung. Andy?
Thank you, Joey. Good morning, everyone. As we start a new year, we are going to make a small change to how I review the financials. Because you can find all the figures and comparisons you need in our press release and supplemental slides, we will not repeat all the numbers here. Instead, we will focus on the primary factors that influence our results. Unless I have noted otherwise, any figure I mention now refers to the fourth quarter 2019. All figures are before the effect of foreign exchange, and all comparisons are year-over-year. Fourth quarter financial results. Total revenues grew 8%. It was driven by both new stores and same-store sales growth. KFC same-store sales growth of 3% was driven by higher ticket average, which is a function of higher prices, fewer promotions, and more delivery.
Pizza Hut same-store sales growth was flattish, as traffic growth was offset by promotions that reduced ticket average. There was also one less long weekend compared to 2018. As Joey mentioned, new store openings were well ahead of our initial expectations. We postponed planned openings from 2020 into 2019 to capture more of the holiday selling season before the Chinese New Year. The strong performance of KFC also allowed us to open more stores than expected. The increase in restaurant margin was due to better margins at both KFC and Pizza Hut. At KFC, sales leverage and improved labor productivity more than offset wage and commodity inflation. At Pizza Hut, margin was improved mainly due to more efficient restaurant operations and contribution from franchise revenues recognized.
The jump in G&A expense was in part due to the lapping of government incentives that were received and reduced G&A in fourth quarter in 2018, but were received in the third quarter in 2019. We also have higher performance-related compensations in 2019. Our goal is to keep G&A increase in line or less than revenue growth. We achieved operating profit growth of 16% due to sales leverage, net new unit growth, and productivity improvement, which more than offset higher costs from inflation, promotion, and G&A. Net income increased 23% to $90 million, driven by the operating profit growth just mentioned, and the mark-to-market gain from our equity investment in Meituan. This is partially offset by the lapping of tax benefits in the fourth quarter 2018 that was related to the U.S. tax reform, and higher tax accrual in 2019.
Similar to net income, diluted EPS and adjusted EPS growth was partially driven by the mark-to-market gains from Meituan investment. Excluding that, adjusted diluted EPS grew 5% in fourth quarter and 13% in the full year. Next, let me cover our capital allocation. In full year 2019, we generated over $1.1 billion in net operating cash flow. About 1/3 of that cash flow was directed to CapEx. Of the balance, about 60% or over $440 million was returned to shareholders through dividends and share repurchases. Including what we returned in 2017 and 2018, we have now returned over $1 billion to shareholders since our spin-off. The balance of our cash and short-term investment remains strong at $1.66 billion. We maintain our quarterly dividend at $0.12 per share. We also have approximately $700 million authorization remaining for the share buyback.
Let me turn to our outlook for 2020. The recent coronavirus outbreak has caused significant interruptions to our business. The impact come from temporary closure of our restaurants, as well as substantial decline in sales at the restaurants that remain open. We start closing some of our restaurants right before the Chinese New Year. As recent days, more than 30% of our restaurants were closed. The traffic at these restaurants that remain open were impacted by travel restriction, suspended facilities, and shortened operating hours as people avoid going out. For the restaurants that remain open, same-store sales since the Chinese New Year declined by 40%-50% year-over-year, after adjusting for the timing of the Chinese New Year holiday. While dine-in traffic was hard hit as people avoided public gatherings, delivery is holding up well.
To better serve our customers and protect our employees, we roll out contactless delivery, which is very well received by our customers. We also roll out order online, pick up in-store contactless services and saw some encouraging early results as well. At this time, we cannot forecast when, nor at what rate the closed restaurants will be reopened and the traffic will be restored. We may be required or otherwise decide to close additional stores or modify our operations in response to the outbreak. The situation is rapidly evolving. While we cannot yet fully ascertain the expected impact, we may experience operating losses for the first quarter of 2020, and if the sales trend continues, for the full year of 2020.
Future operations, cash flow and financial position may be materially and adversely influenced by the further development related to the outbreak, including potential additional announcements and action from the central and local authorities or other reasons. However, despite the headwinds from the current situation, we are optimistic and committed to the long-term opportunity in China. We will continue to roll out more new stores as some of our planned new stores in 2020 were accelerated to open in 2019. We expect to build 800-850 new stores this year. Obviously, this is subject to revision based on the impact from the coronavirus. We will evaluate throughout the year and revise the target as needed. Seeing the clear power of our digital strategy, we intend to step up investment in digital technology and supply chain this year.
We expect full year CapEx for 2020 to be in the $500 million-$550 million range, which include new store upgrade, digital, IT-related investment, as well as operational infrastructure-related investment. We will continue to invest in our emerging brands, which we believe is the right thing to do for the long-term goal of our business. The Huang Ji Huang acquisition is on track and is expected to close in early 2020. We expect wage inflation to stay at a mid- to high-single digit this year. As for commodity inflation, it is still a challenge. The pork shortage puts pressure not only on the price of chicken, but on all protein. We do not yet have full visibility for the full year. Our best estimate of the commodity inflation now is for low- to mid-single digits in the first half of 2020.
By the end of 2019, RMB have depreciated 4% during the course of the year. If the exchange rate continue at current level, we expect there will be, again, foreign exchange translation pressure in 2020. All in all, we expect 2020 will be very challenging. During this difficult and challenging time, we will continue to focus our efforts to protect and to serve our customers, our employees, and our communities that we operate in. We at Yum China are here for the long run, so we will continue to invest in the future to ensure that we are well-positioned for long-term growth opportunities in China. With that, I will pass you back to Debbie to start the Q&A.
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.
Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Again, it's star and one if you wish to ask a question. Our first question comes from the line of Michelle Cheng from Goldman Sachs. Michelle, your line is now open.
Hi, Joey. Hi, Andy. Congrats for the good results. I really appreciate the colors on the recent development. My question is about the cost. Can you share with us more details about how you can manage the cost in this situation? Maybe, like related to possibilities to renegotiate the rent with landlords or the staff cost. I understand we use a lot of part-time, so is there a potential that we have some arrangement on the part-time or the staffing management? Also, is there any insurance coverage in this kind of situation for business interruption? Thank you.
Let me take this question then. I will address the question about cost. If you look at in the short term, obviously, during the Chinese New Year, we have planned for the Chinese New Year selling season. I think in the short term, those costs are relatively fixed. If we look at going forward, obviously, if you look at our cost structure, for example, we have some variable costs, right? As you mentioned, in the restaurant level, while we have some full-time staff and salary employees, we also have some temporary or part-time workers. A portion of that restaurant labor force will be variable. If you look at the cost of sales, obviously, that is very related to the sales of the restaurant.
If you look at our operational occupancy and other expenses, as we have previously disclosed, a large number of our contracts have a variable component to it. However, there's also some fixed cost in that rental arrangement as well. That would be a mix of variable and fixed. Then in terms of our overall corporate G&A expenditure, of course, given the very challenging time, we're going to implement significant cost control and programs going forward. We're targeting, obviously, the controlling of the labor cost increase, as well as some of the discretionary spending like travel expenses, as well as other professional service fees that we generally incur. In terms of overall impact, I think this year we'll continue to monitor the situation and implement additional cost control if necessary.
In regard to your second question, which is about business interruption insurance for outbreak, I think, since SARS outbreak in 2003, our business insurance, because of that, a lot of insurers no longer provide that kind of insurance. It does not cover the outbreak.
Thank you.
Michelle, just a little bit extra color on the cost. The moment that we see the impact of the outbreak, which is the weekend of January 18th, the management is experienced enough actually to pull the AMP immediately. The advertising cost for Chinese New Year is a big investment, we are very quick to react to pull that, because otherwise, we will be in a situation of lost sales, invest AMP. That would be very unfortunate. We did that already. In terms of labor cost, you can be sure that management is doing everything we could to manage the labor cost. However, the timing this year is the challenge, because Chinese New Year, the first three day has triple, 3x labor cost according to the labor law. The extended holidays for the staff implies double labor cost for our staff as well.
These become sort of fixed in a way, because we are complying to our government requirements. You can be sure that we are doing everything we could to manage the cost, while doing everything that is the right thing for our staff, for our customer, for our community as well. Thank you, Michelle.
Thank you, Joey.
Thank you so much. Your next question comes from the line of Sara Senatore from Bernstein. Sara, your line is now open.
I have a question actually about the unit growth. You pointed out that 1,000 stores is the highest number in history, and even before coronavirus, you were expecting a slightly lower number of gross adds in 2020. I was just wondering if 1,000, there's some sort of natural limit to how many stores you can open. Again, setting aside what's going on now with the virus, but over time, as we think about the growth rate and your store base increases, I think you've been leaning more heavily on unit growth and a little bit less on comp. As we think about the rate of growth, should we think about 1,000 units as being kind of the highest number you can open in a year because of either human capital or real estate or whatever the gating factor can be.
Can you just talk long term about what the unit growth might look like, and what the limiting factors would be if you really can't open more than 1,000 stores a year? Thank you.
Thank you. In general, at a very high level, the number of new stores is a function of how well the business is operating. For example, last year, we opened 742 KFC stores, and then 132 Pizza Hut stores. Back to 2013, 2014 and 2015, actually, we opened more Pizza Hut stores than KFC stores. As KFC business performance improves, we are able to open more stores because we are able to pay more rent, and then also the quality of the store is better, so we can open more. In general, it is a function of business performance. When it comes to, is there a natural limit? We actually don't really chase after a particular figure.
In general, we have a pipeline that's more bottom-up, and then we try our best to open as many good store as possible because low store is not a good thing to our business. We don't chase after a number. Just like 2019, we set a target, and then we exceed the target because the business is doing better and we find more pipeline. For 2020, we set a target, but as we experience business interruption, we will expect we will revise the pipeline as we go through the rest of the year. The third point I want to make is for business like ours, although we emphasize a lot on new store opening, but also at the same time, management team has balanced two more factors. One is the impact on the same-store sales.
Of course, the new store opening has impact on same-store sales, and we want a bit of both. We want the new store, also we want the same-store sales. Technically, in the emerging market, we probably want to focus on system sales growth more than just same-store sales. However, our learning is that our investors still want us to focus a lot on same-store sales. We kind of have to deliver both new store and same-store sales. Again, other than the same-store sales, the management also has to balance the third bit, which is remodeling, because right now you can see we are reaching the number of 9,200 store by year-end. In China, particularly in China, we are targeting to maintain the age of our store at three years.
That means every three years, we're going to reset or remodel or do something about the store to make the store look lovely and appealing to the customer. While we have opened more than 1,000 stores last year, we also have remodeled 1,000 stores at the same time. If we just keep opening new stores but not remodeling the store, the quality of assets will go down. You can see, we not only try to open stores, good new stores, we want to maintain the same store sales. We also want to maintain the speed and the pace of remodeling. If we don't maintain that pace, we will get to the situation of 2016. We actually refit almost 1,800 stores during 2018 alone as a catch-up. Right now, Pizza Hut, we are also doing the catch-up.
Pizza Hut, after last year catch-up, 1/3 of our new store have the new design. I hope that give you a holistic view of the way that we look at the new store opening. It's just not only about new store opening, it's about the same store sales, it's about remodeling, it's about keeping the business going, and it's about having good number, a good profitable number, for the new store as well. Thank you.
Thank you.
Thank you so much. Your next question comes from the line of Chen Luo from Bank of America. Chen, you may now ask your question.
Thank you, Joey and Andy. I've got a question on our outlook guidance, in the result release. We are actually not ruling out the scenario of a full year loss if the current situation continues. What is the underlying revenue assumption? What level of revenue decline are we looking at to achieve that scenario? Also related to that is more color on our cost structure. Just now, Michelle also asked about the question. The food and paper cost is largely variable, but for the labor cost and occupancy and others, how much is variable and how much is fixed in nature? Thank you.
Chen Luo, let me sort of give you some color about the current store opening situation, and then I'll pass on to Andy. The overall situation is very fluid, and it's still early days to predict and to have a sort of more concrete number. We are closely monitoring the situation and following the guidelines from the relevant authorities. Let me talk about the store close situation first. Roughly 30% of our stores are closed, and that's the sort of the current number, and we don't know what is next. Let me talk about the key component of the 30%, then you would have better understand of our current situation. We, from the very beginning, decided on the condition that our staff are safe. We have done everything we could, to protect the safety of our staff, our customer. We would like to continue to serve our community.
That means we would like to continue to open the store while we operationally could. Because I think in this crisis, it's very important to try our very best to keep life going as normal as we could. We start to close the store in Wuhan first, because that's the center of the outbreak, and that was 3% or 4% of our sales. Wuhan is 2%. Then as situation evolve, then we close the store in Hubei, which is the province Wuhan is, right? Then as the situation evolve, we close a significant number of stores in the surrounding provinces, such as Henan, such as Hunan. That's a group of the stores that we have closed. Then as situation evolve, most of the stores in our tourist location and transportation hubs, and that roughly about 5%-6% of our portfolio, were closed.
The situation continue to evolve, then some stores in the lower-tier city, in particular around the country, were closed, because there are a lot of travel restriction, festive activities were canceled, and operationally, it became too challenging to open the stores. You can see the progression of our store closing as the situation evolve. What is next, is a bit too early to tell. As the store closed, what are the impacts on our business, and what are we doing to mitigate the situation? Obviously, you can imagine the dine-in traffic was severely impacted. However, as we mentioned earlier, the delivery business hold up relatively well. Also, thanks to the quick reaction of our operation team, we launched a contactless delivery service to our customer, and that was well received.
The little budding opportunity right now we can see is the catering opportunity that we can see. Part of the catering opportunity come from the fact that due to our commitment to serve community, we reopen six restaurants in Wuhan, not to do business, but just to serve free meals to the doctors and the medical staff as our contribution to the community. Therefore, for the rest of the country, in other markets, we also follow similar practice. As a result, we receive a lot of requests in terms of catering services because we are trust, and we are truly grateful to the trust that our customer and our community gave us. That's the overall picture of our sales side.
Obviously, you can imagine despite the fact that the delivery sales hold up, catering business is growing, the same-store sales for our business was also impacted due to the travel restriction, less traffic, and also shortened operating hour, particularly in shopping mall, et cetera. With that, I'm going to pass the question to Andy to talk about the revenue and cost side.
Okay, Joey. As we mentioned earlier, if you look at the interruptions caused by the outbreak is quite significant to our business. We have basically two impact. One is the store closure. As Joey mentioned, it's quite extensive right now. About 30% of our store are closed right now. Of course, this is a very fast and evolving situation, it's very hard for us to know what's coming next. The second part is that, for the store that we remain open, the impact on the traffic was also quite significant, especially for dine-in business, as Joey mentioned. Although our delivery business is actually holding up pretty well. The same-store growth for those restaurants are down about 40%, 50%, right? Overall, if you look at the impact on the total system sales growth is actually systems, is actually sort of [audio distortion].
As we mentioned, if the trend continue at the current level, we expect to go into operating losses. To address your questions, we don't actually have a target for the revenue losses. A revenue that will drive into losses. I think there's a lot of variable factors right now for us to address these issues. Obviously, store closing is one of them, and the ongoing trading trend is another one. We'll talk a little bit about what's the driver for the cost, so maybe can help you in your modeling. Chinese New Year is a very critical trading period for us. The first quarter. As I mentioned, a considerable portion of our costs are fixed and already incurred before the Chinese New Year trading period. That including food ingredients, that's stored in the restaurant themselves.
Then also the scheduled labor, which is paid at 3x . Then also, as Joey mentioned, during the extended holiday period now, this is also in overtime pay. I think that will lead to decline in our profitability for sure in the first quarter. Portion of the fixed cost, caused by this, okay? Cost of sales, as I mentioned, variable at the restaurant level. Labor at the restaurant level are partially fixed. The monthly salary employment, management team, and staff. We do have some flexibility there. A big portion of our frontline workers are part-time workers that we can have more flexibility. A portion of the fixed cost and then in the occupancy. As we mentioned, a portion of our brand is in fixed, and then a portion of that is in variable cost.
As we mentioned, a sizable number of our contract actually have a element of the variable cost. Obviously, that element varies quite significantly from location to location. For land, obviously, you probably have noticed on the news, The time that is called for sacrifice in the country right now. If you look at some of the real estate companies, they have also participated and then also have provided some rent relief. I think, if you look at, our activities, we'll continue to seek opportunity to minimize our costs during this time of crisis. In term of other store costs, for example, fabric is largely fixed if the store is open, but if it is not opened, then it's almost zero. For utility and all that.
In terms of G&A, as we mentioned, right now in the short term, it's going to be relatively fixed under the current census. Going forward for the rest of the year, we're going to implement additional cost control to lower that overall corporate G&A. We may also incur some write-offs for our perishable items. Some of the inventory that we have stock up may be write-off. We don't know. It depends on going forward what the trading condition there. If you look at, we have mentioned before, we have done a lot of good work in terms of reducing wastage, and improved labor productivity. During this time of lower trading volumes, it's possible that the wastage and also labor productivity for our staff and also the riders may also reduce as well.
As mentioned, we expect it'll be challenging for the first quarter for sure, and then maybe for the rest of the year. It may take some time for business to recover. A lot of these, as mentioned before, these fast-changing conditions is very hard for us to predict what's going to happen in the next few weeks or few months. A lot of our results and operation will be influenced by future development of the coronavirus situation. It may include additional store closing or broad action that is required either proposed by the central government or local authorities or our own operational needs. Hopefully that can help you address your questions. I know there's still a lot of uncertainty. I think under current situations, I think we are operating under some uncertainty right now.
Thank you. That is very helpful. I firmly do believe that our company can overcome the situation, and in fact, the whole restaurant industry is facing even bigger challenges. Good luck. Thank you.
Thank you, Chen Luo.
Thank you so much. Our next question comes from the line of Lillian Lou from Morgan Stanley. Lillian, your line is now open.
Thanks, Joey and Andy. Very quickly, before I ask my question is just to verify, in terms of your guidance of loss-making first quarter, you kind of ended a similar assumption that 30% or more are still going to be closed. The remaining store are seeing 40%-50% same store sales decline. That's just very quick verify. The question is more on the raw material trend, because you mentioned, I think Joey and Andy mentioned in the presentation that we're still seeing some challenge in the raw material trend. Most recently, I think there are some disruption in the logistics for the supply. Also we're seeing, not necessarily just in China, but in other country as well, there's avian flu coming up. Do you see there's additional cost pressure going forward?
Not necessarily just in the virus time, but also it could linger around for a longer period of time to depress our margin? That's my question. Thank you.
Okay. Yeah. Lillian, thank you for your question. Just confirm, our assumption regarding the 2020 possibility of incurring losses. Yeah, as we mentioned, if we assume the current sales trend continue, we would expect potentially full year 2020 losses. That's based on the 30% plus stores closed right now. Obviously our 40% to 50% decline in the same store sales for the stores that remain open. That's the current situations. Again, this is a fast evolving situation. It's relatively difficult to predict what's going to happen. Now in term of commodity inflation, I think if you look at in the first quarters, it actually come down a little bit for chicken prices for us. However, if you look at the market itself, actually we saw a spike in the chicken prices in November.
As we mentioned, in the prepared remarks, for this year, we don't have full visibility yet. For the first half, we do expect the commodity inflations for us to be at the low to mid-single digits in the first half this year. The reason why we have little bit visibility is because a lot of these commodity contracts, especially for chicken, we have contract a lot, probably a quarter at least ahead of the time. Also we have some inventory in our pipeline. That's how we get some visibility there. As you mentioned, there's a number of things that is moving fast in the marketplace for the commodity and chicken prices. Obviously, one is the U.S. and China trade deal. That provides some positive headline. A lot of details are yet to come, so it's very hard to see.
The U.S. chicken import here in China traditionally have been relatively small. The impact may not be as big. You mentioned that there's potentially avian flu in other regions. I think you're probably addressing the Wuhan situation.
Yes.
We don't actually source from Wuhan. At the current rate, we don't see any material impact for us. We'll continue to monitor the situation for sure.
Okay. Thank you.
On top, just want to add the color that I think 2019, we have proven ourselves to be pretty good at innovating, not only with chicken, but with different parts of chicken and different proteins. Even with the very big pressure on chicken price, we managed to control our cost of sales at very reasonable level, and we did not disappoint our customer. Anything as quirky as the chicken wing tip, which is quirky for the national customer, but is very well-received for those customer who love chicken wing tips. Of course, the cost is very desirable. To the alternative protein such as crayfish burger for KFC for the Chinese New Year, and also pizza, the salty egg yolk cod fish pizza. These are protein. We are pretty good at innovating the protein.
The mentality that our R&D team is, if we are good chef, we are good at looking at whatever ingredient we can get and prepare very good food for customer. The goal is we don't disappoint our customer while managing our cost of sales. Thank you, Lillian.
Thanks a lot, Joey and Andy. Very detailed. Thank you.
Thank you so much. Your next question comes from the line of Xiaopo Wei from Citigroup. Xiaopo, your line is now open
Morning, Joey and Andy. Thank you for giving us a color on the development of the coronavirus. I know nobody have a crystal ball on what is going to happen. I will have a question for more look beyond the midterm and long term. In my understanding that the company has developed a very comprehensive business model with a lot of toolbox. I just want to know, in the midterm, have you thought of adjusting your strategy operationally and financially to absorb the short-term shocks? For example, will you put Pizza Hut revitalization as less priority, and you give more priority to restore the sales of KFC? Also, will you be more aggressive in pushing digital and delivery to make up for the sales loss in the dine-in? Thirdly, I think in this situation, reserving the cash is very important.
Are you thinking of reducing the dividend or share repurchase to preserve more cash for any unfortunate negative outlook? Thank you.
Thank you, Xiaopo. We have established our strategy for Yum China, for KFC, for Pizza Hut. We do some tweaking based on the current challenges, yes. Will we dramatically change our strategy? No. Let me just share with you my thoughts about some of your question, and then I pass on to Andy about the cash bit. In terms of priority, both Pizza Hut and KFC are important. We have two big kids now. All the kids are important. For Pizza Hut, the revitalization strategy will continue. Pizza Hut has its own dedicated brand team to make that happen. KFC, of course, is the most important business for Yum China. It also has its own very strong, dedicated brand team to pursue the strategy as well. Both business are important.
In terms of question about our focus on digital and delivery, will we make it even more important? It has been in our strategy to accelerate the investment of digital technology. As Andy mentioned earlier, we are going to invest heavily in our digital and technology to pursue our end-to-end digitization strategy. We will continue. If we could accelerate, we would, but we will not push for it just for the sake of pushing. The ongoing strategy will continue, but we will certainly tweak and react very quickly. As the situation is fluid, I can share with you the management team, we have daily meeting to respond, react, to adjust, not only strategy, but operationally, what we need to do in a store, in supply chain, in human resources, arrangement, et cetera. One example is we pull the health program for our restaurant management team forward.
Originally, we are going to announce this program in March. Given March, we are not going to have our RGM convention. We pull it forward, because we believe that this is something that our restaurant management team will appreciate. What it is, the program is about we're going to enhance and upgrade the health coverage for our restaurant management team's families. That includes the spouse, the kids, and their parents up to 75 years age. That we put forward. Things like that, you can see, we'll continue to manage on daily basis. With that, I'll pass on to Andy.
Okay, thanks. Regarding our cash and dividend policy, I think, I'm very lucky that we inherit a very prudent and conservative financial management program here. We have about $1.66 billion in cash and short-term cash. In time of crisis or situation that we are in right now, this is a very good, strong financial position. Our number one priority obviously, is to ensure that we have enough liquidity for our operational needs, as well as for the investment that we plan for our futures. If you look at our press release today, we have just declared dividends payout for March, reflecting that our current strong liquidity position. In terms of the current trading environment or the current situation here, operationally is very challenging. As you mentioned, preservation of cash, ensuring liquidity is paramount as a financial function for us.
We'll consider all options, and we'll continue to review our dividend and share buyback program periodically, and with the board as well. If you look at our current positions, we're very strong at $1.66 billion cash and cash balance. As you mentioned, we also would, for the year, as you mentioned, option open, including cost control, right? Also give you the capital allocations going forward as needed.
Thank you very much.
Thank you, Xiaopo.
Thank you so much. Your next question comes from the line of Lina Yan from HSBC. Lina, your line is now open.
Hi, management. Thanks very much for taking my question. I just want to clarify, Andy mentioned for existing opening stores, your same store sales declined by 40%-50%. Does that include the delivery service? I want to ask, is there any bottleneck next for you to further grow your delivery service? If you allow, I want to ask another question, is regarding your licensee fee paid to Yum! Brands. You normally pay 3%, but under current critical situation, is there a possibility you can have some concession from Yum! Brands on that? If you can share with us if there's any risks to potential disruption to your supply chain, that will be highly appreciated as well. Thank you very much.
I think, let me clarify a little bit. For the store that remain open, our operations include both dine-in and/or delivery. The same store sales growth for those restaurants are down about 40%-50%. That's including both dine-in and also delivery. As we mentioned before, dine-in has been impacted more significantly. The delivery sales actually help up very well. As we mentioned, we roll out contactless delivery. We also roll out the online order, pick up at store, contactless services at our restaurant as well. We continue to utilize our digital asset, right, to continue to serve our customer. I think, our investment in the digital side really help us quite a bit here in the current situation to serve our customer. In terms of delivery. I think obviously there's a couple things, right?
In China right now, in some of the cities, there's some restrictions on travel or traffic. That would probably have some impact on the delivery side. If you look at both in terms of some of the labor force for delivery, is also probably impacted by some of these travel restrictions as well. That could potentially be one of the items there. In terms of Yum Brands licensing fees concessions due to the situation. At this time of very difficult and challenging situations, obviously, we seek help from our business partners. I think contractually, there's no obligation for Yum Brands to take a concession. We welcome any help that we can get. Obviously, if that happens, it would be great goodwill gesture and we will appreciate that very much.
In terms of risk to supply chain disruptions, we actually have our Chief Logistic and Supply Head here, Danny, maybe Danny can help us just a little bit.
Sure, Andy. Thank you. Yes, Lina, this is Danny on supply chain.
Hi.
First, let's talk about logistic impact. Obviously, the biggest impact is in the city of Wuhan and the province of Hubei, where the government has imposed travel restrictions. That is banning non-essential civilian traffic in and out of those cities. As you know, we have a wide network of logistics centers with 24 logistics centers across the country. For example, the stores that were served by Wuhan logistics centers in the neighboring province, such as, say, Jiangxi, is now being served by our logistics centers from Changsha or Hunan province. Really, a key element of a supply chain is really contingency planning. That network of our logistics centers really allows us to continue to support our stores' operations. Obviously, as you know, nationwide, there's an increasing numbers of provinces and cities imposing travel and road traffic restrictions. As we mentioned multiple times, the situation is fluid.
We're monitoring on daily basis. For now, we manage. We are able to deliver to all the stores that remains open, as of today. Moving on to suppliers. We have more than 300 plants supplying food and beverages material to Yum China. A very small number of the suppliers are in Hubei Province. Again, because of contingency planning, we're able to allocate the volume to other suppliers. For now, as of now, we do not foresee any disruption to our supply chain at all. Again, like I said, I want to stress that situation continues to evolve. We'll continue to monitor and we'll manage from there.
Thank you, Danny.
Thank you.
Thank you, Danny.
Thank you very much for sharing, Andy, Danny. I'd just like to follow up. Andy, can I say you have reached your peak delivery capacity during this difficult period, or you still have room to further grow? That's end of my question. Thank you very much for sharing.
Well, I don't think we have a particular limit right now. Obviously, as you probably know, this is the Chinese New Year period, and a lot of times, people at this time would be returning to work. The situation is very fast evolving, so it's very hard to say what the situation there. In term of our online capabilities, as you have probably seen in some of the news report, we have done a very good job in rolling out this contactless delivery, which is very well received by consumer and also recognized as a good service during a situation like we are in right now. In term of our labor force, as we mentioned, we continue to look at different ways to alleviate that.
The labor force right now is a big fluctuation, a big unknown right now because people are beginning to return to work in next week. We'll see how that's going to happen. In addition to that, as you mentioned, we also roll out our customers order online and pick up in store services, right, which is also pretty well received by customer. I think right now we do have the capability to serve our customer at the location that we can continue to remain open.
Okay.
We have one more.
We will take one more question.
So we have time for one more question?
Yes, we do. That question comes from the line of Christine Peng from UBS. Christine, your line is now open.
Hi, management. I think your previous comments pretty much addressed most of my questions. Just a very quick question on Pizza Hut. Obviously, Pizza Hut has achieved a turnaround in terms of sales growth, although there's a bit of fluctuations in terms of the same store sales growth in Q4 of last year. Looking ahead, if we disregard the virus, what is the outlook for management for Pizza Hut brand in the next 12- 18 months? Thank you.
Christine, you're asking the outlook for Pizza in the next 12- 18 months, right? For 2019, we are pleased with the progress, actually. 1% of same-store sales growth. Most importantly, the underlying driver of the growth is from the improved traffic from both dine-in and delivery. The improvement of the dine-in traffic is critical because that shows that we are doing the right thing to improve the fundamental of the business. Not only the sales has improved, but also the profit has improved as well, and all the other consumer metrics like customer satisfaction, like how young the brand is, et cetera. We do see Pizza Hut does need more time to cement the revitalization, both in the areas of the fundamental such as the product, digital, delivery, and asset, the four fundamental area that we have talked about many times.
We are particularly pleased with the fundamental improvement such as the product introduction. The product that I talked about earlier, the pizza, the 38-year-old coffee pizza, that's from National Banquet. That's the aspiration of our food innovation right now. Really good, appealing food, but still a Pizza Hut price level, and has amazing promotion mechanism such as Scream Wednesday. Both the product is good, the value proposition, value for money is very good, and then the delivery platform, the infrastructure is improving very well. The digital experience is improving through seeing the increase of the privileged members program, and also the rollout of the super, et cetera. The asset, 1/3 of our store has the new design.
There's no scientific number to prove that one third is important. Just based on my experience, one third of the entire estate is in new design. Customer perception towards the brand, towards the overall brand asset, start to move. It's just based on my experience. All good. However, the current coronavirus is hitting us hard, particularly Pizza Hut. Actually, it's hitting harder in Pizza Hut than KFC, because KFC has the advantage of a very high delivery percentage, but also a well-established model of takeaway. If we look at KFC's business, 20% plus delivery, and then actually 30% takeaway. Customers are very familiar with the model. When we launched the contactless delivery, not only contactless delivery, but contactless pickup. There are some stores that we opened just to provide a delivery service and pickup.
The customer just picked it up from the door, and it is okay. That helped us hold up the business better. However, when it comes to Pizza Hut, while we have very high delivery service, the pickup service is yet to be well-established. The dine-in business still drives the bulk of the business, and therefore, the impact on Pizza Hut, unfortunately, is harder than KFC. However, we do believe it is short-term. How long this will last, we do not know yet, we cannot tell. As Andy mentioned from the very beginning, we do still very much believe in the long-term potential of this market, and we do believe in the business model of Pizza Hut. We need a bit more time. We probably need a bit more time to cement all the good stuff that we are doing to Pizza Hut right now. Thank you, Christine.
Thank you. Thank you for joining the call today. We look forward to speaking with you on the next earnings call. That concludes today's call. Have a great day.
Thank you.
Thank you.
That does conclude our conference for today. Thank you for participating. You may all now disconnect.