Welcome to Shanghai, and welcome to Yum! China's Investor Day 2019. My name is Florence Lip, and I'm from the Investor Relations team. So let me walk you through the agenda of today. So in a minute or so, our CEO, Joey Wat, will walk us through Yum!
China's growth innovation driving and powering growth strategy. And then our General Manager from KFC and Pizza Hut, Johnson Huang and Jeff Kui, will go into more details of the growth levers of our core brands. And then it will be followed by our Chief Marketing Officer, Stephen Li and Chief Technology Officer, Leila Zhang, will take us through how digital transformed our business in a disruptive way. We'll then have coffee break. After the coffee break, Stephen will come back on stage to talk about Yum!
China's coffee strategy. And then we'll wrap up today's presentation by our CFO, Jacky Lo, talking about some finance update and how we grow with discipline. We'll have a Q and A session at the end of the presentation, open to the floor. So this afternoon, for those who have signed up for site visit, we'll bring you to our latest innovation center as well as seeing our latest stores in Shanghai, including KFC, Pizza Hut, Taco Bell and Coffee and Joy. And tomorrow, we will have another store visit.
We will bring you to a little bit further away and see some of our other store formats for Pizza Hut and KFC. So before we get started, I need to get on to this page. I would like to remind you that our Investor Day presentations 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 presentation deck and the risk factor included in our filings with the SEC.
Our management presentation this morning will be live webcast. An archived webcast and the presentations will be available on our IR website as well. So without further ado, let's get started.
China is rapidly growing. How can Yum China capitalize on this opportunity? Going where no one has ever been means taking the road never traveled. And sharing what we have learned to deliver better results. Feeding our customers' curiosity.
Sharing new creations with more customers every day.
Every single column.
Good morning. I hope this video wakes you up. Good morning.
Good morning.
Thank you. Thank you. I hope you have a cup of our coffee and joy coffee with you already. If not, enjoy a cup of tea. It's equally good as well.
Very warm welcome to all of you, our friends, our investors from all over the world to our Yum China Investor Day 2019. Lovely to see many friends and lovely to have the option to meet many friends later on the day. We are delighted to see you on Jowy Ward. For those who we have not met, I joined Yum! China 2014 to lead KFC, and then I became the COO and joined the Board 20 17, and then I started to serve as the CEO of Yum China from March last year.
So when I joined Yum! China, I was asked the most popular question I was asked was why? What excite me most to join? And the answer at that time I gave was the RGM 1 culture. It's the fact that as a retail company, we put our frontline staff, our restaurant general manager as the most important group of people.
I find it very exciting because a good company aligns our strategy with our frontline staff to work together. And I'm very happy to say that and to report that after 5 years, I'm still equally excited. And I still think this is one of the most amazing thing for Yum China, and we're going to continue to hold on to it very tightly. I'm excited today to showcase Yum! China's promising future and a future that will continue to deliver superior value to shareholder over the long term.
This morning, we will take you through the key aspects of our business, the brand, the financial, the digital strategy, the coffee strategy. And at the end of this presentation, we'll have a question and answer session. I brought you an old picture. Some of you might know what this picture is. This is our first KFC store in Shanghai almost 30 years ago.
This store was opened 1989, December. For some of you who know this picture, you will know that today, this Dongfeng Hotel has a new name called Waldorf Astoria. Exactly where you are today, what a sweet coincidence. As you can see from the picture, in the last 30 years, a lot has changed in China and so has Yum! Yum!
China. But what has remained the same is our commitment to China market and our devotion to bringing the best food to our customers. Let's get started. The first thing I would like to do is to introduce our leadership team. It's both an honor and a pleasure to lead this team.
I find this is a very unique team. On the one hand, our team is very experienced in retail, in consumer industry. On the other hand, they are so young. They're almost as innovative as young as some Silicon Valley 20 something in spirit we all hope for, right? So today, you will hear presentation from Johnson and Jeff about the brand update and then Steven Li and Leila on digital and then a coffee from Steven.
And then we'll have a financial update from our CFO, Jackie as well. The entire leadership team is in the room today, and you can meet them during the coffee break and lunch. Can I ask my team to stand up just to say hello to our friends and investors from everywhere? So look for them during the coffee break. Thank you.
I would like to take a moment to recap our vision to be the world's most innovative pioneer in the restaurant industry. Apparently, the most important word on this page and in this statement is the word innovator. Why? Because I strongly believe that is the most important thing that we should look for in our statement because only through innovation that we'll be able to maintain our leadership and create a business that will deliver sustainable return for our shareholder over long time. We are deeply committed to this vision.
So and today, you will hear about many of the innovations that are powering our growth. We are one of the top 6 restaurant companies in the world in terms of market cap. And obviously, we are the biggest restaurant company in China. But from the first KFC store in Beijing back to 1987, we have grown to around 8,500 in 30 years. It has been quite a journey because effectively, we have gone from a startup company to a large company.
And right now, we have a presence in 1200 cities, and you can see all the red dots. So these are the cities where we have stores. The footprint our footprint extends right across China. So from the north to the south all the way to Hainan, Sanyan, it was about 5,000 kilometer. And from the west to the east of Heilongjiang, it's about 6,000 kilometer.
And we on top of all these stores, we were an early innovator in delivery as well. We offer delivery services already in 1100 cities. All of these is supported and made possible by our best in class supply chain. And we have our own trucks, etcetera, but also have 20 logistic center all over China to serve our stores. We have proven that we can continue to grow rapidly and grow profitably at scale.
Today, I would like to highlight just a few numbers that really demonstrate the progress that we have made over the past few years. So with around 8,500 stores as of right now, we have passed that number already. The number is larger than the next 2 biggest players combined. And then you will see the word 9. We have achieved 9 consecutive quarters of system sales growth since spin off.
And also, we have built in the
last few years probably the largest database or CRM in our industry.
So we have right now 160,000,000 industry. So we have right now 160,000,000 CRM member in our KFC system and then 50,000,000 for Pizza Hut. Deliveries is an important part of our sales and business. And between 2014 and now, the business has grown 3x. The CAGR was about 37 percentage over these 3 years, while the market is growing at about 20%.
So our delivery business is growing ahead of the market. Last but not least, 48%, which is the operating profit growth from 2016 to 2018. So we believe that we are on the right track, but you might ask, so that's where we are, what's next? The next is, I have no doubt that the best is still ahead of us. We believe that we have a long runway for growth, and we have the unique competitive advantages that can support us to achieve the growth ambition we are aiming for.
And I would like to walk you through why Yum! China has a long runway for growth and how we can deploy our capabilities at scale to capture this opportunity. First, it's simply the incredibly growth opportunity that China can offer. By 2023, as you can see in the chart here, China's restaurant market size is going to surpass U. S.
By 2023. And then on top of that, the market remains fluid and evolving. We witnessed the incredible growth in delivery business, as you can see. The delivery business is growing twice as far as the average market, which important which highlights the importance of this delivery segment that we have been growing 3x since 2014. And for Yum China, that's the huge headroom for further growth.
Why? So you can see on this chart, our number of restaurant, both for KFC and Pizza Hut, per 1,000,000 people in China is only 5.8%. It's about less than a quarter of the density or penetration in the other mature market like U. K. And U.
S, etcetera. But even within Yum! China, where we have presence in 1200 city, the density of store is rather different between Tier 1, Tier 2 and Tier 6 city. So even within these 1200 cities, we still have headroom to increase the density of our restaurant in the lower tier cities and even 1st tier city because in 1st tier city, right now, we are slightly less than 20 stores per 1000000 people, which is still lower than the more developed market. And then if you come to the other side, what are these green spots for?
This green spot shows you the greenfield market, the Yum China, does not have any store in China. So we're in 1200 cities, but we still have all these markets that we have not opened a store in China's urbanization and GDP per capita are growing. So these opportunities will continue to come up. And I would like to mention, which I will emphasize probably a few times in my presentation is the beauty is, you can see in this map, this greenfield opportunity over China and our supply chain capabilities are already there to support the new stores in any of these cities. The infrastructure is available.
It's built. But growth is only part of the story. This is quite an important page because it summarizes the strategy our strategy for profitable growth. But if growth is to be rewarding to our shareholders, it has to be profitable growth, which I believe all of you will agree and more defensively profitable growth, and that is a matter of strategy. Our strategy is to build a platform of unmatched competitive advantages and capabilities that can be deployed at scale to deliver profitable growth.
In China, we say where something important, we say it 3 times. So I'm going to say it 3 times for the most important message of my presentation here. In our business, advantage lies mainly in capabilities that can be deployed at large scale. 2nd time, in our business, advantages lies mainly in capabilities that can be deployed at large scale. One more time, finally, we all remember in our business, advantage, which we worked very, very hard for over 30 years, lies mainly in capabilities that can deploy it at large scale.
I feel I finished my presentation already. So what are the capabilities that are so important to us that we are so eager to share with you that are so important to our future to our past and also to our future. This include our leading development and supply chain capabilities that we have built over the past 30 years as well as our newly acquired digital delivery capabilities that enable us to respond rapidly to respond to very rapidly changing consumer preferences. So there are 4 competitive advantages I'm going to cover. There are 4 categories.
1st, the unmatched operational capability in areas such as supply chain development and digital 2nd, amazing talent and a unique culture 3rd, high impact partnerships to create value 4th, but not the least, with disruptive innovation at our core. So let me walk you through some of the capability that I'm really excited about. 1st, development. We have really strong development capabilities, to say the least, that enable us to identify and secure the highest potential sites, build and revitalize our stores. We remodeled 900 plus stores last year and continuously look for ways to reduce the cost of building new stores.
We have around 1,000 development and asset managers covering 32 provinces and 1200 Cities. And on average, they have more than 10 years experience, which is really, really valuable. They remodeled our stores as well. And over the past years, they have brought down the total cost of building new store by as much as 30%. But if we take the equipment cost away, because equipment cost, we can move them around, the sunk cost of building a new store has decreased even more than 30%.
And with that effort, obviously, we are able to increase our shareholder return of the capital that we invest in new stores. So you can see the result of such capability by looking our store expansion in the last 3 years. In the past 3 years, the number of new stores has grown about 20% per year and it outpaced the market. And as of 2018, we opened 2 stores per day. In total, we opened 8 19 stores.
Our second advantage is our supply chain. Supplying around 8,500 stores in such vast geography with fresh food is a huge commitment. With 20 logistics center and a comprehensive network of trust, our supply chain is equipped to supply all our current portfolio as well as the 1,000 greenfield cities that we are tracking. We even you can see, can supply to Lhasa in Tibet. We have worked out the system how to do it.
One of the most impressive feature of our supply chain is our co chain storage infrastructure. So using technology, we monitor our trust in terms of real time location, but also real time temperature 20 fourseven. This safeguards our quality and food safety. Both are very, very dear to our hearts and very important to our business. In addition to the greater control and oversight of supply chain, our infrastructure is also much more cost effective, which is important.
As we estimate our logistic cost is roughly 50% lower than the industry average. Other than the 2 capabilities that we've built over 30 years, this capability we have worked very hard to acquire in the last few years, digital. Digital has completely transformed the restaurant industry over the past 5 years, and I'm very proud to say that Yum China has been leading the charge. With the very large membership database in the restaurant industry and our analytical capabilities, we are able to generate valuable consumer insights and operation insight that inform everything we do. For example, for pre order, with the mobile order preorder, customer can order the breakfast before they leave their house and then pick up their food close to their office.
It's not a problem. And then for 600 of our stores, customer can use face recognition to pay for the food without even using their mobile phone, just use your face. And then on the operation side, with a smile, that's always good. On the operation side, we are able to use our AI forecasting to optimize, store stock and reduce wastage. So other than the 3 capabilities, we'll come back to the core of our capabilities, is the innovation.
Innovation is in our DNA. Yum! China has been innovating non store in the last 30 some years. That's the way that we survive and we lead in this ever changing market. The innovation has brought us closer to our customers and enabling us to improve every aspect of our business.
So I have few examples here to share with you how do we innovate at all levels in every way that we could. 1st, start with product. So this is the xiangguji, single bone chicken. So what is different about this particular product is we use a different we use a new technology, innovative technology to assess different parts of the chicken. You would think after 30 some years selling fried chicken, we know every part of chicken.
No, there's still something that we can learn. So this is a new part of chicken that we never saw before and we turn it into a very compelling value offer and customers love it. So this becomes one of the best performing products in our Crazy Thursday promotion and enable us to drive significant traffic. Even better, suppliers benefit from it, too. It's a very good win win win situation, supplier customer and us.
We all win together. What not to like? 2nd example, digital. So this is a snapshot of our AI order recommendation. So the traditional menu ordering is once I say fits all, we have one menu and then it's good for all the customers.
But the thing about our business right now is very different. Almost 50% of our customer orders are wired digital either through delivery or their mobile phone pre order. It's actually exact number, the 46, 47, but it's very close to 50 now. So that allowed us to have a very one to 1 very exciting one to 1 interaction with our made for that particular customer because we know the customer already. In particular, we also have very high percentage of the sales from our members, almost half too.
So that allow us to improve our service to our customer. And of course, we also take the chance to do some recommendation for customer maybe to buy one thing or 2 more. And is AI recommend AI recommendation? So when we do the trial when we did the trial, about 10% of customers actually accept the recommendation, which increased the ticket size of the order, which is good. I mean, it's still early day, but we are excited about it.
And obviously, this year, we'll continue to optimize the algorithm this year and do improve our understanding about how to do it even better. Another example, store model. Over the past year, we have talked about how we are embracing the smaller assets, faster service and delivery friendly models to ensure that our portfolio is optimized for our customers' preferences. This hub and spoke model is the latest iteration of the principle. So at Pizza Hut, we are right now developing much smaller delivery store.
They are connected to the original dining restaurants. How does that work? Why this is a viable option? Just imagine, if we have a trade zone, right, like this, rectangular shape. And Pizza Hut, we have maybe 4 stores, 5 stores in the middle, mainly serving the customer in city center.
With the hub and spoke model, we can leverage our retail store that are already there to build some smaller store around. And that smaller store would allow us to be closer to customer and cover the trade zone better. So how does customer benefit? The distance, the delivery time is shorter and the food is better because when food is hot, it's better, as simple as that. Makes sense?
Yes. So this is our hub and spoke model. And why this is important? Because with this hub and spoke model, it will allow us to leverage our current 2,200 dining restaurant and drive growth. And our current 2,200 dining restaurant, they are hubs that we have built already.
The next step, we just need to build a spook. So I've talked about the competitive advantages. That include the operational capability and innovation. And one of the most exciting point about our operational capabilities is that they are brand agnostic. And we can leverage all these capability to accelerate the growth of our smaller brands.
So last year, we expand the store count of all of our smaller brands, the first time since 2013. For example, leadership alone had over 17 new builds for 2018. In the coffee strategy session later on, Stephen will give us an example of how we make use of our existing resources to incubate a new brand. One of the competitive advantage that I mentioned earlier is partnership, high impact partnership. We have done it for many years and we'll continue to do it is we always look to leverage our scale and expertise to forming high impact partnership with our industry leading players because such partnership will allow us to enter new geographies and areas faster and more efficiently and also push us to innovate the way that we do business, understand our customers.
So past example what are the past example? You know it already. Like we deliver we work with the high speed railway company in China. We deliver all the way to high speed railway to your seat, our KFC food. We also work closely with the delivery platforms such as MeiTong Ele.
Me to grow our own delivery business. Today, I'm very pleased to announce that we have entered 2 new partnerships that will provide us with further opportunities to grow our business. We have signed strategic agreement with both Sinopet Sales Company and CNPC, Zongshuhua and Zongshuyoua, to collaborate in developing the gas station retail business By bringing together best in class assets and our know how, this partnership will create huge value for our partners and enable us to build brand presence and reach a previously underserved segment of the market. But as always, we'll take a disciplined and prudent approach to learn and verify the business model. So are targeting to open 100 store plus in the coming 3 years in the gas station channel to make sure we got the right business model.
But once we get the right business model, as you know about our capability in replicating the business model, and that's the next phase, but we need to get it right first. Now let me turn to our people. Our employees and our culture are the core of our success. Our policies are centered on the idea of care, fair and pride, which all of our employees love. Another principle is our commitment to the RGM 1, which I mentioned at the very beginning.
We have rolled out many initiatives to make sure that our RGMs have the support they need to lead our business on the front line. Nothing is more important than that. For example, we offer family insurance program to our RGMs, to our restaurant general managers. So right now, more than 5,000 plus RGMs' families are covered, including their spouse, their children and the most exciting part of the health insurance coverage is their parents' health insurance coverage until their parents reach 75 years old. And this is probably one of the most I won't say popular, but most valued and treasured benefit of RGMs, if you understand if you are familiar with the health insurance situation in China.
General quality is also important to us. We are very happy that we are recognized for being one of the 3 Chinese company in the Bloomberg Gender Equality Index 2019 because we have 60% staff are women and then nearly half of our secondary team are female. And then also, we are also recognized for being the top employer for 2019, and we'll continue to try our best to create a diversity program for all the young talents in Yum! China. Last but not the least, we care about the people who live and work in the communities in which we operate.
So we see every opportunity to give back to society whenever we could. And just these are just very few example about what they will do or what have we been doing. So 1 yen donation, we have been doing that for over 11 years, and we have donated more than USD 30,000,000 in the last decade to help kids in poor areas focusing on nutrition meals. And the Grow Local initiative is very Pizza Hut. We just started it, and the focus is to help farmers on best practice truffle farming.
And then we also leverage our supply chain to help farmers bring their travel to Chinese consumers, of course, through Pizza Hut restaurants, travel pizza. Last but not least, I would like to highlight the KFC Angel restaurants. We have over 22 restaurants over China right now in which we provide jobs. More than half of the full time staff will have some kind of special needs, public hearing, etcetera, and we modify equipment, and we truly believe in the full potential of our staff with or without special needs, and we even are celebrating the 1st manager who has special needs after a few years' effort. While these initiatives, of course, they don't contribute to the bottom line, they're incredibly important to us and underlying the impact that Yum China has.
So in closing, I hope you can see from this overview of how Yum China is uniquely positioned to grow and continue to have a track record of success. We have wonderful leading position in China, hard to match capability, disruptive innovation, high impact partnership and unique culture and talents and a long runway for growth. So I'm incredibly excited to be leading this team, and I'm committed together with my team to excellence and to creating shareholder value. Through the rest of the day, you will see a lot more examples of how we are leveraging innovation powering our growth. And with that, I would like to now hand over to Johnson to talk about KFC in China.
Thank you very much.
Thank you, Joy. She shared with us how Yum China built up a solid foundation for our brand to grow in scale. Hello, everyone, and good morning. My name is Zhongshan Huang. I am the General Manager of KFC since 2017.
I joined Yum! China in 2006 in IT function and becoming Chief Information Officer in 2013. And additionally, Marketing Supporting Officer by 2014, with my IT and inside marketing background, together, we developed the IT infrastructure and digital innovations that you will learn later today that are driving our business growth as well as our operation efficiency and our experience for our customers. I'm very excited today that I'm here to share with you KFC and how do we plan to grow this brand. Today, I would like to leave you with 3 key takeaways from my presentation.
Firstly, KFC is the number one QSR in China in terms of number of store and revenue. In last year, we added more than 550 restaurants in a year. It's driven by our strong supply chain capability and development team. But we are not satisfied where we are now. So we still have more than 800,000,000 customers we can serve and more than 1,000 cities that we haven't entered yet.
Without digital delivery and menu information, we can grow further. And lastly, we evolve not only our menu and our marketing, but also operations to improve our menu operation efficiency and drive our margin continually as well as to increase our customer service. Before I go into this detail, I would like to share with you a highlight reel of KFC operation. Please. I hope you are excited as I am to see KFC assets and our menu innovation, productivity as well as our long term growth.
How do we take our number one position today to grow into the future? Menu information for all segment and data integrated marketing for seamless online and offline experience, plus our asset growth and modernization for expanding our footprint and stay connect with our customers. And lastly, it's the operation excellence that is driving our product quality and service experience in an efficiency way. So menu innovation is key to our positive same store sales growth. We have seen that our customer wants exciting new product to keep coming back to our restaurant.
And they are willing to pay more for perceived, interesting and tasty food. In last year, we introduced around 60 new products across all our data and categories. So refreshing the menu through limited time offer are key to driving the frequency and also our ticket average. For core products, the key is to make it accessible to all consumers with a high degree of perceived value. Chicken leadership is driven by new and innovative products at a competitive price point.
Our ability to execute value is strong with our supply chain and our procurement power that we are able to sourcing better innovative product at a good price. There is a large addressable market for premium offers at a higher price point. Top tier markets are less sensitive, and the right product allowed better price and better revenue. So our signature win bucket at the US6 dollars together with our core product that drive a base traffic into our store. The ability to build a high degree of perceived value with strong product makes us the number one provider of chicken to Chinese consumers.
I would like to highlight one signature product for our LTO, the crayfish and burgers product you see on the right hand side, we launched in January last year and this year. It performed extremely well. There are few reasons why this product drove sales. Firstly, crayfish, is a popular product among young consumers. We combine it with our chicken and added distinctive flavor.
Secondly, with a RMB 20 price point, customers perceive that has a good value and it sells so well across all city tiers. And furthermore, crayfish in China typically is served in summer. And we make crayfish available in winter, shared and in a burger form, a truly innovative product. Lastly, KFC is unique, being able to do this with our supply chain capability to get us the volume and quality of season product, and our operation team executed flawlessly. Our core product innovation across all of the data and category, certainly including our breakfast, KFC was the 1st fully adopt and localized menu with congee and dough stick in early stage.
In the past 2 years, we introduced rice roll and also Chinese pancake, so called Dabin, with abundant filling inside that was well received by our customers and increased our ticket average. KFC's density of store offers convenience to our breakfast customer. Together with our food innovation, digital and delivery convenience, we drive our breakfast data to grow faster than overall our business. Beginning in August last year, we started our Crazy Thursday, and it is a series of value promotion uncertainty to drive traffic into our store. Disruptive value innovation require a strong relationship with supplier.
The product, as Joey mentioned earlier, 1pong chicken, is a cart of meat between breast and shoulder. Working with our supply chain, we were able to secure these meats previously unused at volume. The right price point that drives profitability, 6 pieces of this chicken sell at USD 1.5, USD 15 for USD 3. That is disruptive price that drive people in from street. Our competitor will struggle to profitably beat this price point.
But even at this price point, we drove incremental operational profit dollars. Credit and sustain transaction was all incremental, with no sales transfer across the day. We see large potential in premium burger category, particularly over RMB 20. We have launched premium priced products such as beef wrap, chizza and Hokkaido Premium. Our customers respond with buzz and excitement, driving both traffic and ticket average.
This year, we will launch I Love Massey Burger series, and we believe this premium series burger will have the potential to meaningful to increase our sales. KFC leverage technology to unlock our growth. And we have developed a whole ecosystem revolving around our customers from our APT and join our memberships. We evolved to provide our customers for digital ordering, delivery, prepaid membership and loyalty program, incorporate with our e commerce. Our CNO, Stephen, will elaborate more shortly.
And more importantly, we will close the loop shortly. As you may already be aware, we are going to launch Yum China Pay, so that we are knowing our customer better and we can serve them better. The KFC store you will visit in the next 2 days is fundamentally different from what we used to growing up or in the other country. The store picture here you see used to have 6 point of sale system, but now has only 2. And this change has been driven by increasing digital ordering, including pre order, mobile pre order and delivery order.
Digital orders allowed customer spend more time on menu and our offers, so that increase customer experience and ticket average as well as our productivity. With the 85% of digital payment, we can get this information and knowing our customer better and serve them better, so does increase our sales. The 160,000,000 KFC members who are driving nearly 50% of our sales, and they spend more money on the non member than non member on average. So the target members increase sales and traffic consistently. Cost to reach these members are lower, speed of promotion are faster.
As our IAPP download increase, we see the better engagement will build our brand loyalty. Our prepaid membership privilege program is similar to Amazon Prime. For example, 3 U. S. Dollars delivery members that allowed our customer to have up to 2 free delivery every day for the 30 days.
Delivery users more than doubled their frequency in the month for their purchase and resulting in positive revenue and OP dollars per member sold. Through CRM Analytics, we know that 25% of our delivery members have never ordered breakfast, and this is an opportunity for us to do cross sales. And even if we know them are our chicken lover, we can do some other sales and promotion. So all of this represents a huge opportunity for data to drive our up sales and cross sales, improving the frequency and ticket average. We offer delivery in more than 1100 cities in China, And we also have a fleet with our dedicated delivery drivers wear our KFC uniform to provide quality food and service to customers.
So the network expansion has the major growth driver in the past 4 years with a 40% sales compound average growth rate. To offer unique privilege and engagement on our own platform app, which allowed us to deliver our own channel traffic and maintain our margin, which is critical to us. And we are now the number 1 in terms of our own platform delivery sales. Improvement in delivery quality will drive future growth. KFC's sales and store density means we have the network to reach our customer quickly.
We investment in our delivery technology and operations to reduce the fulfillment time. We then therefore can serve hot food hotter food faster, leading to better customer experience and increased frequencies. Dynamic delivery unlock further efficiencies. Currently, each order and each rider are allocated to a single store. We will now move from the single store based delivery to a trade zone based location, meaning more efficient order and more efficient rider allocation.
So less canceled order, less delayed order means more happier customer and more sales. So the significant competitive advantage and as we are entering into a new market, our delivery service will be more profitable and sooner. Coffee is a large opportunity for growth. KFC today already sell 90,000,000 cup coffees in a year, one of the largest in China. We invest in upgrade our coffee packaging with industrial leading leak proof leak to ensure better customer experience.
So we also leveraged our digital and delivery to double our coffee delivery revenue in last year. Our CIM information showed that only 15% of our KFC members have ever had COVID. So this is also a huge potential that we can target. So in last year, we utilized the information to do cross sales, driving over 10,000,000 new coffee users to our KFC. So many information through new product like carbonated coffee or flavored coffee is also a key to contribute our sales growth.
So the huge upside for coffee is they are more profitable and growing fast than overall food category. So we are focused on profitable growth based on a highly build out model for both new city and existing market. In 2018, we speed up our new build in the right area and also considering the macro and competitive factors. So we have unmatched ability to develop new store with our nationwide store development capability, supply chain and operation team that with also with a deep connection and relationship with major developers. So our hit rate and IR maintained very strong and healthy.
We upgrade our brand store remodel. This means our stores are young and relevant to our target customers. Through remodel, we are able to put latest technological upgrades to improve efficiency. Over 5,000 stores, we have split our order and pick up counter, which is driven by a digital ordering. So this spread counter reduce the front of house congestion, increase delivery time and customer satisfaction.
Also, the size of our stores are getting smaller. As we improve back of house layout, remodel allowed us to continue realize the efficiencies. As we enter multiple geographies and city types, we evolve our store model to better suit the trade zone economics, like in the lower tier city. The economic model allowed us to use smaller footprint with a more variable orientation to penetrate and expand our restaurant more and better and that has positive impact our same store in the past few years. And in the community store, increased density of our store facility through delivery as well as smaller footprint.
In 2018, we rolled out our new format of dessert kiosk, which drove significantly result. This new kiosk provide us to enter a new trade zone and higher end mall, also added same store sales. Kiosk also an important outlet for us to do our menu innovation, such as our new ice cream, our waffle and the other new desserts to increase our ticket average. So we have now only 1100 kiosks on our 59 restaurants. So rollout and network expansion is continue will be continuous to contribute our same store sales in this year and beyond.
Transportation store are a key strategic asset. They generate an outsized profit and revenue to us. They are also offering an interesting source of growth. 3 years ago, we did not do delivery in these hubs, but now we are the largest QSR offering high speed rail delivery to U. S.
Seats. There are another 800,000,000 customers we can serve and over 1,000 cities we can enter. Our supply chain development and operational capability will help us to penetrate these additional markets. Our pipeline continues to grow as new cities develop. And as our new store format becomes suitable for an existing city.
As Craig Joy mentioned, KFC China was still far fewer than far fewer restaurant per capita than the other developed countries. For China, KFC as a whole, we have only 4 restaurant per 1,000,000 persons. Our density will increase significantly as GDP per capita grows, with Tier 1 over 3 times 10 the national. So to highlight the huge incremental potential as GDP continue to grow. To manage the 6,000 restaurants, we rely on over 300,000 of frontline staff.
We have a young and digitally savvy staff, a proof of potential managers to help us grow our business. The culture of innovation directed from restaurant are also a critical point and commitment to invest in technology to reduce non customer facing hours. So our manager are committed to store level P and L day in and day out. Store this commitment to store labor profitability, our staff has helped to drive 15% increase in productivity over the past 5 years. Much of this is to rely on technology.
As we invest in reporting automation, in tracking customer experience and increase employee workflows. Looking forward, we will deploy technology into improved labor efficiency, inventory management as well as store level reporting. All of our technology is in house proprietary and continue upgrade driving our productivity. Our KFC business today is strong, and we are the clear number one market leader. So we have strong supply chain development capability that will help us to grow further in terms of sales and asset objectives.
And we will continue to innovate new product and develop and utilize technology to improve our business and our service to customers. And our workforce is passionate about our brand with a culture of innovation, and our digital and delivery will help us to provide a massive platform to tailor our offering and introduce more and better customer to KFC. Innovation and technology is at heart of KFC growth. We have a huge growth potential in front of us, and we are more than prepared to execute that. So I look forward to having you together with us to the long runway growth.
Thank you. So next, let me introduce Jeff, the GM of Pizza Hut. Thank you, Jeff.
All right. Thank you, Johnson. Good morning, everyone. Welcome to Shanghai. I hope you all enjoyed the presentation from Johnson.
So my name is Jeff Kwei, General Manager of Pizza Hut. I'm thrilled to have this opportunity to share with you the progress we have made in the past 12 months and our plan for 2019. So before I get started, I would like to have a brief introduction of myself. So I've been with Yum! China for 16 years.
I spent first 8 years in IT, then I moved to Yum! U. S. Digital Innovation team. And then and moving back in 2011, and start to lead our call center and e commerce team for both our KFC and Pizza Hut delivery business.
And then I went to Chicago Booth in 2013 and returned to I had our Pizza Hut home service brand in early year 2015. In late 2017, I had honor to lead 1 of the greatest restaurant brand in the world, Pizza and work with a very strong team to revitalize the brand. So for those who are not very familiar with the Pizza Hut store in China, I would like to share with you a short video to showcase the brand and some of the exciting developments we have made over the last year. All right. Hope you all enjoyed the video.
Today, there are 3 key points I want to leave you with. 1st, Pizza Hut is the unrivaled leader in this China West casual dining market. The strengths that have made Pizza Hut the largest player in China are very hard for others to replicate. 2nd, 2018 was a transition year for the brand. We have already witnessed initial success from our revitalization strategy.
And finally, building on our improved core capability, we have a solid plan to scale up the initial success and revitalize the brand. So China West casual dining market is estimated to be more than RMB 250,000,000,000 in 2018, with around 20% of our growth over the past several years, showing an incredible growth potential for us. And Pizza Hut is the leader at scale in this market with 4 times more store than the next largest player in China. So Pizza Hut is positioned as a family friendly, modern, West Country dining concept with great value for money. Our core competitive edge lie in a range of areas.
First of all, we have a very strong and well rounded product portfolio. We are not only the number one pizza player in this market, but also dominant in steak and appetizer categories. So as a matter of fact, pizza as a category only accounts for about 30% of our sales. Our strong product portfolio give us the chance to seize opportunity in multiple categories and give our customer the variety of choice they want. And second, the food and experience we provide are very attractive to family customers, which is a large consumer group in Westcasual dining market and also in growing China middle class.
And third, we have 2,200 stores more than 2,200 stores opened in high traffic locations, with more than 240,000,000 customer visits every year. And over the past several years, we built on our offline strengths with digital and delivery, accumulating over 50,000,000 members and building our own strong delivery footprint in more than 500 cities. And last but not least, we have a world class operation team with almost 30 years experience and know how to run this business and to continue to dominate this market. Our strong product portfolio, our deep understanding of customer our family customer, our strong offline presence, digital and delivery capabilities and world class operation team are the foundation of Pizza Hut's strategic position in China at the backbone that allow us to be the number one player in this market. We are very confident that we can continue to grow this brand by reinforcing its strengths.
As we shared with you before, we believe we can win this competitive market and build the core capability needed for long term growth by focusing on these 4 strategic pillars: to fix our fundamental, to improve our food, service and value perception to enhance our digital capability and continue our offline to online transformation, to grow our delivery to capture the fast growing segment of the market to upgrade asset, refine our business model to capture opportunity in different locations, improving our new build success rate and return on investment. Next, I will highlight some initial success in 2018 and our priority in 2019 for each of the 4 strategic pillars. 1st and foremost, food innovation. Over the last year, we have systematically improved our menu through simplification, testing new products through LTO and moving the most popular one onto our permanent menu. For more than 20 years, we used the same 2 dough type, our pan pizza and our stuffed crust.
But just in the past 12 months, we successfully launched 2 new dough types to capture the trend of Senpizza. We also created a lot of buzzworthy on trend food in other categories. Products like omeletrice, crayfish pasta received very good customer feedback during the limited time window and now become one of the signature products on our permanent menu. And last year, for the first time, we worked with Forbidden City during the Lunar Festival period. We launched Pizza and Forbidden City Moo Cake, and the result is very encouraging.
We also upgraded our signature mocha cake and tiramisu. The new mocha cake was even ranked as top 5 best moo char cake in Shanghai by customers on Dazhu Lianping and application like Yelp. We also upgraded our ice cream category and introduced a lot of buzzworthy, attractive new flavors, like this salty egg yolk ice cream and durian ice cream. Last week, we launched traditional Chinese sweet rice wine ice cream and Mu Chao ice cream. They taste very good.
You guys should try it during your store visit. Our customer actually love our creativity on ice cream very much. And this is our new message series, look premium, taste very good, also receive a lot of positive feedback after launch. Last screen, we launched a new menu and received quite a lot of good feedback from customer as well as a lift in ticket average. And we are on track to roll out and improve the 2019 new menu next Monday, March 18.
The new menu will be 15% smaller than our current one and 55% of the items on the new menu will have been upgraded or will be new introductions. So we have brought some new menu to the meetings, so feel free to flip through it during the coffee break. So I think someone already got the new menu, so feel free to pass the new menu. So in 2019, we'll continue to focus on innovating in our signature product our signature categories. We'll provide more attractive pizza selections to strengthen our pizza expert image.
We'll enhance our leadership in state through our scale, cost advantage and deep know how in this category, and we'll continue to upgrade our desserts and appetizers. So for value, we have been we have listened to our to the feedback from our customer and been very focused on improving value for money perception. We adopt a multilayer value campaign, including everyday low disruptive value, high low pricing in a coordinated sequence. Our strategy is working very well. The value for money score from customer survey has been steadily improved over the last year.
Earlier this June, after extensive pilot test, we launched this disruptive value campaign, Scream Wednesday, and have already seen a positive result. We are continuing to build this Scream Wednesday platform and introduce new products with disruptive value in 2019. And for service, in 2019, we focused on operation efficiency improvement. As you know, our efforts start to pay off second half of last year. Our labor productivity improved significantly without compromising our service quality.
In 2019, we'll continue to focus on enhanced core operation capability by improving production and service speed and enhancing frontline crew team. On top of that, we are focused on building the call as memorable signature service. The signature service could be a sweet surprise along with your check or remembering customer ordering habit empowered by in store CRM system. And for digital, we have been focusing on recruiting new users from offline and online channels, improving engagement with our members, so that we can communicate with our customer more effectively. So fortunately, there is a huge amount that we can learn from KFC's digital initiative and we have made great progress on this front over the last year.
By the end of 2018, our total member increased by more than 40% to over 50,000,000. Dollars And our accumulated download increased by 1.7x to 60,000,000 dollars And it's very exciting to see the sales coming from our members reached to 45% last year. And we also expanded our function on our own app and launched the tableside ordering to improve in store digital experience. In 2019, we plan to systematically enhance our digital outreach in different part of customer lifecycle. Our priorities is to scale up a new family privilege program.
So we actually the program that can be purchased for RMB98 to get a gift, birthday coupon and dozens of coupon privilege that family customer can enjoy. We have already seen great potential with new customer acquisition and as well as traffic uplift from this initiative. And besides that, we will focus on building the ordering system for carryout business, which is relevant still relevant small today, but we believe has great potential to grow in the future. So clearly, delivery is one of the most important growth driver for PISAGA. In 2018, we focused on 2 fronts to drive this business.
1st is to simplify our operation and strengthen our core operation capabilities. We have already completed integration between Pizza Hut Home Service and Pizza Hut Dining Delivery to improve the speed and service level. We simplified our menu, reduced the number of items by 18%. And lastly, we took back 100% last mile delivery team from aggregator late last year, now serving all of our customer with dedicated Pizza Hut delivery riders. This initiative allows us to have to improve overall customer satisfaction and increase rider availability, especially during the peak hour.
We have already seen our overall delivery customer overall satisfaction rate increased significantly since this initiative. We believe all these factors are laying a solid foundation for us to have a high growth rate for delivery business. Our second priority is to attract more new customer to the brand and retain existing customers. Offers like half day, half price on Monday, Tuesday, Wednesday, RMB 39, everyday RMB 1 offer, have proven to be very effective in driving delivery sales. We also launched a light app for delivery on Weiqian last July.
And we have been making continuous effort to improve online digital experience. Our conversion rate on brand app for delivery business has improved by 10% last year. And we also test privilege program delivery privilege program as Johnson just mentioned about and see a very promising result. The frequency of delivery provision user increased significantly. We'll continue to roll this program in 2019.
And this year, our priority is to further strengthen our core capability in delivery. We will upgrade our delivery branding with upgraded packaging and uniform. We were adopt a 4 scale delivery calendar with different layer of initiative and we'll improve customer engagement with privilege program and we will enhance our operation capability with better support for delivery. We actually plan to build a specialized delivery room for better food quality and fast speed in all the dining stores with delivery business. By the end of this February, we have already completed the construction of more than 1200 stores in plan.
We are actually very excited that our customer can get even harder food and better service from us going forward. I can emphasize more for casual dining business, the importance of store ambiance. In 2018, we developed our new facade and interior design and optimize our remodel investment for different store type to be more cost effective. Following the small store remodeling, we received encouraging customer feedback as well as positive sales uplift. We're actually very excited that we have quite a lot of store that can be renovated.
So these are some of the new design for our stores. So we have remodeled 225 stores in 2018 and we will take even more aggressive step on asset upgrade and remodel 500 stores this year. And we target to refurbish all of our asset by the end of 2021 and bring our average storage to less than 3 years. And we are also making continuous effort to be more cost effective in our asset, making them smaller and more efficient over the years. We have developed a solution and a plan to reduce the kitchen size by a further 30% in 2019 without sacrificing capacity and efficiency.
And we have also piloted a hub spoke model, as Joey just mentioned, to adapt to the evolving customer needs. We're leveraging our dining asset as a hub to build a spoke stores to improve the coverage of service speed and also at a much lower capital investment. This is a very exciting new concept. We are closely monitoring the result before rolling out more widely. As I mentioned, with all the efforts I mentioned above, we are pleased to see the customer perception to our brand has improved from previously my reliable backup boyfriend.
It's warm, it's reliable, but it's not your first choice. To now, obviously, it's not in line with the image of the brand GM, right? So thank you. So now our customers actually think we are an energetic and determining young man and try really hard to survive. So customer tell us that my Pizza Hut is really have finished a lot of sailings.
It's not like the piece I had before, so which is good to know. So actually, our customers are recognizing our efforts on rejuvenating our brand, and we are also pleased to see same store traffic recovery during the Q1 last year. And in the 1st 2 months of this year, we continue to see encouraged growth in same store traffic. To recap, 2018 was a transition year for the brand, laying a solid foundation for the revitalization of the brand. We have made substantial improvement in our menu.
We rebuilt our value for money perception. We refocused on our family user who are our core customer. We made a substantial improvement on digital capability. We brought back 100% of last night delivery riders for better delivery quality. We developed a new asset design and accelerated asset upgrade.
We are pleased we are encouraged by the same store traffic recovery during the Q1 last year and improvement in the customer perception. In 2019, we plan to further scale up and optimize the initiatives that have shown positive results in 2018. Our focus area will continue to revolve around our 4 strategic growth pillars: to fix fundamental, to roll out disruptive value campaign, drive digital and delivery and aggressively upgrade our asset. So as you can see, there's a lot going on at Pizza Hut and there's a lot to be excited about. So we are very confident that we have the right strategy and great innovation to revitalize the brand and have a long term sustainable growth at Pizza Hut.
Thank you. So next, I would like to invite Steve Li, our Chief Marketing Officer, to share with you our digital transformation journey.
Well, I see we are all awake when we see this handsome in the jetty general manager of Pizarro, right, who tried really hard to survive and he did survive. So I'm Stephen Li, and I'm the Chief Marketing Officer of Yum China. I joined Yum! China in 2011. I have been working on KFC Leadership, Peaceheart, most of brand before being appointed Chief Marketing Officer in 2017.
I had more than 20 years of building brand experience, including 90 years in China, 2 years in U. S. I'll be leading marketing and digital team during the transformational journey of building up our membership base and digital capabilities. Today, I'll give you an overview of our digital assets and how we are monetizing these assets to grow the core brand and to build new brands. Later, I will invite Laila Zhang, our Chief Technology Officer, to tackle impact our operational efficiency as well as the technology behind the whole system.
So for those of you who have followed Yum! Channel for a while, you know that Yum! China was an early adopter of digital delivery. So today, I will give you a full picture of the powerful and invaluable digital ecosystem we have created, an overview of how this is impacting our business today and how our disruptive innovations extend runway for growth in China. This slide shows a few of the key milestones on our journey of digital.
We launched our very first super app for KFC in 2015. And we started accepting Alipay digital payment the same year. And we were the 1st chestnut to do so. And we now also accept WeChat Pay and Yum China Pay partnership with Unipay. We launched KFC Digital Membership Program in 2016 nationally and for PSR program in 2017.
In less than 3 years or perhaps less than 2 years for Pizza Hut, we have achieved a big amount. We have over 160,000,000 members and 50,000,000 members, respectively, for KFC and Pizza Hut. We believe we have the world's largest restaurant membership program. And later in the presentation, I will explain how we are using this membership to build our growth. Yum China was a pioneer in digital in digital but also in delivery business.
We started our delivery, our old channel back to 2,007. And long before aggregator entered market in about 2014. As citizens, we have been privately work with aggregators, But we also believe that it is critical to maintain our capability in this area. It will be central for our future growth. So we made significant improvement in our delivery dispatching system in 2018.
And later in the presentation, we will introduce our next evolution of our system, which we call Delivery 3.0. This initiative has gained significant traction across our business. There are a few stats I would like to share with you to demonstrate the growth. Last quarter, 46% of our sales came through digital ordering, which including mobile preorder, kiosk order for KFC, a table set order for Pizza Hut as well as delivery orders through our super app and aggregator apps. 86% of sales last quarter was digital payment.
With our massive membership base, nearly half of our sales are now from our members. We have transitioned we have transitioned 60% of our marketing budget to digital as this significantly increase the effectiveness of our marketing, which again I will share with you more details later. So by now we have created a very powerful digital ecosystem for the entire customer journey across the various of dining locations. From beginning from before the inter store to ordering, receiving delivery, subscription for privilege program or the earning and spending royalty points. There are some new items which we just added over the last 6 months.
The first one is table set ordering for piece art as well as online queuing. These 2 are essential feature for casual dining service. And we recently launched Yum! China Pay, which created another convenient digital payment option for our customers by partnering with Union Pay. And we have ended our privilege program, which targets specific customer groups to drive loyalty and to increase the frequency.
We believe we have very few company in China having this complete digital ecosystem rather than 1 or 2 digital features. In addition to our ecosystem, we have also integrated this ecosystem with the 3rd party internet open ecosystem, such as Tencent, Meituan, Alibaba and NetEase apps. From mobile payment to in store entertainment to the calibration of marketing programs. For example, we partnered with Kobei and TMO in the past double 11 double days double 12 days, we successfully drove online traffic to our physical stores. A big portion of the traffic comes from new customers, online customers.
We also another example is last summer, we launched a cooperative privilege program with iQIYI, a leading video platform in China. The program was loved by students and young customers during the summer holiday period. So how do we do all of this? This is underpinned by 4 very powerful digital eyesight. The first is our super app, the Light App, apps within apps.
So far we already have nearly 90,000,000 downloads of our super apps. And between our super light app, we have over 60,000,000 monthly active users. We are like an Internet company. Our unit data bag, which is our 2nd big digital asset, cartons the transaction history of our members. We already have 180,000,000 unique member ID as Yum China total.
And so we know our customer preference and we know their purchase behavior, such as where, when and what do they buy. We have 2 payment options specific for Yum China. WeGood are redeeming royalty points and Yum! China Pay. Finally, we have our super powerful delivery platform, which we will talk with more details later.
The super app is at the core of our ecosystem. So now I'd like to show you a very short video to demonstrate our KFC super app. Video please. Well, Pizza Hut leverages the framework of KFC. So in 2017, we were able to launch Pizza Hut super app fairly quickly.
And later on, we still tailored the super app for Pizza Hut to meet casual dining customer needs, such as annual feature of table set ordering and online queuing. Now I have to show you all the great assets that we have developed. I just want to show you how we actually monetize these assets. I believe this is very important for us. Through targeted marketing and personal offer and top content engagement, We have been tracking our customer value for EM China total system.
So let me use terminology ARPU, annual revenue per user. So we have tracked the annual revenue per user. We have increased the annual revenue per active members by nearly 2x for both Pizza Hut and KFC between 2016 and 2018. And notably, we increased spending not only at restaurants they are a member of, but also at other restaurants in Yum China portfolio. Well, I'm just showing you the KFC and Pizza Hut data.
It also applies to our smaller brands. And this gave us huge and unique advantage to nurture and growing our small brand by leveraging established capability from big brands. Our privilege program is something I'm really excited about, because we have seen a really positive response from our customers in big scale. So let's look at the privileged program, which is our most popular the delivery privileged program, which is the most popular privileged program we have so far. Our customer pays an offer of US2.5 dollars for free delivery for a month.
We have sold almost 2,000,000 subscriptions at KFC and 1,000,000 for Pizza Hut. As this now accounted for 32% and 17% of our old channel traction for 2 brands respectively. And we also observed a significant increase in monthly frequency and monthly spending. We're also seeing passing routes from our other privilege programs such as coffee and breakfast privilege for KFC and the family privilege and peace of heart. Well, we'll not stop here.
One of the most valuable opportunity from our membership program is ability to cross sell dayparts. So for example, a member might have previously bought lunch at KFC And through very targeted marketing, personalized offer, special content to engage the customer, we encourage them to try a new depart service or a new category such as breakfast delivered coffee. So just look at the delivery our members' delivery participation. In 2017, 15% of our member participated in delivery service. And in 2018, it increased to 21%.
This gave us huge opportunity to sustainably increase our transaction in future. And we have seen material increase in the proportion of members that now utilize additional dayparts and see significant further opportunity to expand this. And remember, we've got 160,000,000 members. And while VM China's core advantage is our ability to seamlessly integrate our online and offline stores with the ISAT light model. Over the last few years, we have built virtual stores on most popular portals.
For example, our membership service store at Tmall at Ko Bay and our KFC Group Vice store at WeChat Lite app. We utilize our virtual store to drive traffic to our physical stores. One example which I just shared is our Double 11 and Double 12 sales. From our interaction with our members and customers, we use their customer preference and we feedback this innovation to the personalized offers on the virtual store. And customer will increase their visit frequency to the Facebook store after they buy those personalized offer.
And we definitely see the traffic from online to offline, and we definitely see the customer purpose data and habits is fully integrated when we delight the whole program. And this will be a continued effort and a sustainable growth driver for us. Okay, so one fun example here is our pocket KFC stores and WeChat Lite apps. This is a great example of social marketing and social commerce. KFC is here for 30 years.
Many of us want to own KFC, but it's just not easy. And today, just scanning this barcode, you can create your own KFC with your old decoration and the different look of yourself or KFC pocket stores. And you can promote this store to your friends, and encourage to buy cashier through your stores. And you got reward with your friends buying your stuff. Even your friend might not buy in your store every day, but we have some social activity, like give you a candy every day, to have some interaction with you.
So please show a short video to us then how it works. Well, we launched this just 4 months ago, November last year, And now we already have 1,500,000 pocket stores opened by our customers, our small business owners, with peak daily active users of 2,000,000. It's really easy. So I hope to see all of you signing up to acquire your KFC party store today. Well many people say that KFC or Yum China is the tech company happen to selling fried chicken pizza.
So that's probably one great example. But we are building digital capability not just to drive sales. We also ought to improve our customer experience at a retail store to let them have fun. And this is my favorite example, key music. Through our key music, our key music portal are super app.
Our customer can choose their favorite song and change the background music of that song. So now you can enjoy your favorite fried chicken, when listening to your favorite song. And this is very popular feature. And every month, especially for young customers, every month we have over 800,000 songs being requested. And we all have more than 100 celebrity or young artists working with us to provide the content.
It's probably become a bigger off like billboard music something. And the ecosystem we have built has allowed us to move to a data driven intelligent marketing. We have we said that we have transitioned our marketing budget to 6% digital versus 40% 2 years ago in 2016. And because of that, we're able to track awareness, media interest and last mile behaviors. And empowered by our data back, we have our membership system where we can understand membership behavior and their visiting frequency.
We have customer tech to understand our customer better, serve them better. Combining these 2 sit together, this increase the effectiveness of our marketing spending. As Julie mentioned in her opening, we have recently ruled out nationally our AI menu recommendation in KFC for mobile orders. We're really excited about this powerful tool, although it just launched in a short period of time. Now we understand our customers, we can offer a personalized menu before they see the regular menu.
And feature the product which they are most likely to be interested in. So for example, the bucket for Amy, who is a family member, or the snack platter for Jack, who is a college student. And after that menu, we then come up additional personalized and discounted trade up opportunity such as dessert, drink and side items. The initial results have shown a positive impact on our ticket average and customer satisfaction. With more data analytics capabilities and machine learning of EAM China, We will continue to fund on these powerful tools.
And this is very encouraging for us to drive strategic growth from our digital asset. Now I will have post here. Let me invite Laila Zhang, our Chief Technology Officer, to the stage to discuss about operational impact as well as the technology behind the whole system.
Thank you, Stephen. Thank you, call Yum! China as a technical company. I'm Chief Technology Officer of Yum! China.
I joined Yum! In 1996. I have worked building ERP system, store system, logistics system and data bank for all brand before I'm appointed as technical officer. Today, I help team build data and AI capability to support business growth and help brands to control operation cost. So today, I am pleased to discuss with you the real impact our digital initiatives are heavy on our operation beyond just more effective marketing, like Steven say a lot about marketing.
Let's start with digital ordering. Like Joy and Johnson mentioned, we have moved the majority of all KFCs to incorporating digital ordering in store layout. This is Metro City store in Shanghai next to our office. In 2015, it had 6 point of sales machine on the counter. All of order come from cashier and 100 percentage of the orders that we need made by cashier.
Today, 75 percentage of order come from digital ordering, include kiosk and mobile pre order. Post have been reduced only to 2. Space and the level have been relocated from Kensho to assembly area and service. In turn, customer service time have improved, leading to improved customer experience and higher sales. We are also driving operational efficiency with improved forecasting.
We are able to use data to better forecast sales at very detailed level through AI forecasting. We have finished the 1st stage rollout of this project. So such as we are incorporating data such as sales, promotion, holiday, weather and the location. The accuracy of the forecast for transaction count and the product units sold improved by a material amount. This has a meaningful impact on operation by reducing food wastage, lowering the risk of product shortage and improving level scheduling.
Let's review and look forward delivery capability. Delivery makes up a key growth engine for Yum China, as you well know. Start from 10 years ago, we implemented Delivery 1.0 version to provide delivery capable restaurant, which had exclusive riders to provide restaurant based delivery. Later on, we upgraded the version to 2.0 to build automatical dispatch capability. Today, we now have the Delivery 3.0, which is tree zone based and multi brand support capability.
This means we have the capability to shift the rider across restaurants within the tree zone to balance demand and maximize efficiency. What are the key benefits of this system? We are able to reduce increase delivery transaction per ride per hour. 2nd, we have improved delivery times to consumers, a key driver of customer satisfaction. And we also reduced the number of orders that are rejected due to capacity limits.
All of these benefits are key enablers to drive delivery business growth in future. So in addition to having significant efficiency benefits for KFC and Pizza Hut, SA System also provide a huge advantage for our smaller brand, helping them grow and achieve great scale. Finally, we are able to go one step further and create disruptive retail innovation, a fully automated ice cream store. You can get ice cream from Robert Colonel Sanders directly. We will go and see it in Suzhou tomorrow.
And here is a video of it for action. Yes. Our digital and AI strategy encompasses our entire business. Today, we talk a lot about the first two part, intelligent marketing and intelligent store. We also utilize our digital assets on back office functions like include intelligent services such as we provide customer service and intelligent enterprise ranging from risk management, supply chain management to site finding.
Combined, this drive efficiencies through the business, lower costs, while improved sales, quality and customer satisfaction. All of the system we talked about in the morning about the digital and delivery solution is empowered by young digital operating system, an enormous databank and the latest technology development. We had JPY 1,400,000,000 transition in our system in 2018 and we handled 300,000,000 customers. We fully and we take data security very seriously. Across our system, we have invested heavily in different level to protect our data.
We will improve the digital system capability and make it more reliable as we fully understand how important it is to future business growth. To conclude, Yum China is innovating to power growth. We have one of world's largest restaurant membership, a powerful digital ecosystem and the industry leading data and AI capabilities. We have very clear priority in 2019 to continue monetize all of these great assets. So that's all.
Thank you.
Thank you, Leila. So I'm sure there are lots of information to digest. And our presentations, just to remind you, is will be available on the IRO Web site. Some of them are already available for those presented. So we now have coffee break.
Please enjoy our coffee and some food served outside. We also have exhibition outside, which you we encourage you to take a look. Please come back here at 11:40. Just a kind reminder that this is an extended coffee break because we won't be serving another lunch after the session afterwards because right So make sure you feed yourself during this coffee break, So make sure you feed yourself during this coffee break. Yes, so please come back at 11:40.
Thank you.
Hello and welcome back. I hope you experienced some of really innovative foods over the break. It's just perfect that after the coffee break, we talk about our ambitions in coffee. It's perhaps you are some of you are holding a cup of coffee joint. I'm sure that will keep you awake during my presentation.
So why are we talking about coffee? Coffee is a large growing and attractive market in China. Today, I will share you some statistics to show you the incredible potential of this market. You may be sitting there enjoying coffee joy, but thinking sure it has got big potential. But what does that have to do with Yum!
Channel? How can Zee win in this highly competitive segment? Well, we are already leader in coffee market in China. In 2018, though, Yum! China sold over 90,000,000 cups of freshly brewed coffee.
That made us to a leadership coffee retail last year. And by leveraging our existing and already heavily invested physical and digital assets, We have planned to meaningfully grow our coffee business. Yum! China vision is to be a coffee powerhouse, adding to our dominant position in QSR sector and casual dining sector. Now let's talk about the market.
The coffee market in China is big and growing rapidly. In 2013, the total coffee shop sales was about US2.3 billion dollars And 4 years later, the market had nearly doubled. And looking forward, it is expected to continue grow by double digit and it will be over US7 $1,000,000,000 by 2022. Well, despite the rapid growth in the market, China coffee market is still very small compared to U. S.
Or other markets in Asia like South Korea. In China, annual coffee consumption per capita is only a little bit more than 1% of U. S. And South Korea. There is less than 1 coffee shop per 100,000 people in China compared to 8 in U.
S. And nearly 30 in Korea. As our experience from KFC over the last 30 years, the penetration can increase rapidly towards developed countries' level because the consumers' preference changes and income rates in China. The Chinese market also has huge upgrade potential, because today only about 16% of coffee consumption in China is from freshly ground coffee. The rest is from instant coffee.
Globally, these percentages are reversed given the improved taste offered by the freshly got coffee. Well, what has been driving the growth? First is from demand side. There is a generation shift with our raising post-twenty 80 and post-ninety. They have growing disposable income.
They have increased willingness to spread, as these customers are much more likely to choose coffee over tea. And initially, this drove a shift towards intra level coffee. As this market has continued to mature, specialty coffee has been introduced primarily in Tier 1 and Tier 2 cities. And finally, coffee drinking in China is still considered cool and trendy. Coffee consumption is highly related to a social status.
So that creates aspirational demand for coffee in China. Secondly, on the supply side, as demand grew significantly, coffee shops store network is expanding from Tier 1, 2 cities to Tier 2 and Tier 3 cities. And when the range of innovative coffee format is introduced to the market in China, from convenience, store offering, okay quality coffee, but with very attractive price to ultra convenient based model, which very much focused on coffee delivery. And the specialty coffee shop who are providing a premium quality and much better coffee shop aviaries with a higher price point. There is now a bigger range of coffee products that cater to different needs, from sweet and milky coffee for the beginner, for new drinkers, to the roasted coffee for more seasoned and sophisticated users.
So probably it's enough for the market. So now let's talk about how Yam China is doing. Well, we have already significantly invested in coffee off-site since the company decided to move to freshly grated coffee in 2015. Our coffee beans are 100rpica from premier quality coffee regions. And Yum!
China now uses 1600 tons of domestically roasted coffee beans every year. And why does that matter? Because the freshness and the flavor of the coffee are heavily impacted by the time from roasting to serving. By roasting domestically, the supply chain is shortened. And in our case, it's about perfect 1 month from roasting bean to cups.
The flavor is improved, as quality is improved. So finally, we have already invested in high quality and imported coffee machine. Since 2015, we now have over 8,000 imported coffee machine over the channel. So we have heavily invested. And it's an opportunity for us to monetize those assets.
So besides existing eyesight as supply chain capabilities in coffee, we have other significant advantage stemming from Yum China's capability and ecosystem. We already have presence in 1200 cities with very bold local star development team and knowledge and our supply chain necessary to supply these stars. And we mentioned 180,000,000 unique Yam China members. And among them, 30,000,000 already trying and consuming coffee from Yum China system. And we can market directly to our members and coffee drinkers.
We already have over in Yum China system, including KMC Pisaag, we already have 6,000 locations or store across 1100 cities providing delivery service. So it is relatively easy for us to build coffee delivery network. So all of this put Yum China in an ideal position to rapidly grow our coffee in a cost effective manner and to ensure a fast service to our customer anywhere. So we are very proud of where we are and what we have gotten so far. With our best in class capability of local store development and supply chain and our digital ecosystem and our massive membership program.
However, we are not stopping here. Our vision is to become coffee powerhouse in China. So what exactly do I mean by building a coffee powerhouse? Our strategy is twofold. 1st, we'll grow K Coffee business aggressively.
This has been expanded with double digit rates since 2015. And second, we are going to grow our stand alone coffee concept, which we introduced second half of last year, Coffee and Joy. These offers are targeting very different segments in this market. K Coffee targets value for money and mass market. Coffeejoy targets head crafted, high quality and what we call friendly price.
Let's dive into these two brands with more details. K Coffee is all about super convenience. It's everywhere. And very attractive price, really good value for money. It target mass audience.
And the quality is pretty good because it's freshly grounded, and we're using high quality bins as well. As I mentioned at the beginning, we already sold 90,000,000 cups last year. It already generated RMB 1,000,000,000 revenue last year. We offer key coffee at all our cafes location. So that's almost 5,900 stores.
And this number will continue to grow because KFC will continue to expand footprint in China. And for K Coffee, we have been growing for many years and we really got a successful winning recipe. The first is our food innovation beverage food innovation. We have innovated around our product, format and flavor. I think one of the great example is a sparkling coffee.
We are very first at few chestnuts introduced the sparkling coffee last year to Chinese customers. It become very popular for new coffee drinker and young customers. The Sparkled Coffee significantly increased our iced coffee volume and market share. We are a food company, so we have expanded our companion products to drive all day occasions. Very recently, we launched in store freshly baked Belgian waffle.
And in few months we are going to launch in store freshly baked croissants. Our coffee accompanied with these 2 freshly baked products will definitely increase our consumption in breakfast, but also in all day coffee breaks. Of course, we have leveraged our existing delivery network and our digital membership to cross sell coffee. Our coffee privilege was just introduced and we are learning to leverage privilege to increase the high coffee customers' visit frequency. K Coffee has also done a great job to connect with millennials students through different aspects.
We have been working with top fashion designer, top celebrities, top artists, our work, including top comic IPs. We'll be able to use those IPs to develop our packaging and do our communication with a specific targeted group. So that is about K Coffee. Now let's talk about coffeejoy. Coffeejoy is our standalone coffee concept, which we introduced in second half of last year.
Coffee Joy is positioned as head crafted and a trendy specialty coffee brand. Targeting young professionals, it offers higher end of quality coffee at a friendly price. I should highlight, however, it's at early days and we are further testing and refining our model before we deciding to back to a large scale rollout. Our strategy for Coffeejoy is very much focused. First, head craft is core of this brand.
From bean selection to head craft technique, every step is carefully designed to brew the best of coffee. Of course, we also provide Italian espresso related products such as Latin and cappuccino for the efficiency convenience. They are with good quality and carefully tested formula with different milk and coffee beans. We also offer innovative coffee inspired drinks such as dirty coffee and portable coffee. And we are creating a great food menu to accompany our super quality coffee across different dayparts.
Then we know the convenience is very important for coffee customers. So we are focused on improving our delivery coverage by leveraging Yum! Channel's capability and network. So we have got a new brand in China. So how can we leverage our young China capability to fast track brand development to speed up the brand life cycle in this digital time.
We leverage many of Yum! Chen's capabilities. The first is our new start opening. We carefully select our first location as we test different models in different tier cities at different trade zones. Our local knowledge and development team have helped us to secure those highly sought after locations.
Secondly, we have got a great innovation capabilities in Yum! China. So we have been able to develop some really distinctive product to create a buzz worthy and to create a strong word-of-mouth. So the picture here, we call it dirty coffee. It's a single shot of espresso with cold milk and some chocolate powder.
It got appealing flavor and instagrammable look from young customers. It become popular and creates huge buzz for this new brand. And finally, but naturally, we decided to leverage our membership program to do our target in the marketing versus a traditional way. We'll be able to leverage our massive membership base to acquire agile customers for our new brand. And we have leveraged our ecosystem to spread those word-of-mouth and great product to more customers.
It's very different marketing model. So how does coffee dry stock look like? Well, we are testing and refining our model. But we have got 3 models in the market to test. The first is our concept store, large store, which is about 150 square meters.
It is a full service coffee shop with very decent seating arrangement. Then we got our compact store. They are smaller. It is about 40 to 80 square meters, very much focused on takeaway and the delivery service, but with some nice seating still. And finally, our express car.
It is a really flexible model. It is about 20 to 30 square meter and primarily designed for takeaway at delivery at any location anywhere. So as you can see from all of the pictures here, our interior design is more than funky. It's very different from others. It has very unique art decoration, stylish headwall art and well designed furniture.
And we partnered with young artists in China to create some unique elements of staiko. Our music is very different. We're trying we use this all the electronic music, which is much more energetic. Perhaps sometimes it feels noisy, but lots of energy in our coffee shop. In short, we are creating the environment for our target audience, which let them feel inspired and trendy.
It's early days, again, it's early days for coffee joint brand, but we have already accomplished some within just 7 months. We have opened 13 stores across 4 cities in East of China. We have but it's very important to mention that we have brought onboard actually 127 barristers already. They are our key essence, the core of our business to enable us to expand and test different model in different city tier, different threshold quickly. Everything we have achieved has been enabled by the core capability we can leverage from across Yum China Group.
Well, we are also working on a number of other opportunities or different opportunities. There is a model I just shared with you. So I would highlight just one today. We have come up an interesting value proposition. We call it the boutique in office coffee shop.
What does that mean? Well, very recently, we have created a partnership with WeWork. So this is a case study of WeWork. WeWork is one of probably world's largest coworking space providers. I'm sure all of you know WeWork.
And we are testing the concept of boutique coffee shop in WeWork office with 9 buildings in Shanghai. And we will quickly expand to more office in Beijing by end of June and probably other cities. And those are pictures, a real picture, we leverage our coffee knowledge, but we also leverage the ambiance of those pretty good decent office environment. Well, we have been very much focused on building a portfolio of brands. Our very important priority is to build an integrated coffee value chain.
Why? Because to differentiate the quality in coffee, supply chain capability is a critical factor. Our existing coffee business has allowed us to grow some really strong confidence in the coffee supply chain, but this is just start. We plan to increase the specialist knowledge within our coffee chain. We are getting more involved in upstream sourcing with some unique strategy to support specialty coffee brand.
And we are getting a greater cooperation with Greek Coffee Trading Group. And I think it's very important to mention that because on Yum! Channel, we want to implement the process throughout the supply chain to drive product quality and consistency. These are our standard operating process in the QSR segment. But not our last skill in the coffee supply chain.
We can apply our existing expertise from QSR safety standard, quality assurance and consistency perspective to further drive innovative disruptions in the coffee value chain. And this is essential to our coffee vision. Well, I hope with this very short presentation, you are as excited about the coffee market as we are. And we are really excited with growth opportunity in coffee in China. Our Rad Lag K Coffee is already leading brand in most in most cities and provinces in China.
And K Coffee is already the leading brand in term of number of location to providing coffee service and to provide the coffee penetration in this market. Our Blue Flag, our coffee joint just started in 4 cities in Eastern China. But very soon, you probably in few weeks, you will have chance to experience coffee dry in Beijing, North of China and Guangzhou and Shenzhen in South of China. To conclude my presentation, we see enormous growth opportunity here. And with Yam China's best in class capability, our local start development capability in 1200 cities, our 6,000 location of providing delivery service.
With our leading digital ecosystem and our massive membership program to do targeted marketing, we believe Yum! China is well positioned to become a coffee powerhouse in China. And I look forward to taking any question in the following Q and A section. Thank you. So I'd like to invite Jack Lew, our sales force to come to stage.
Thank you.
Thank you, Stephen.
Good morning, everybody. My name is Jackie Lo. I'm the CFO of Yum! China. It's great to see a lot of familiar faces in the room today.
It's been almost 2 years since I became the CFO of Yum! China, and my focus has always been on maintaining an open dialogue with the investment community. I have had the opportunity to meet with many of you in person to share with you the excellent growth potential of Yum! China and our commitment to create long term value for our shareholders. We have been successfully operating 2 iconic global brands with KFC and Pizza Hut in China for over 30 years, and we have 4 other exciting emerging brands in our portfolio.
As the number one restaurant company in China with almost 8,500 stores, Yum! China has enormous scale, but we still have a long run rate for growth. Yum! China represents a unique investment opportunity, providing investors with exposure to China's growth through a U. S.-listed company with Western Corporate Governance.
And in today's presentation, I'll walk you through our plan to continue to grow with discipline. As we look back, Yum! China has made significant progress since our spin off from Yum! Brands in November 2016. We had slightly more than 7,400 stores at the time of spin off.
And over the 26 months between the spin off and the end of 2018, we expand our store network by over 1,000 units to reach 8,500 stores, an increase of 14.5%. Our system sales grew by 13% over the 2 years between 2016 2018 or 7% CAGR, mainly driven by same store sales growth and net new unit development. The 7% CAGR is in line with the long term financial target of high single digit system sales growth that we committed to at the time of spin off. Strong sales plus disciplined cost control result in our operating profit going by nearly 50% in the past 2 years or 22% CAGR. Not only are we focused on generating value, we are also committed to returning capital to our shareholders.
With our healthy cash position and significant cash generated from our operations, we have returned a total of $640,000,000 to our shareholders since the spin off, including cash dividends of $200,000,000 and share repurchases of $440,000,000 Last but not least, we have seen robust share price performance since our first day of becoming a public company. Our share price grew by 59% from November 1, 2016 to February 28, 2019. I would like to take a moment to talk about the significant cash flow generation I mentioned in the previous slide. In 2017 2018, we generated $469,000,000 $863,000,000 of free cash flow, respectively. And we returned $166,000,000 in 2017 $473,000,000 in 2018 to shareholders in the form of cash dividends and share repurchases.
In addition to returning capital to shareholders, this cash flow enable us to strengthen our cash and short term investment position from just under $1,000,000,000 at the end of 2016 to almost $1,400,000,000 at the end of 2018. With the current cash on our balance sheet and the amount of cash that we generate from our business each year, a natural question is, how are we going to deploy the capital going forward? We expect to take a disciplined capital allocation strategy to drive both growth and returns, which I'll discuss further shortly. We are confident in our plan to deliver compelling returns to our shareholders. Let me share our disciplined growth model of sales growth and diligent cost control, which has remained consistent since the spin off.
The formula is straightforward. Increasing sales plus managing restaurant margin plus controlling G and A expenses is equal to growing operating profit. The long term financial target behind this growth model is the double digit operating profit growth rate that we committed to at the time of spin off. Of course, there will be certain years where one off items or non recurring events may impact the operating profit growth rate in a particular year. Let's go through the 3 levels in our growth model at a high level.
1st, we'll use a combination of net store openings and same store sales growth to increase sales. 2nd, we'll continue to leverage innovation and scale to lower our operating costs and manage our restaurant margins. 3rd, we'll strive to optimize our G and A cost structure so that the increase in G and A expenses is slower than our revenue growth rate. As we move through today's presentation, I'll elaborate on each level 1 by 1. Let me start off with net new unit development.
Due to the tremendous potential of the China market, we expect to maintain our accelerated store opening strategy and target to reach the 10,000 stores milestone by 2021. Note that Coffee and Joy is currently not included in this target. As Joey mentioned earlier, there is significant opportunity to expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new markets. Over the last 2 years, we have entered into 100 new cities, but our pipeline of potential new cities has remained stable at 1,000, mainly because new cities have grown sufficiently to enter into our formal tracking radar. Our new store development is driven by opportunities to sustainably grow our business, while meeting our disciplined profitability standards.
The key for us is to remain agile enough to respond to new opportunities and changing circumstances. All of this can only be achieved by our unrivaled platform, including our strong development team and extensive local expertise, our nationwide supply chain capabilities and our positive brand recognition. Now let's take a look at the new unit economics of KFC and Pizza Hut. Our average tax pre tax cash payback periods remain extremely healthy. This is partly driven by the lower cash investment per store due to smaller store sizes and better efficiencies.
Despite accelerated store openings, KFC maintained its 2 years cash payback period on the back of strong average unit volume and an improved cash margin of 23%. For Pizza Hut, both average unit volume and cash margins for new stores have fallen in line with the overall portfolio. However, the significant reduction in cash investment for each new store by around 34% since 2015 has more than offset these declines and result in continued cash payback periods of less than 4 years. Our new unit development not only helps to drive continuous business growth, it creates tremendous value and returns. The remarkable cash payback period and the overall returns on this investment are the reasons why the top priority in our capital allocation strategy is always to reinvest in our core business.
In addition to store expansion, we increased sales by driving same store sales growth. You have already heard from Johnson, Jeff and Stephen about the 4 key pillars of our same store sales growth strategy. Let me quickly recap here. 1st, menu innovation. We are aware of the strength of our core menu items, but we also seek to continue to introduce innovative products and enhance our daypart and product category offerings to meet evolving consumer preferences and local taste, while maintaining brand relevance and broadening brand appeal.
2nd, great value. Consumers are now focused on smart value, not necessarily the lowest price, but the best value. In a more value conscious market, both KFC and Pizza Hut rank very well on the value for money perception. We strengthened this perception further through recent value campaigns such as Crazy First Day at KFC and Scream Wednesday at Pizza Hut. 3rd, digital.
We continue to focus on seamlessly integrating our online platforms with offline stores to extend our digital ecosystem and maintain engagement throughout the customer journey. Our loyalty programs and privileged membership programs have been effective in increasing customer loyalty and order frequency. Customer experience has also improved as a result of ease of ordering from innovative technology. 4th, delivery. We have adopted a hybrid delivery strategy that involves collaborating with aggregators to source traffic, while fulfilling all orders using our own dedicated riders.
This strategy enable us to simultaneously drive volume and leverage our extensive network to control delivery speed and service quality. We will continue to explore new levers and fine tune existing ones as we move forward. Now let's move to restaurant margin. Our restaurant margin is currently under pressure because of inflation, food investment, promotions and a series of new unit development. But we are confident that by implementing the strategies we have in place, we will gradually improve to reach the long term target of 17% blended restaurant margin.
In order to achieve this, we'll aim to maintain KFC's restaurant margin near its current level, while increasing Pizza Hut's restaurant margin towards its pre revitalization levels. And any upside from the efficiency initiatives at KFC will be reinvested to drive further growth. Our focus is on improving our unit level economics and overall profit, while also making the necessary investments to support our future growth. There are a number of initiatives in place to manage costs and drive efficiency and productivity. Our digital initiatives have allowed us to optimize staff scheduling, ease the workload of our restaurant crew and reduce wastage.
And our supply chain team works extremely hard to leverage our economies of scale to negotiate with suppliers and identify cost savings opportunities whenever possible. We'll pursue additional opportunities to improve profits over the long term by continuing to focus on fiscal discipline and leveraging fixed costs, while maintaining the quality customer experience that our brands are known for. G and A control is the final component of our growth model. In our 1st full year as a public company in 2017, we incurred additional expenses to meet our compliance, reporting and governance requirements. So this result in the year over year increase of 17% in G and A expenses.
And in 2018, we achieved a year over year reduction in G and A cost of 9%. This was a result of a mix of 1 off benefits and ongoing cost controls. When excluding the 1 off benefits, underlying G and A expenses were up by about 1% in local currency. We work across functions to analyze and optimize our G and A cost structure, and we actively control G and A cost by simplifying the organization structure, optimizing the procurement of different services and tightening expense policies. These efforts started to pay off in the second half of twenty eighteen, and we will continue to maintain a strict focus on G and A cost controls in 2019.
Although we anticipate a tough lap of those one off benefits we enjoyed in 2018. Our long term G and A goal is very clear. We want to maintain a G and A growth rate at less than our revenue growth rate. There will be years where one off benefits or expenses may change the profile of G and A growth versus revenue growth, but we will clearly explain to you when that happens. Now let's talk about our thinking around strategic capital allocation.
First, it starts with our strong cash position and the amount of cash we generate from our business. As of the end of 2018, we had almost JPY 1,400,000,000 in cash and short term investments. And in the last 2 years, we generate an average of just above RMB 1,100,000,000 in operating cash flow per year. Our capital generation comes primarily from our operations, and our priority is to deploy our capital for the long term growth of our core business with investments in new stores, remodels and technology. We anticipate spending approximately $500,000,000 per year on CapEx for the next 3 years.
2nd, we are committed to returning capital to our shareholders. Over the last 2 years, we have returned a total of $640,000,000 to shareholders in the form of cash dividends and share buybacks. And with our current dividend level and the existing share repurchase authorization, we have the capacity to return about $1,500,000,000 to shareholders over the next 3 years. Finally, we'll continue to look at strategic options, including joint ventures and strategic investments. Given the changing industry landscape, we'll assess the M and A environment and evaluate our options in a disciplined manner to maximize shareholders' values.
As you have heard today, we are really excited about the Yum! China growth model. We are confident that this model is sustainable for the foreseeable future, And the measures I have just talked about will enable us to achieve our 3 long term financial targets: number 1, to grow system sales by high single digit percentage number 2, to achieve an overall restaurant margin of 17% and number 3, to deliver double digit operating profit growth from increasing sales and disciplined cost control. Achieving these three goals will give us the capacity to return around GBP 1,500,000,000 cash to our shareholders over the next 3 years based on the current share buyback and dividend level. We will keep you updated on our progress as we move forward.
Now I would like to provide an update on our outlook for 2019. 1st, let me quickly reaffirm the guidance that we provided for 2019 in conjunction with our Q4 2018 earnings call. First, we plan to open 600 to 6.50 new stores, not including Coffee and Joy. 2nd, we expect to spend about $450,000,000 to $500,000,000 on new stores, remodeling and technology investment. 3rd, with significant progress made on reducing the tax rate on cash repatriated out of China, Our best estimate of the 2019 effective tax rate is around 28%.
Now I would like to talk about our 2019 profits in greater detail. We highlight some of the accretive and dilutive factors on this slide. 1st, on the accretive side, growing store count and strong delivery growth will help drive system sales and efficiency gains through technology and innovation will work to offset inflation pressure. Also, our investments in digital are expected to lower marketing costs, improve customer frequency and increase ticket average. And the lower tax leakage from reduced withholding tax on cash repatriation will improve the flow through to the bottom line.
Now on the more challenging dilutive side, we continue to see wage and commodity inflation, in particular, poultry cost inflation in the first half of the year. While Pizza Hut's revitalization is making progress, it's still ongoing and will put some pressure on our margins. With the intense competition and soft trading condition, we intend to continue making investments in value throughout the year. Also, the higher than average KFC new store openings in 2018 will put some pressure on margins near term as the stores mature. Probably the most challenging one is the higher impairment charges we will report due to the new lease accounting standards that we implemented at the beginning of 2019.
So when you net it all out, our 2019 operating profits may be lower than that of the double digit growth rate in the growth model. But we are managing all of these factors very carefully, and we are confident that 2019 will be the exception, not the rule. Before we conclude, I would like to briefly touch on our performance in January February. In the 1st 2 months of this year, KFC maintained solid growth momentum due to its resilient business model, well prepared campaigns and excellent execution and successfully lapped the strong performance of Chinese New Year in the previous 3 years. The restaurant margin is expected to come under some pressure, primarily due to increase in chicken prices and ongoing value promotions.
As for Pizza Hut, the brand showed meaningful improvement and we were pleased to see ongoing positive traction in traffic. As you know, our first quarter results are subject to trading in March and quarter end adjustments, and we look forward to sharing with you the full update on our Q1 2019 earnings call. So in summary, we are continuing to grow in China to reach the 10,000 store milestones in the next 3 years. We have a robust plan to drive increased revenue and profit through disciplined cost controls. And with our strong cash position and cash flow generation, we remain committed to returning capital to our shareholders through a mix of dividends and share buybacks with the capacity to return around RMB1.5 billion over the next 3 years.
All of these are enabled by Yum! China's best in class people and capabilities and our unrelenting focus on disruptive innovation to power continuous growth. We are confident that the strategies and initiatives we have shared with you today will help us realize Yum China's growth potential and deliver the financial results that we have just talked about. With that, I conclude the presentations from Yum China Management this morning. Now I'll pass the stage back to Florence before we open up for questions.
Thank you.
May I now invite our speakers today to come on stage for Q and A session? For those who would like to ask a question, please raise your hand. And before you ask a question, please introduce yourself by stating your name and company. Anyone wants to start first? Xiaopo?
Thank you, everybody. I'm Michel Poi, Anadasa from Citigroup. I have two questions for Joey. And today, we are very impressed with 2 words. One is innovations, the other is digital.
In the past year, in 2018, I'm seeing the company have done a lot in terms of investment into infrastructure, especially on delivery side. Shall we say that 2019 will be the year we are going to see better monetization on the innovation and digital, especially on the speed up of the delivery growth? That's number one question. Number 2 question is about Pizza Hut. And last year, as you remember on the presentation of JooE, you're showing us the picture.
The biggest challenge of Pizza Hut is the image of the brand, which is a spare tire. We're glad to see on today's presentation of Jeff that is the image have been changed from spare tire, Beitai, to become energetic and determined young man. So in the road ahead, in your journey of your revitalization, what it is the second biggest challenges after changing of the image?
Thank you, Xiaopo. Innovation, digital, as I mentioned in the presentation, innovation has been always the core of Yum! China success in the last 30 years because given the market is changing so fast, the only way to survive to lead is you just keep learning new things. So it's always in our core DNA. Whether we say it in such a long way is a slightly different story.
So we'll continue to learn new things. So in terms of food, in terms of operation, in terms of digital, in terms of new store opening, business model, you name it. And in terms of digital, we start the digital and delivery team back to 2015. When we started, we have 1 person in the entire team. So at the time, we see this as an opportunity.
We start to learn. Even though the background of KFC, obviously, we are a traditional retail company selling fried chicken, but we do believe the future of retail is the combination of online and offline. So along the way, we learn, right? We I think the best thing that we can do in running a business, we continue to learn. And in the last few years, we have learned a lot and we have built very good digital assets.
And I think all I can say is we'll continue to learn. And the key thing about the innovation in our culture right now is we are very cautious that, 1, we need to invest. Resources is important. Investment is important. 2 is, even more importantly, we create a space and mindset to allow ourselves to learn and make some mistake.
And that's really, really hard. But I think in the last few years, we can see along the way, we can do that, and we shall continue to do that in the future. Come to the second question, Pizza Hut. It's sometimes good to make fun of yourself. The run on Beitai, the backup boyfriend is something that a customer told us and they were brutal.
And it's good to face the brutal reality sometimes to remind ourselves where we are. And in 1 in the coffee break, one of the very smart young men asked me whether do I think customers are aware of the changes. My answer is absolutely yes. When the customer come to the store, they can see it, they can feel it. They don't talk to you about it, but they can see it and they like it.
And the way that they reward ourselves is to come in more often. That's the way they pay out. They told us they vote with their feet. Other than the brand image, what else? Analytically, we always talk about 4 areas to improve: fundamental, delivery, digital, etcetera.
But here's the brutal truth in revitalization. We have to fix everything. But you can't write everything in your report. So at least we have to prioritize and group them into 4 areas. I'll give you one example.
Menu, we always know that, oh, the menu is too long. No, the problem is not the menu is too long. It's the food on the existing original menu is not good enough. So we have to go through our process to launch LTO 1 by 1 and only keep the best and then put together permanent menu painfully and patiently in the last 18, 24 months. And we create a menu.
Okay, you've got a menu issue. What? No, we have to change our photography agency because the photography is not good enough. How good the picture need to be in order to get the customer to come in, we call it they need to be as good as until the customer photography. We need to change the agency who print our menu as well because they were too slow before.
3, 4 weeks too slow. We need to make last minute change, we keep improvement. So the brutal truth is everything, but you cannot write about everything. So we group that into 4 areas. But if we really have to pay, say, other than a brand image, what is the other next big challenge, big challenge is also big opportunity.
I'll probably pick delivery. 2018 was tough year for delivery transformation because 2017, we deliver delivery business, our delivery rider were with the 3rd party rider. And then it comes to a point we realized that customers' requirements are changing. Other than price, now they want quality too, as we can see from the KFC operation. We are not 1 store operation.
We are 2,200. In order to be better in operation, we need to full visibility of the operational detail, and we realized we need to do the last minute ride delivery ourselves. And we have to consolidate Pizza Hut, dine in store, Pizza Hut home service. We have to upgrade IT system. We have to integrate the system back to our system, we have to build the rider team, you name it.
But we did it for 2018. So now for 2019, we believe it's still a challenge because we need to build a hub and spoke store. We need to increase the delivery network, but it's also opportunity. Jeff, do you have more to add?
All right. I can add a few. So in terms of the challenge, I think, first of all, we still need a time because the revitalization is never going to be a linear process, especially for the business to scale of Pizza Hut with over 2,000 stores. We know what to do, but we needed time to scale up the initial success. And in the long run, I think, at least from my perspective, the biggest challenge we need to face is, we are competing in a very competitive market, the China West casual dining market.
We need to continuously to evolve, to innovate, to stay relevant. That is actually our key objective, our revitalization strategy. Having said that, but at the end of the day, what customer really looking for is grateful, at good value, with good service in a peer to peer environment. And these are the area that we are working on right now.
Lillian?
Thanks a lot for management. I'm Lillian from Morgan Stanley.
I have two questions. One is actually still on Pizza Hut. Thanks for the very detailed explanation of the revitalization planning. Right now, can we have a kind of updated road map of turnaround? Because I think things definitely are evolving and we're doing a lot.
So could you give investors a little bit clarity in terms of the time frame that you might need for us to see a more significant improvement? And what kind of indicators that you must then need to watch out for, such as same store sales growth or restaurant level margin because as Jackie mentioned that the restaurant level margin to achieve 70% long term goal, the key driver is Pizza Hut. So what time actually we can see that? That's the first question. And second on coffee, I think definitely that's a new focus for the next couple of years despite that right now it's still in early stage, especially for Coffee and Me Coffee and Joy.
So what kind of capital investment we are planning for the next couple of years on coffee? And what type of contribution to revenue and the profit we're looking for?
I'll make a few general comments, and then I'll invite Jeff and then Stephen to make a few comments on this. For Pizza Hut, we have aggressive time frame to start with. We're still on the journey and I think probably in the earnings release, we have talked about the way that we see that is we want to see the positive traffic first, which we saw in Q4. And Jackie also mentioned that we continue to see the positive traffic in Q1 this year. Next is the same store sales, positive.
Next is profit. But in reality, right, we are going through the turnaround journey, we are doing this bit by bit in every aspect. It's just different KPI take different time frame to turn. For example, last quarter Q4, we already see some improvement in the profit margin. So bit by bit, I think it's a bit like you catch the fishnet instead of pulling one thread, you just pull little bit by bit.
And then at the end, you get to where you want to be. For coffee, as Stephen has mentioned, we want to look at coffee from Yum China's point of view, it's not only from one brand. But from Yum! China's point of view, we strongly believe that we have the infrastructure. Actually, we have been doing coffee.
We have been growing and committing to the growth of coffee since 2015 because those coffee machines are really expensive. When we start 2015 because those coffee machines are really expensive when we start to buy them back to 2015. And now we have the infrastructure. We have learned a little bit. Now we want to progress to the next stage by expanding, looking at opportunity in KFC and Coffee and Joy and build a supply chain team.
Chinese, we say, Before the army move, the food has to the supply chain has to be there first. Similar idea, we have ambition in coffee business. We are not hiding it, but at the same time, we are aware we need to build a supply chain at the same time. And as Yum China style, different company had different philosophy and our philosophy is to believe in disciplined and prudent business model before we replicate it because I don't think anybody would doubt our ability to replicate a successful business model. We have the scale, but we must get to the right business model first.
Again, different philosophy, you can say that until the kid is very big young man and he's fine or you try to help the kid when the kid is small, 3 years or 5 years, make sure he's a good kid and he will become a good young man for sure. So two different philosophy, I suppose. So Jeff
and All right. So first, for the time line for Pizza Hut turnaround. As I said before, it's not going to be a linear process for the size of the business like Pizza Hut. So we started revitalization program with a relatively aggressive timeline. And since then, we have made steady progress on each of the 4 strategic pillars.
So our key measurement of our success, as Joey just said, are restoring traffic first and then same store sales and then margin. Soft trading, as a matter of fact, has slowed down our revitalization progress, but we are pleased with the improvement in the customer perception improvement and also the same store traffic recovery during the Q1 last year, which gives us the confidence that we have the right strategy in place. We know there is a lot of work to be done and it's not easy, but we know how to do it, because we've done it before with an even larger business KFC. And we learned from our successful turnaround of KFC that there is a time there is a lag from the time that we made improvement to the business to the time that we see the result in the form of higher sales and profit.
Well, just a few points to build up about coffee. Well, as you mentioned, too, coffee market in China is still a very early days of the category development cycle. So there are many opportunities and many models. So if like what I said in the presentation, if we could or someone could upgrade instant coffee to freshly ground coffee, the market will be 5x bigger. If a brand can move faster and figure out the model to penetrate the delivery to have a huge delivery network, it will be a much bigger market as well.
So for Coffeejoy, today, our priority and focus really to build brand and to test and refining different models in different city tier and different trade zones. So it's hard to project, but as Joey mentioned, we have all the heavily invested physical and digital assets there. We just need to figure out a model to leverage those assets. And we are very confident that Yum! China is very good at scale up once the model is confirmed.
Thank you. So to allow people more chance to ask questions, may I ask you to limit your question to one at a time? And then we can come back if we have more time. That gentleman there?
Thank you. Joey and management, I'm Chen Luo from Bank of America Merrill Lynch. Just one question on KFC. Just now, we are glad to hear that the year to date momentum for KFC has been very strong. But at the same time, the margins are under some pressure because of the rising chicken cost.
And I believe that people are always asking what kind of measures we are taking to balance same store sales growth and margins. And can you actually share with us a bit more color on that front? And also, we also know that sometimes margins is also a function of same store sales growth. So what kind of same store sales growth can actually ensure relatively stable margin despite riding chicken cost? Is there any drop down number that you can share with us?
Thank you.
I think Johnson is probably more suitable to answer this question. But again, I'll provide some sort of more background information for yourself, Lawton. First of all, Jackie made a comment that the margin is under pressure, particularly last quarter and this quarter because of the chicken price. But quarter by quarter, it could be different. That's point 1.
Point 2 is this has a lot to do with the philosophy of Yum! China, how do we work with our partners. Over the last 32 years, we have something very simple, but it has worked very well is our belief in a winning relationship with our suppliers. When the chicken price is very low, sometimes even lower than the input price, we will pay supplier higher than the market price. Why?
Because we don't we want to help our supplier when the time they need to help to survive. Because in the long term, if we don't think this way, the price is bad, they go out of business, it's not good for us in the long term. However, at the time when chicken price is very expensive, that's when we need the help. For the same philosophy, we work with supplier to give a price slightly lower than the market price. So I hope you help me.
Over long term, our number one chicken supplier 32 years ago is still our number one chicken supplier now. So that is, I would say, the philosophy, just the business philosophy help us navigate the up and down and the challenges to a certain extent, and that's very, very important. Now coming to the short term, there are many ways to do that and actually, Johnson has mentioned some way like how to manage the margin, but I'll leave Johnson to give you the comment.
Thank you, Joey. As we all know, portrait price increased probably starting from end of second half of last year. And but this is some kind of like each quarter is different. So firstly, to mitigate the possible downside of our poultry cost, we imported outside of China too, other than what Joey mentioned. We build up strong relationship with our supplier for a longer term and better price.
And secondly, we are clever enough to by using alternative per team, which the cost is lower than poultry that we will launch shortly. And secondly, the different part of cut as we introduce today, the 1 bone chicken, That is also a very cost effective part of a COS to us. And thirdly, we are going to leverage our strengths on our CLL, trying to use our CLL and equipment's advantage that to cook and to sell large and efficiently product like our COB, like our Win and 1 Bong Chicken. And also, I share with you how do we leverage our digital in terms of technology to help us to drive the productivity enable to mitigate this possible cost downside. But all in all, our supplier network connection, our food innovation, our CO air control and our digital and other technology help us to mitigate all of that.
So in terms of the scale that Joey mentioned, we are better managed than the other brand or the other industries competitors in terms of cost components. Thank you.
I just want to also point out something that Johnson did not say. It's always interesting sometimes you listen to someone and realize what did he not say. He did not say price increase, right? And I just want to celebrate this, the fact that we have such a strong commission, even though we have cost pressure from labor, from cost of sales, from everywhere. But it's in our DNA that we'll do everything we could to save, to be more efficient, to be more flexible, whatever we do, but try our best not to pass on the saving, at least not 100% to the customer.
You can always do that, yes? It's very easy to do that. But the much harder way is we try every way we achieve saving and then we pass on the saving back to the customer. That's much harder, but we believe this is absolutely the right thing to do. I mean, of course, we do take pricing every year, but in a very modest way.
When particularly when the time, the value matters so much, this is important, and we'll continue to commit to that.
Okay. Maybe someone from that side. That gentleman there?
John Zolaitis, Covetis Capital. I have a question on capital allocation. You outlined a plan for double digit EBIT growth, dollars 500,000,000 in CapEx per year and $1,500,000,000 in cumulative shareholder capital return over dividends and share repurchase. However, you also noted you have 1 point $4,000,000,000 on the balance sheet right now. And using a very rough estimate, I project almost an additional $1,000,000,000 of cash flow generated over and above the $1,500,000,000 you outlined as a return.
So my question is, why wouldn't the capital return be larger?
Yes. Thank you for the question. That's a very good question. So let me first explain how we came up with the RMB1.5 billion first, okay. So at the current dividend level of RMB0.12 per share each quarter, so over 3 years, that adds up to be about 550,000,000, okay?
And then we have currently outstanding under our share repurchase authorization of RMB960 1,000,000. So you add those two numbers up, that gives you RMB1.5 billion over 3 years. And as I've mentioned a couple of times during my presentation, the thinking around our capital allocation is always to our top priority is always to reinvest in our core business. And I've talked about it because it helps to grow our business, but also it creates a very good return. So the top priority is always in core business reinvestment.
And then because I mentioned the industry landscape is changing, so we are constantly evaluating the M and A market. And so we evaluate a lot of options. And so the amount and the pace that we return to investors ultimately comes down to our cash needs, okay. And so in terms of share repurchases, we have always said it's a long term commitment and we'll just take an opportunistic approach. And if there's a good M and A opportunity, we won't hesitate to jump into it.
So it really comes down to our cash needs over that 3 years window.
I just want to make a comment to our investor, also to our management team. First of all, it's not a problem. It's a great thing, isn't it? The fact that we generate such huge amount of cash. And also, for the development page that Jackie showed, the average cost of new bill right now is RMB 2,600,000.
Back to 2012, the average cost is about RMB 3,600,000. So within few years, we have reduced the average cost roughly by about RMB 1,000,000 per store. So if you think about it, last year, we opened 8 19 stores. So rough math, simple, we have saved RMB 819 1,000,000 in terms of capital. So despite our ability to generate such good amount of cash, it's still in management's G and A that how can we generate even more cash to our shareholders.
So it's not a problem. It's a great thing to have, and I encourage our management team continue to think creatively how can we use our cash even better because right now, with the similar less than USD 500,000,000 not only we build 819 store, which is sold only like because back to 2012, we built 869 store and we used over 500,000,000. And at that time, we've renovated like about 200 store. But for 2018, we built 8 19 store and we renovated 900 stores and we invested in digital, it's still 500,000,000. So we have swept the cash investment very far, and I encourage our team continue to do that despite the challenge from our shareholder to ask us what to do with the cash.
It's a great problem to have. Michelle? This is Michelle from Goldman Sachs. My question is about the upside for delivery efficiency. In Johnson and Stephen's presentation, we hear that delivery is very profitable, and we are evolving our delivery model from 2 to 3.0.
And I'm wondering how much of the efficiency has been realized in our like very strong impressive margin control last year and how much upside we can expect into the
next few years? Thank you.
Thank you, Michelle. As I shared during my presentation, right, the efficiency realized before, probably more of them are following by our trade zone coverage. So more than 90 nearly 90%, 92% of our China KFC operated restaurant already cover our delivery. So that contribute to our past 4 years growth. Looking into the future, other than our continued growth into a new city, we will also penetrate in the existing city.
So this is one that we are going to continue to do. And secondly is increase the density. As I mentioned, to build up the quality of service and food delivery is critical to customer. None of any competitor like KFC that we are able within a certain trade zone, we can increase our density to shorten our delivery time. So that result in introduce faster to deliver food at heart.
So that customer service satisfaction is increased and then their frequency will come in back. So as you mentioned, delivery 2.0 to 3.0, that is a technology way to help us to unlock our driver's efficiency from sticking 1 store to becoming a trade zone base. It's just like Uber Eats type of system. And furthermore, customer now is allocate to a particular store for delivery. But in the future, for example, Rainy Day, this particular store is full of orders.
So they have to shut down the order, reject our customer. But with this system, we are able to connect this user to a nearby store where they have cooking platform available, so that they can take in the order by leveraging our trade zone driver to deliver food to the customer. So that means we have less order being canceled. We have more happy customer and we have more profitable. So this is the second thing.
And lastly, it's because of what we are seeing for the driver's efficiency we realized before but with this 2.0 to 3.0, the driver's efficiency will largely increase from an efficiency point of view. So this is overall we are looking into for the future possibility for growth. So one is increased density, short term delivery time to increase the customer's defection and then increase the frequency. Secondly, is to free up the customer, buy to 1 store into a trade room and lastly, is drivers riders efficiency. Thank you.
Christine?
Management, this is Christine Peng from UBS. So I have related questions for delivery. Obviously, you mentioned about delivery 3.0. Can you share with us the delivery cost right now? And what's your potential to drive down the delivery cost in the next 1 or 2 years?
And I think a related question to Jeff is that you mentioned that since end of 2018, Pizza Hut has pretty much shifted to internal delivery. So how has that contributed to your profitability in terms of delivery costs and savings?
I would just like to make a comment that quality is absolutely important to us because simple understanding food after 30 minutes become bad food. So the quality of delivery is something that we know is important. And it's interesting enough, we can see it's getting more and more important to our customer as well. And that's one of the key reason why we focus so much on the operation and one of the reason why we take back the last mile delivery operation back to our own. I think with that, I'll let Jeff make further comment about the cost rate.
So for Pizza Hut, actually, after we brought back the last night delivery team, there is a couple of important upsides. So one is what as Joey mentioned, the quality getting better, delivery speed getting shorter. The second is the rider availability, especially during the peak hour for our own platform. Before, because we have very limited rider available there, so the resilience of the team is limited, especially during the peak hour. So after we get all the order back that we have more orders, so that we can allocate the right resource better.
And 3rd, just a short answer to your question is the cost. The cost is getting better after we move all the orders back from aggregators.
Well, I have 2 points to build up. The first, delivery 2.0, we changed from menu dispatch to 100% automatic dispatch system. So that, of course, will save the labor. And deliveries 3.0 is planned to have a shared radar for multiple brands and Chazo was a stop by store. So that will definitely increase the delivery provider at per hour as we also reduce or lower the rejection of order rejection during peak time.
So that will increase the sales as well. So the whole system will become smarter and more intelligent with all the data of our riders and of stores and custom purchase behavior, the efficiency will be further improved.
I guess to summarize our team's comment on the delivery rider. We want better quality. We want good cost, but we also want higher sales, particularly during the peak hour not only peak hour, peak trading season, that means holidays.
I'll take a question from the back. Maybe that gentleman all the way back.
Hi, Kunal Desai from Mobius Capital Partners. Firstly, congratulations on a very excellent set of presentations, very detailed and powerful. But a lot of the presentations focused on how you're strengthening your back end infrastructure, so logistics, supply channel, procurement, improvement in food quality, etcetera. And it now seems like your digital and delivery ecosystem is falling into place. So would you be able to talk through the medium term opportunity of franchising and how you think that could unlock value, both in terms of incremental growth, but also in terms of your existing store network as an unaccounted source of cash?
Franchise remain a part of our strategy. Maybe I have not spent enough time on it to make it a bit more clear. Little Sheep, our General Manager of Little Sheep is sitting at front here. Little Sheep is mainly growing through franchise, not only in China but also internationally, Australia, Cambodia, Singapore. So we'll continue to leverage franchise system to grow leadership.
For core brand, it's still not a big part of our portfolio yet. It's 10%, partly because the payback of our KFC store is so good, 2 year and partly because we have very strong cash flow. If we leverage franchisee to grow the store, I think the gentleman's question on the cash flow will be even bigger, right? The cash flow will not be we don't need JPY 500,000,000 a year to build a store. The number is smaller than the question is what to do with the cash.
But we have the cash right now. We can grow the store. However, in my presentation, maybe I should have make it a bit clearer. The partnership that we agree with Sinopet and Sinopet sales company and CNPC, particularly CNPC, It could be our own store, it could be franchisee. Particularly with CNPC, other than the 1st rate of refusal in terms of new store opening, we also are very happy to have the exclusive franchisee agreement with CMPC as well.
So the franchise is still part of our strategy, but it has to have the strategic element in it. Does that make sense? So the C&P's gas station, these are very valuable asset. We can combine the asset and the know how, and we're going to to explore and verify the business model, our disciplined approach, etcetera, etcetera. And we do look forward to finding out a new franchisee model with CMPZ going forward.
Thank you. Another question
from that lady in the middle.
Thank you. I'm Seo Jae Lee from CICC. And thank you all for your excellent and exciting presentations. And I have a question on Pizza Hut and but more about its market. What is I'm wondering what is the status of pizza segment in the whole catering industry?
Is it grabbing market share from other type of cuisines or is it losing market share? And we think the pizza segment, what is the competitive landscape because we're seeing the increasingly fierce competition for this both offline and online because offline, we can see more smaller but mid to high end target brands in the shopping malls. And online, we can see more brands offering lower prices, although they are not famous brands. So where is the competitive landscape moving forward? Thank you.
I can take this question. So first of all, Pizza Hut is as a category still remain very attractive. They're growing at very fast speed in the past several years. So and for the Pizza Hut in a market where the biggest player at scale, we are 4 times more stores than the next largest player. And probably the rest of the player combined are still smaller than us.
So definitely the number one player. But what I want to point out is that Pizza Hut is positioned very differently in China than many other part of world. So as a front of position this morning that you can see that we offer a much more diversified menu. World pizza as a category only account for 30% of our total So also dominating in steak and appetizer category. So in China, Pizza Hut is more than just pizza.
We are more a casual dining concept. Thank you.
Just to build on Jeff's comment, as a category, you can I mean, the fact that we see competitors opening up more pizza store is good thing? Of course, it makes the space more competitive but also verify the fact that it is still a growing market. All right. What we are facing in China right now is the slightly different issue is the overall value for money issue because KFC is very resilient with the price point of JPY 30 or below per person. Very few company can achieve the scale to deliver amazing food with good service, good convenience, good food safety and yummy food at such price point.
But Pizza Hut's price point is already higher, 50, 60, this is very competitive, very competitive segment. So our overall challenge, which I think the team has done a great job last year, is to improve that price perception, right, the value for money, which we have seen improvement from customers' feedback. And we can do it not only through pizza but also through steak, so the pizza, steak, dessert, so the overall good value for money offer to our customer.
Okay. That sorry, at the back. Dylan, right, at the back in gray, I think.
Thanks very much. Thanks, Florence. This is Zealand from SA. Just a quick question just going back to the payback period for incremental new stores. Joey just mentioned that sort of the CapEx investment has been declining, but incrementally the new stores have also been getting smaller in terms of size as well.
Just in terms of going forward, not only this year, but I guess couple of years forward, would you think that the new stores going forward will continue to get incrementally smaller and then the payback period will stay relatively stable? Or alternatively, would you think the store size will probably stabilize and then payback period could potentially lengthen a little bit? Just any thoughts around incremental return investment would be very helpful.
Thank you. I missed a part of the question, but let me try, but I did not answer your question. Please clarify that. So the question is about the size of new store and then the payback period. For KFC, you can see I mean, on average, the store size getting smaller for a variety of reasons.
One is delivery is part of big part of business now. So if we factor that in, our store does not need to be as big as before and we can still produce the same sales, same level of sales, then why not? But more importantly is if we look at KFC case, Johnson has shown 8, 10 different models on the page. Why? Because we are more flexible.
Back to the old time, one size fits all, one store size, one store model, we put it everywhere, is the most efficient way to replicate. It's great. However, we are at the stage of development that we need more than that. So we have transportation hub. We have dessert kiosks.
We still have the big beautiful store. We still build that. But just on average, the store size getting smaller and smaller. And we want to have the A customer A customer decide what kind of store they could. And to a certain extent, the landlord decide because it depends on how big the store is.
Sometimes the store is only 130 square meter and the location is good, then we make it work. So I think on average, it's getting smaller, but it is more because of the strategy that we want to be more flexible for different customer occasion. And as a result, we drive sales through delivery and other way and we keep the sales and then we keep the payback year is great thing. Pizza Hut is still going through changes. So we're still exploring different model and then so the number might still fluctuate a little bit.
But for KFC, I think the payback period is relatively stable. With that said, when we go more aggressive into lower tier city, for strategic reason, we might relax our sort of PayPal requirement a little bit because we see slightly longer time required for the stores to mature. But overall, net net, we are comfortable with the payback so far. Any further comment?
No. Okay. We'll take 2 more questions. Kevin?
Thank you. This is Kevin from JPMorgan. Okay, I have a question for Pizza Hut. So currently, you have about 10.3% restaurant margin. Long term, probably you need to have about 13% to 15% restaurant margin to bring up the group level margin to 17%.
So how much traffic you need to deliver to have 14%, 15% gross margin. So the short question is the sensitivity between the traffic and the gross margin. And to follow-up that is, where is the traffic growth coming from? Or can you quantify like in the Q4 last year and the first half first two months this year, what percentage of the recovery traffic recovery for Pizza Hut is because of delivery or the menu design change or anything else? Thank you.
It's really hard to come up with the hard number. But what we have seen is, at least from the KFC experience and I used to do turnaround back to UK as well, similar trajectory, Positive traffic and then for when we get more people coming in, then you start to work on the ticket average TA, right? When we have more people and then per person, the TA just live a little bit, then you get a positive same store sales. And when the positive same store sales happen, that's good. That's a good time then we really look at the margin.
So I mean, it's very hard to say that put aside everything else, how many more percent of traffic will get the margin back. It does not for operation point from analytical point of view, Gautai used to be analyst, too. But from operation point of view, it does not really work that way. So we get more people in. I mean, I almost hesitate to say that, but it's true, but as we run the business, the hardest thing to do actually is to get more people into the store.
That's by far the hardest thing because you need to build a brand, you need to have the good value proposition, good product, etcetera. But once you get the people in, they are ready in your store. If you ask them to spend 1% more, 2% more, that just seems slightly easier, not easy, slightly easier. So you have a good meal, oh, what happen if I trade up, have an ice cream or have a tea with this time price? That's when you get TA.
When you get the TA out possibly same store sales, then you get the leverage, then you work on the margin. That's how sort of operationally how we drive the total performance instead of just one driver because it's never really good enough. We need to work on multiple levers.
Okay. The last question, yes, that lady in the middle.
Jeanine Thompson from MFS. Thank you for the presentations today. I thought it was interesting that there wasn't a lot of talk about the relationship with aggregators and it seems very much that this focus is on doing the last mile yourselves and having that direct relationship with the customers. So does it follow that the that your relationship with aggregators should diminish over time? And then maybe just a follow-up question, any thoughts on the increased promotional activities you're seeing from the aggregators?
Do you benefit from those, do you think? Is it good for the industry or
is it bad
for the industry? Thank you.
Well, I think this is
a very important question. The delivery market in China is booming since 2014. So it's grew rapidly. It's a high double digit. And that's the result and contribution by the whole ecosystem, including brand like us, a big chain restaurant, but also the aggregators.
So we are together to acquire new users to this segment, and that is what has happened. And Yum! Channel was the very first chainsaw to work with Midu and Ele. Me back to 2014 2015. In fact, we together created automatic order system between merchants and aggregators.
To say that because I would like to you that we have very good relationship with Meituan and Ele. Me. Along the way, when we build up the whole delivery category in China, we're still working together to acquire user for category, but also pretty much we are focused on marketing corporations to increase the delivery frequency, to increase every ticket size and also to increase the customer expenses. But we are having a hybrid model. We know maintaining a strong O platform capability is important for us.
At the same time, we are working closely with 2 aggregators.
Okay. Can I just say thank you? Thank you. I just want to take the opportunity to thank everybody coming from near and far. Really appreciate that.
Appreciate all your support, your question and appreciate the fact that you hope you enjoyed our presentation this morning with our lovely Chinglish essence in our management team. And I look forward to talking to you and feel free to ask questions before you head off to enjoy a really good food innovation center in our store. And thank you so much. Thank you.
Thank you. That concludes our Q and A session. I just have a few housekeeping items to do. So for those who are joining our site visit this afternoon, please move to the main lobby near Middle Sichuan Road, Sichuan Zhonglu, by 145,145. Please remember to bring your name badge because we have 2 teams, 1 team red, 1 team yellow.
So your badge actually helps to identify which team you are. And for store visits tomorrow, we'll leave also at the same place at this hotel at 8 45 a. M, 8:45. If you have any change of plans, like if you decide not to join visit today or not to join our visit tomorrow, please let IR team know ASAP or just let me know or the other IR colleagues. All right.
Thank you very much for everyone for your participation. We look forward to receiving you again sometime in the future or meet you in the conferences.