Welcome once again to all of you to our very first Annual Investor Day as a publicly traded company. So before we get started, I'd like to remind you that today's presentations include forward looking statements, industry data and non GAAP numbers. So please refer to our cautionary statements included in our presentation materials. Now let me also walk you through this morning's agenda. We'll start today's presentation with our CEO, Mr.
Mickey Pant in a moment. And then we are going to have Joey Watts, our President and COO, to give you a business overview and also an update on the Pizza Hut business. Then, Johnson Huang, General Manager of KFC, will talk about KFC's strategy. And next, Joey will come back to the stage to present our digital and delivery strategy. And finally, Jackie Lo, our CFO, will talk about our financial perspectives.
And then we'll open the floor for Q and A at the end of the presentations. Now before Mickey comes to the stage, I'd like to show you a video covering our theme for this year, which is day true, aim high. It covers our history in the past 30 years in China. And for your information, the video is in Mandarin with English subtitle. I hope you enjoy it.
Thank you. Well, first, let me start by welcoming all of you to Shanghai and for those of you who are able to travel tomorrow to see our stores in Hangzhou as well. Really appreciate on behalf of all my team that we have got such excellent participation. I was talking to John Glass earlier, the room is really full and it's great to see this level of interest. And I hope that we can add to your knowledge and to tell you more about our business.
I'll try to stay brief in my opening comments, and then I'll as you heard from Elaine, we will have Joey and others and Johnson and Jackie present to you more details. And the reason is that we do want to allow time for Q and A at the very end because I'm sure you've got a lot of questions and then we'd be very happy with my team answer them. A quick word about Christy Ju, who's our Head of Investor Relations. She apologizes, could not be here today because she's on a short medical leave of absence. She's just fine, but I just thought I'd mention that.
But Elaine and Joyce and other members, Michelle, of the Investor Relations team will be available to take good care of you. We've already been through the Safe Harbor statement. But just
to reiterate a couple
of points, the safe harbor statement. But just to reiterate a couple of points. The first, obviously, we will be making forward looking statements, not just today in the presentation, but also in the course of your visits to our restaurants in Hangzhou and in other interactions that you have. And obviously, we expect these to be covered by safe harbor provisions. The second is that we are giving a lot of estimates about the future, but you've all been around the block.
You know our company very well, and you know how these things work. Those are estimates. The estimates could vary materially from the reality because they depend on market forces, competitive actions, etcetera, which are completely outside of our control. Lastly, we do use 3rd party sources for a lot of industry information, and they will be at the cruise tonight. You will have a chance to hear from Bain and Company about delivery and digital and other aspects, and we'll also give some estimates of size of companies, etcetera.
That's all third party Obviously, we stay very true to GAAP in all our reporting. Obviously, we stay very true to GAAP in all our reporting, but there will be some non GAAP measures used. So with those few words, let me start by an introductory slide. And we are very pleased as management to report a lot of progress, I think, in the company. And the delightful thing about Yum!
China is that it's, at the same time, a very established company with 30 years of operations in China, as you saw in the opening video. At the same time, it's also a very young company, having just embarked on this journey of becoming a public listed company. So if I was to take you on some of the key bullet points on this slide starting from the top left, the first is something you're aware of that our company is a dominant leader in the markets for both quick service restaurants as well as in casual dining restaurants. It's unusual to have that in a single company, in a single country, but we're very pleased with that position. On the left then going further down, you can see the reasons why we have more than 7,700 stores in over 1100 cities in every province and every region of Greater China.
To the left, again, on the bottom, we are the number one restaurant operator in 2 critical aspects, and you'll hear this a lot, have already heard this over several meetings in the past, but you will hear a lot more of it, is digital and delivery, digital and delivery. Our delivery sales have been steadily increasing. The last quarter Q3, we announced that our delivery sales were about 14% of our total sales. I think that was up from the previous quarter was 12%, the previous quarter was 11%. So that's been growing rapidly.
And you'll hear a lot more about digital where we are pleased with the progress that we've made. And if you look on the right hand side, we did debut on the Fortune 500 listing, the most recent Fortune 500 listing where we came in at number 399. That, of course, is ranked by way of sales. But the company achieved sizable market value as well with the market cap exceeding $16,000,000,000 because that varies on a daily basis, but that was as of last count. Our statistics on the middle on the right, again related to our digital success, and you've heard this before, is that we are now clocking at a rate of a total of about 120,000,000 members of our loyalty programs for KFC and Pizza Hut.
And then lastly, on the bottom right is that the company is a very large employer. We employ directly about 420,000 people in our business in China. In fact, on the same Fortune 500 listing, we were ranked number 3 of U. S. 500 corporations in terms of number of employees.
We also have a strong management team, and I'd like to take this opportunity to introduce a few members of the leadership team that are present here. Due to reasons of time, I won't have the time to introduce every one of them, but I will introduce some key members so that you can interact with them during the break and ask any questions. So I'll start with my left. I'll start with Angela Ih. So Angela, if you don't mind getting up.
Angela is a 20 plus year veteran of the company and has been responsible for a lot of the development success that we've had. So she leads a very large department that builds all our new stores. I'll go to Shella. Shella is our General Counsel, also our Board Secretary. Shella, again, is a 20 plus year veteran of the company and has been with the company at every crucial turn, not just in our past history of spinning off from Yum!
Brands, but also things like the acquisition of Little Sheep and, of course, our recent spin off and the formation of our new Board of Directors. Ted Lee is the General Manager for Little Sheep, which is our own brand and doing very well. Mark Choo is a person who you might have seen in the video more than once that we played a little while ago because Mark is one of the founders of the company and was here right from the beginning, so well over 20 years. Mark has been previously President, Chief Operating Officer. He's just a fantastic operator and is responsible for a lot of the success that we've had historically.
And I'm delighted that he plays the role of Senior Advisor to me and to the leadership team. Jeff Quai, I think you've met several of you met, is the General Manager for Pizza Hut Home Service, and you will hear more about his business from Joey when she presents. Sunny Sun is our Chief Growth Officer and M and A specialist with considerable experience in CVC and Daimler and Danone before that. She led the acquisition in partnership with Jeff of Dowjia earlier and is helping us at the moment are crucial aspects of our future capital deployment, etcetera. Very quickly, Alice Wong is our Head of Public Affairs and does a great job with establishing a brand image across the country.
Christabel Lowe is our Chief People Officer, again, a 20 plus year veteran. I jokingly say that she recruited every one of the 420,000 people, it's no exaggeration to say that she's responsible for a lot of the cultural success. Danny Tan sorry, Danny is the Head of several functions, including Chief Supply Chain Officer as well as Head of Quality Assurance and Food Safety and food innovation. And Danny, again, is a 20 plus year veteran of the company. Johnson Huang, you'll hear a lot more from later.
Johnson is a 10 year veteran of the company and is the General Manager for our largest brand, KFC, and his background is in IT, and that makes it particularly exciting. Joey Watt, I'll have a chance to say a few more words later as I introduce her, is going to be the next speaker following me, and I'll introduce her properly at that time. Jackie Lowe, our Chief Financial Officer. And Jackie has been with the company since prior to the spin and was responsible for filing our Form 10 getting the approvals. He has 17 years with Ernst and Young Prior.
He was a partner for about 5 and he's an expert particularly in SEC reporting and U. S. GAAP. So we are delighted to have him as a CFO. So you can see that the management team has a very good combination of extremely tenured people who have been right there from the beginning as well as fresh new talent that has got expertise from outside of our company, so we can meet all our obligations to shareholders.
This slide, we've been using internally and tracking because even though we are only a principally a one country operation really, we are focused on Greater China with the exception of Little Sheep where we have about 100 restaurants outside of China. Our business focus really is in China. We have, as I said, about 7,700 plus restaurants. Our market value positions us in the top 5 of all publicly listed restaurant companies, in fact, all restaurant companies because most of large restaurant companies are public. And I think this is a very good reflection of the power of China.
It also is encouraging for us because it represents considerable amount of focus. What I love about this company is that it's very focused on the opportunity in China. And China becoming the world's largest economy is almost a mathematical certainty. It's a question of only when that happens, not if, and we are very pleased with that. Also, our business model, which is where we own and operate restaurants mainly ourselves, is a proven success, and that's reflected again in the per store valuations that you can see on this chart.
One of the heartening factors, and many of you have tracked our company for several years even prior to the spin, was that in becoming a public company, we were able to achieve considerable success in a few areas. Number 1 was the smooth appointment of a very powerful and competent Board governance. And on behalf of all of you shareholders represent to management good governance practices aside from being functionally very competent in their individual areas. So in quick succession since November 1, when we spun off, we've been able to achieve a few things: a, continued strong financial performance b, authorization to purchase our own shares. We got initial authorization at the start of the year for about $300,000,000 to purchase back.
And as you saw at the end of Q3 results, most recently at our Board meeting, we got authorization to spend another $250,000,000 That takes our total authorization to $550,000,000 to as by way of capital return by purchasing our own shares. C, even though it was small and not material to our company in terms of financial size, we did an acquisition, which was an aggregator company with 2 brands, Dowgea and Sherpas, and we are in the process of integrating that. And we did that principally to get more experience in this rapidly growing area, and we feel optimistic about prospects. And lastly, very recently, as you know, we initiated our dividend. This was a question for many of you for several quarters.
And I'm pleased that even though we are 2 weeks away from our first anniversary as a public company, that on 3 critical aspects, which is share purchase, acquisition and buyback, our Board of Directors has been very forward looking, and we are delighted with the progress that we've had so far. This is a summary of our highlights for the 1st 3 quarters of 2017. That is our performance in Q1, Q2, Q3, which is all public information. On the first one, system sales, this is our total sales. As you know, we have certain joint ventures in about 5 cities.
So some of them we have a minority interest in, but our total system sales are about $6,000,000,000 in the 1st three quarters, which represented, if you take away the effect of exchange, about a 7% growth rate in sales. Our restaurant margins have been healthy. They're up from last year. But of course, as everybody knows, in 2016, June, the government of China introduced a simplified taxation system called roughly loosely called VAT, and that gave us considerable benefit, both last year as well as this year for the full year. So that had an impact, but our restaurant margins have been good.
And Q3, where we were lapping VAT from last year, we were able to still show a modest growth in margins and maintain them at the 20 percent level in Q3. Our net income has grown well, and you're very well aware of those numbers. Adjusted EBITDA for the 1st 3 quarters alone crossed $1,000,000,000 Our diluted EPS is a topic of considerable technical concern and analysis. You're aware in Q3, we did announce that there was a significant dilution in our share base on account of warrants of our minority shareholder coming in the money, the effect of share issues that we made after spin off, etcetera. So you can analyze this in more detail, but our total earnings have been grown, as you can see on the top right, very substantially.
On the bottom right, and I think Jackie will make more references to this, is probably the strongest indicator of the health of the business is that our net cash position is very strong. And when we spun off, we had about $1,000,000,000 At the moment, we have about 1 point $6,000,000,000 as of the end of Q3 in terms of cash and cash equivalents, short term investments in cash that we retain. So overall, in terms of financial performance so far, the going has been good. I'll cover a few other factors that will set up the stage for how we are looking at the future. The first is that we have a very wide footprint.
In China, as you saw in the market cap slide that I had put up, the 2 biggest companies worldwide are also present here. But we have more stores in China than those 2 put together. In fact, even the number 3 local competitor put together. So this is an unprecedented position to be able to be present in every single province. The large gap on the top on the left hand side, we have a lot of stores there as well, for example, in the autonomous region of Tibet.
But these are reflecting where we have offices as well as presence. It's well distributed in terms of our brand presence. And also the you'll hear references to this later, but we have an extensive delivery service where we deliver in about 800 cities, which is far more than any other competitor. Many of you will visit our logistics center in Shanghai later today, but we have 17 of those and I'll make some references to that in a minute. So let me come to the 1st forward looking slide, and this is the one where we've explained this before, but I think we can now, with the heat of the spin off and the last 1 year's experience behind us, talk about it with some more insight.
We believe that the number of stores in China can increase quite dramatically based on a number of factors. The most simplistic is per capita number of stores, which is represented on this slide that we only have, although we have 7,700 stores, if you divide that by 1400,000,000 people then or the other way around, you see that we only have 5 stores for 1,000,000 people, so one store for about 200,000 people. That number, even in several developing markets, is higher, significantly higher. But the more important perspective that I'd like you to take away is that there is no reason why Yum! Brands' restaurants in China should have fewer restaurants than we have in the United States.
And in the U. S, Yum! Has well over 15,000 restaurants. And the reason is that China will be a bigger economy. But aside from the economy, just the population is so much bigger and our market share situation is strong.
Now of course, this traveling is a long term phenomenon. And the reason I'm putting it up is that we see virtually unlimited headway runway for growth in this market. Now the physical sort of infrastructure of stores is one thing. As you hear from Joey and Johnson later, what's also growing rapidly is delivery. So that might cast a new perspective on this entire business as we are seeing with retail all over the world.
But we see that we can still continue to build out our new restaurants at a very healthy pace. And the reason is that on the right hand side, we've listed the 3 major factors. The first is development capability. It's not easy to build 500 plus restaurants in a year for any newcomer. And for those of you who are visiting China on this trip, if you travel around the biggest cities, Shanghai, Beijing, Hangzhou, etcetera, retail is not easily available.
So this we have, we believe, quite a competitive barrier to entry. And we have a very large department that does the entire range of activity from site locations, mapping to intelligent forecasting of traffic to, of course, commercial negotiations, the engineering fit out, the build out, commissioning. These are not easy and, of course, the labor required in order to open news to us. So there's a lot of internal know how that goes to that success. And lastly, we have a very disciplined process.
And please remember that we always build 1 store at a time. And we are not that driven by numbers as to what number we can build out, but we are very driven by returns that we get on those stores. So we allocate capital to new store builds based upon our ability to get good returns. And what's the most encouraging thing has been that even in the last 2 or 3 years, when we had a lot of other activities going on, our build rate has been very healthy. I think it's a tribute to the intrinsically to the Chinese economy.
A few headwinds that you're aware of, but I just thought I'd make a couple of comments. One is we do live in a politically charged environment around the world. In Q3 of last year, for example, there was an agitation against the South China Sea controversy and that caused our sales to get impacted last year in 2016 Q3. These factors can happen at any time. We feel great about our business.
We feel very optimistic about the future, but that always remains. Inflation has been, I must say, reasonably moderate over the last couple of at least the last one and a half years. Labor inflation was sizably higher. It moderated a bit, although it's still reasonable. And food inflation around the world has been reasonable, but that could spike at any time.
Although at the moment, I think Jackie will give you some insights, we feel reasonable about those two factors. The currency is always subject to change. And for a 5 year period, the renminbi was weakening. At the moment, it appears stable. We can't really forecast the way it will go.
And what makes our company particularly interesting is that we do have our entire business conducted in RMB, both our sales side as well as our cost side. But of course, our shareholders invest capital in U. S. Dollars. So that rate does play have an impact.
And lastly, the tax. You're very well aware that tax is an ongoing factor that tax rates in the United States are under review, and we'll see where that goes. But the closer the more capital we spend in China, the more capital we deploy in China and the more we grow here, the lower our tax rate. The more capital we move to the U. S.
For buybacks or dividends or other activity, we pay a higher tax rate. So those are all nuances, and we should keep that in mind as we model our business going forward. Now a few good elements that I feel particularly positive about having been in this business before and looked at it around the world is that I think the KFC team has done a superb job over the last 18 months in particular in refurbishing stores and trying new activities. In this business, it is critically important to have a very healthy real estate portfolio because it's very easy to lose sight of it. And then if you don't invest for several years, you see an impact on sales quite dramatically.
But I think we are very pleased with the progress that's been made in every aspect of store build out in technology as well as on the look and feel and not just on KFC, but on Pizza Hut as well. And more and more activities are being done on a regular basis to see that we can experiment and take this going forward as well. You'll hear from Joey that Pizza Hut is work in progress, and you'll hear some cautionary comments about when we expect that to turn around, But we feel good about the quality of the estate. I've referred to this already, but just a very quick summary. The national supply chain aspect, which allows us to open in very remote areas with good food safety guarantees and to open up new concepts like Taco Bell.
It's not easy to do unless you have very good control of supply chain. I referred to development capability already. Our marketing scale and coverage, you hear more about this, but we are the largest spenders in our industry on marketing and also in the rapidly emerging new digital area. We believe our operations to be the best in class by Yum! Standards globally as well as in China by competitive standards.
And lastly, a very robust IT infrastructure that allows us to put all those digital activities into place. In closing, just a couple of slides and then I'll hand over to Joey. The first is that aside from all of this, we feel very pleased to be responsible corporate citizens in China. This country has given us a lot in terms of operating freedom, consumer response, the ability to operate such a large scale business, and we do our best to give back. So we do give back money by collecting funds and then matching them this year for donating to people that are in need.
And we also have programs and maybe, Joey, you could refer to this briefly, by which we are able to help out in this case by, would you believe, selling potatoes in an area which finds it difficult to market them using our digital power. And that's not the only 2. There are many others. So for example, we have a program in the top middle called the Angel Restaurants, where restaurants are run entirely by hearing disabled and other disabled people that allows us to productively employ them and add to their skills as well. And there are several other programs like this.
Recently, we covered a host of strategic thoughts in our Board meeting, and I'll summarize those 4 very quickly on this slide. The first is that we are very focused on China as a business. We see that as a strength because it allows us to single mindedly focus on what we believe is the largest emerging opportunity in the world. And we intend to invest locally in China for growth as far as possible. The second is that we want to strengthen our core business.
So the 2 major brands, KFC and Pizza Hut, are subject to considerable attention. And we are not swayed by new brands and new acquisitions, etcetera, as much as by improving our stores, innovating menu, improving quality and value consistently. And we believe that's our best passport to get consistent good returns. 3rd, I mentioned already digital and delivery. There'll be several references to this.
And last is innovation. And I hope you'll see, especially those who are traveling to Hangzhou tomorrow, where in one mall across from each other, you can see a PH plus and you can see a Kaypro, which showcase our abilities to take this business forward with innovation at the retail level. So with that, just a quick mention of our theme, which is stay true and aim high. And the reason we chose this theme was that we are we believe passionately that our existing business is capable of considerable growth, and we intend to invest behind that core business to grow. At the same time, we believe that in our existing business and very closely allied areas like digital and delivery, that we can aim very high and take this business to the next level.
So with that, I'd like to hand over the stage to Joey. As was announced recently, Joey, I'm delighted to say, will be the next Chief Executive Officer of Yum! China taking over from me. It's been an absolute delight to watch Joey in action. As you know, she was the General Manager for KFC, then took on both KFC and Pizza Hut.
Most recently, he was elected to our Board of Directors. Just an exceptional leader. So it gives me great pleasure now to introduce Joey Wang. Thank you, Joey.
Thank you. For those who travel from far away, welcome to Shanghai and welcome to Yum China Investor Day. Good morning. Thank you. Good morning.
Good morning. Thank you. That's a way to start. Okay. Before we go to the Pizza Hut update, I will just spend a few pages on the sort of very high level industry update.
Okay.
As a recap, the ever changing consumer needs, Chinese customers are changing very, very fast. And as a brand builder, we are brand builders. Our number one job is to stay connected, stay relevant with the customers. So what our customers are most concerned of, this is a sort of a cloud map because it's quite hard to really have a bar chart to do this. The rise of premium is basically consumption upgrade.
We see huge trend of consumption upgrade in every aspect of life, food for sure, clothing, traveling, whatever you name it, everything. The demand for convenience, the quality, the health, information hungry, digitally savvy, etcetera, etcetera. But among all, the number one thing we recognize that we and also we respond to the customer change is the consumption upgrade. What are the reasons? Well, there could be many reasons.
And as we can all understand, our customers right now are traveling everywhere. So when you have the comparison, the value for money, etcetera, well, they start to ask for more, rightly so. However, the number one reason behind the upgrade, we believe, is the income growth. If you look at the chart, the chart suggests that the income growth between 2010 2020, we're talking about 20% CAGR for the decade, and that's a lot compared to place like Hong Kong and Taiwan where middle class income is pretty stagnant. And that certainly fuel the consumption upgrade.
On top of that, what we also understand is the key driver for such increase of the income is the due income, double income in a family. And the chart right here also show that the woman's share of the labor force is huge. It's very, very high compared to the other country. And that is a very quick way to have more income. At the same time, it also explains why delivery business is growing so fast in China because when you have 2 working people in a family, it's quite hard to find time to cope.
So therefore, less order. It all makes sense. What happened to the catering industry? What's the growth? Well, we still see double digit growth, and we also understand a key growth driver is from delivery.
I mean, if you look at the 2015 to 2018 I mean, even between 2015 to now, we're talking about double the whole delivery business, and it's going to continue to grow and grow. So you will see why Mickey earlier pointed out digital and delivery is a key strategic direction for us other than our core brand. Well, at the same time, something anecdotally, we also understand that while there are many, many, many new restaurants opening everywhere in China, because data is quite hard to get, but we can see that everywhere. The survival rates might not be too high because we also see huge change, turnover of the restaurant business, as Mickey mentioned earlier. This is a tough business.
You can the barrier of entry is quite low, but it's quite hard to survive as well. So fortunately, in this case, we have survived and we continue to build 550 plus store a year. And in terms of the entire industry, if we look at the ratio between the chain store versus independent restaurant, we realize we still have quite a bit of opportunity because even compared to places like Hong Kong and Taiwan, our ratio of the chain restaurant is still relatively low, but we also understand there's a gap between the top tier city and lower tier city. We got that. But still, there's opportunity there.
In this market, fortunately, Yum! China is in very good position to succeed because over the last 30 years, thanks to many of my colleagues sitting here and many, many staff in the last 30 years, we have built some very key success factor for Yum China. Number 1 is attractive unit economics, good food, good operation, consistent service. The other even more importantly is the scale because it's not difficult to build 1 successful restaurant, but it's very difficult to build the scale to 100, not to mention 5,000,2,000, respectively. And we have the skill set and know how and the depth of talents to do that.
And then the culture and talent, our shared service function are world class across all the brands. Last but not least, which we are going to spend more time, is the digital capability. So today, I would also like to share with you what we believe is the magic formula because from many source of information, you know very well about what do we do. But in today's occasion, given we are all here, it's probably very good to talk about what do we believe. We believe in this magic formula.
We believe in happy employees plus happy customer equal to shareholder value, and the priority come with that as well. Our staff, our customer, if they're happy, they will make our shareholder happy, a simple but magic formula. We also tend to spend a lot of time to talk about customer needs or the how to create a shareholder return. What I believe is we probably don't spend enough time to talk about our employee. What are we doing to make sure our employees are happy other than good financial compensation?
Three core things: fair, care and pride. Over 30 years, the company has done a lot and we continue to do that. We continue to evolve. When our business model change from one simple model to multiple model, we adjust our bonus system for our store managers so that they are fairly compensated for the effort that they put in. We put in the effort, we put in the investment to have heavily subsidized staff meal to make sure we care about our employee.
Many people are part time staff. We make sure they have enough to eat because there's one thing in common for our 420,000 staff is most people, I would say, 98, 99 people are from pretty humble family. And that staff meal matters. Pride, for shareholder, for customer, the store, the nicest store, the heavy investment of the store is very pleasant to come in and consume. However, whenever we renovate a store, we know, we understand the group who's the happiest group actually is the staff because they work there every day.
And nobody want to work in a shitty store. No matter how wonderful the brand is, if you work in a shitty store, it's just not good enough that you don't feel proud about. So it's something very simple, very common sense, but we believe these are important. And in a nutshell of how to talk about how to really make sure we don't lose how important our employees are to ourselves is the RGM 1 culture, which is something I mentioned back to 20 14 when I just joined the company, when I just first time get on the stage in New York, I talk about this is one of the very key reason why I joined the company because as a retail company, as a QSR company, if we forget about RGM is the most important group of people for our company, then we lose the key success factor, the most key success factor. So we want to celebrate that and we want to keep that and we want to even spend such valuable time like today to talk about that.
With that, let's move on to Pizza Hut. So Pizza Hut, we started in 1990, 27 years from now. And over 27 years' time, we have built over 2,100 store. As you can see, the split, the little block here is the home service business. And before this year, we run the home service, which is the delivery business separately.
But this year, early the year, we have decided to put them together. And altogether is over 2,000. So the build out has been very aggressive, especially for casual dining restaurants. In the last 3 years, we have had some tough time with all the reasons that we understand about the competition, the delivery, etcetera, etcetera. So we have 3 years of conserving negative comp growth.
Fortunately, in the last few quarters, last three quarters, with the hardware of everyone in Yum! China, we have stabilized the sales, but it's still not easy because turnaround is a long journey. It doesn't happen overnight. Our biggest challenge of the brand is being outdated. This picture is very hard to find.
This is what our customer told us. They describe us if Pizza Hut is a brand is individual, we will be in Buangan Beitai. There's really no best English translation for the term. I think the closest translation is my reliable backup boyfriend. Well, that's he's nice, seems nice, eating noodle, right.
He's nice. However, the problem is he's not very desirable. So our customers think of Pizza Hut will go to Pizza Hut, probably won't be the first restaurant come to their mind. It's good to have a laugh about it and we have a laugh about ourselves because few years ago, what customer told KMC was, KMC was a middle age security guard. And today we are Xiaoxian Rou.
Xiaoxian Rou is the 2 translation depending on which one you like. The direct translation was a piece of a fresh piece of meat, but that's not the meaning. The meaning means very yummy, attractive young man. So we transform from middle aged security guard to young men, probably desirable. Within few years, we believe that we can if we work really hard, we can transform this image to someone more desirable for our customer.
But the in a nutshell, that's our challenge is being outdated. No, we don't want to be there. So we have to do everything we could to get ourselves to be more relevant. You're familiar with these 4 levers because I think we shared it in the earnings release call. Fix the fundamental, the product, the menu, the service enhance the digital capability, particularly with the new super apps launched, the members, the CRM, member push, optimize delivery network and experiment new models.
1 by 1, this is an important page. I hope you can take a good look at this page. I hope you feel the sincerity of our Pizza Hut team, because the best way the best thing a Chinese family can do to show our hospitality to our guests is good food. Here, this is the new product that we just launched Monday this week, new autumn menu. There are about 20 new product into the menu.
From pizza to pasta to vegetable to soup to dessert to drinks, we have invest in the ingredients. We understand the P and L impact when we invest in the ingredient, but we believe that's absolutely the right thing to do. We might even price it a bit too low to price at such almost a liter big fruit tea at 21, but we believe in the long term that is absolutely right thing to do because that bring customer back to our store, and that's the most important thing. So good food got to be the right thing to do, and we'll continue to be as sincere as we could to give the best to our customer. It will take some time because nothing changed overnight.
It's hard work. However, we'll continue the journey. For the October menu, we also have a little focus on the healthy theme. So for vegetable, other than salad, we have roast vegetables. Why?
Well, because of our team's learning inside the Chinese, we like vegetables, vegetables, but actually not everybody like uncooked vegetables. They are called salad. However, we like Coke vegetables, too, and they are very healthy, even less oil. So when we try it, seems good, we'll put it on. The Italian theme piece is something completely new to us in the last 27 years.
It's the first time we did it. But customer, particularly in top tier city, has clear demand for it. So we push ourselves to do it, and we tried it in 9 pilot store. And then as of this week, we launched it in Shanghai and Beijing only. So we'll see how we'll continue to learn.
We'll get the customer feedback and then we'll continue to improve. Menu. We know our menu is too long. But how to solve the problem is another story. It's quite easy to cut the manual.
However, it doesn't solve the problem because that is not the problem. The problem is lack of very, very strong product because by cutting the menu without changing the product, you just lose sales. They are 2 different things. And by cutting the menu, simple cutting a menu, it doesn't address the problem that the menu, whether it's short or long, is relative to what daypart, to what product. So the way that we attack is from multiple angles.
So for example, you can see this is the working day lunch. So this is the menu will be given when you come in. And even though the print are small, I hope you can see at least 2 things. It should be 35 units minimum, starting from 15 minutes. We guarantee 15 minutes, we'll get the food on your table and the minimum is 35, good value and speed.
Because lunch is Ganshu, it's not a fancy daypart, it's speed, it's value. We understand that. And then this is the menu for bistro. It's only 1 page. Our normal menu is quite thick.
I mean, unfortunately, the October menu right now is half of what the August menu right now. But bizro, we give it 1 page. I'll talk more about the bizro. So for different format, different data, different menu, it makes sense. So what else are we doing?
We try to do something fun. Why it might go a bit extreme with the color yellow like this in a tube station. When you buy in the morning, you might be like, wow. And we even have durian perfume for the durian window. We are not going to torture you with the durian perfume this morning.
It actually smell quite alright. It's more like fruity. And we tried it on our app, and it was sold out very quickly. So even for something as quirky as this, we want to be a quirky, a bit edgy, remember, because we want to be a bit more desirable. And we need to continue to do that over time again and again in order to change the perception because the perception also follows the reality.
And one quick way we hope we can start to change the perception is to bring celebrity to advertise our products. And for this particular video, I want you to put down your phone because we won't add a video until next Monday. So if you could put on your phone when we show the video, but just want to show you the beginning of our journey to make ourselves a bit more desirable. And if this is not handsome enough for any lady in China, then we have some more work to do. Okay.
I think the million show is at the last anyhow, you got it. So it's the beginning of the journey, and we'll continue to work on it. We have a bit more fun. And also, if you know our brand well, in the past, a lot of these advertisements are more about food and food and food. What we try to get into is the attitude towards life, have a little bit of attitude because that's what young people like and that's what young people are about, have that little attitude.
Okay. Other than young people, there are other because we are 2,000 store business for a wide group of customers. So we have kids, who are definitely our customer, very loyal kids customer, and we have the kids menu for them. It's called in a very sweet way. The kids call their meal Feijichang, the airplane meal, because of the plate.
And we also invest to in our future customer, these are the university students. If they come to our store with their university card, we give them 20% off. So because for students, usually, the wallet is a bit tight. What else? Operational.
We cannot talk about fixing the fundamentals without talking about the operations. We always focus on operations. I guess what I try to bring out is what are we going to do differently? What have we been doing differently? A big challenge in operation is the increase of labor costs every year.
However, this is our business. We have to do something about it. What are we trying to do is to simplify the service process. That's what we can do, make it a bit simpler, make the job slightly easier for our staff to reduce the level of service, but still have very good customer experience. We changed the uniform.
Of course, even the simple thing because retail is detailed. Simple thing, in the past, the lady has to wear shoes with a little bit heel. Right now, we just let them wear whatever shoes they want. Very comfortable shoes, so they can run around, feel comfortable, relax and more productive, funnily enough, because they can run right now. And then we definitely are investing in digital technology to enhance the digital experience.
We are doing big and small thing to improve the management and crew retention, because to be perfectly honest, when the business is going through 3 years negative comp growth, it's really, really hard on the staff. It doesn't mean that the staff can work less. No, they have to make work harder in order to keep the sales. So we have to recognize that and we have to help them. And with a lot of good things going on, that also help to retain staff and better retention of staff, better service.
And for a lot of these initiatives, we have a very systematic way to go after it. And this is our way, win and scale. We make sure we find a way to make sure whatever we are doing is the right thing to do. Then we scale it up. So we have 9 stores in Shanghai that we carefully chosen.
They are very, very good. The managers are superb, And they help us test almost everything. Whether at the same time or not, it doesn't matter. Whatever we are ready to test something, they are ready to take it. And then we work on it.
And if it doesn't work, we drop it. It's okay because it's a test. We can't afford to make mistake. We should be able to afford to make mistake. And then if it worked, we take it to selectivity.
And if that worked, then we take it national. For example, the rose vegetable that you saw is launched this week not across the country. It's only from Tier 1 to Tier 3 cities, but still a big scale. For the film piece, because of a lot of technical challenges we are handling, it's only launching 2 cities. It's okay.
Then we continue to learn and then next step roll out. And these are all my wonderful staff who worked very, very hard since March this year on the pilot. Number 2, super app. So other than fixing my fundamental, let's move on to digital. Super app is a platform for full digital ecosystem.
And we launched our Pizza Hut super app Pizza Hut brand super app, July earlier this year. It was very, very quick. Our IT team, our digital teams in Yum! China is amazing. So we basically took the system of KFC, we changed our skin and we launched out very quickly because we want the market, we want customer to educate us how to do it better.
So it has a key element that you would think. It has the delivery function. You can order food there. It has KFC thing, CLM, Kego Point. Members' Day, exclusive offer gift card.
So we have seen very promising results so far. So you can see in terms of member, right now, we are at 30,000,000 compared to Q1 of 2016, 3,000,000. And the middle number is the number that is the first time we share. The percentage of sales from members in Pizza Hut is 19%. And a lot of it has to do with the Super App launch.
Mobile payment right now, we are at 35%. So obviously, compared to KFC, this is a bit behind, but it's okay. We just started this year. So membership and digital engagement, I think I mentioned it before in the earnings release call, it's about one more visit. That is a very, very magical point for us.
So from CRM to digital experience to the cooperation with aggregators, we want our customer to visit us one more time. In terms of delivery, number 3, delivery. Here is a very clear chart to show that we have started delivery business a long time ago in the Pizza Hut home service stores only in the past. Until 2015, we let the casual dining our other casual dining store to start the delivery. And this is the number of stores doing delivery.
So by today, over 2,000 stores are doing delivery. And home service, historically, we have been using our own rider and the casual dining store have been using aggregator. With the quick expansion of the store, it results in very nice sales growth in terms of delivery business. So for the brand, last quarter this quarter, sorry, Q3 of 2017 is 45%, but the portion from the casual dining is a lot bigger because it's the expansion of the store. So right now, as of Q3 of 2017, 21% of our brand sales is from delivery.
As I mentioned earlier, in the past, there are 2 business. So it naturally brought one challenge for us right now, which is in the short term, we are in the process still in the process of putting the 2 brands together, consolidating not 2 brands, 2 businesses together. Pizza Home Service and Dine. Why do we do that? Because it's the right thing to do.
We So by So by putting them together, customer will have very clear view of what this brand is offering, even in terms of turning around the brand as a whole. So the turning around the brand as a whole. So the store network optimization, that's something in the process right now. In the long term, we want to have one brand with consistent image and message. We have standardization for high quality execution and efficiency.
Number 4 is accelerate remodel to rejuvenate the brand image. So our brand our asset actually for Pizza Hut brand is quite new, because a lot of store are built in the last 5 years. However, Chinese customer very, very demanding and they already find some of the designs a bit data. So even though the quality is good, the design is, can we do something more to bring that the nice modern feel? Of course, we can, and we are going to do that.
So this year, we are doing some remodeling. By end of this year, we should be able to do 145 store remodeling, and twothree will be partial remodeling. So it won't be the total store. It is the same thing that we did for KFC. The investment is relatively low, and we don't have to close the stores too long.
And the result is very good and our Angela's team is very experienced because she led the new development and also the construction team. So we are going to continue to do that. This is the look of our Bistro store. We will have 30 of them intensity to test different city, different trade zones. So I guess my little friendly reminder is that this is still a testing process.
That's why we are doing in so many cities and different trade zones. And the footprint is smaller, slightly smaller than the normal store, might be less than 300 square meter. The format is fast casual. So you go in, there's a counter, you pay first. So that is you can see here the picture.
You come in, you pay first and then you get your drink and then the salad, whatever, then for the hot food, we'll deliver to your store. So it's more efficient in terms of labor costs, and young people like it a bit more. It's more relaxed. So quite a flexible model. And then the kitchen is half open and even some of the sort of the pizza area, the customer can see how do we do the pizza dough as well.
PH Plus, I think some of you might have visited 1 in Shanghai last night. And for those who are going to Hangzhou, this is the look of the Hangzhou store. We only have 2 in our system right now. It's a way to learn about what customers want or the changing needs of customer. So we the menu is slightly different, and we are testing different things, and we have slightly separate team to manage it.
But as a brand, we need to stretch ourselves in order to really learn as far as we could about the customer. So to summarize, Pizza Hut is still in the early stage of putting down a solid foundation for future growth. And our focus is on the fundamentals, which is about the menu, the product and services. And supported by digital capabilities, new models and delivery network. So with that said, I'm going to ask Johnson, our General Manager for KFC, to come out here to give you an update on KFC.
Thank you.
Thank you, Joey. Good morning and welcome everybody that I feel privileged to on the stage to share with you KFC China's business update. But more exciting is that this is a special year for KFC in China, that KFC entering in China for the 30th anniversary. So all of the stories starting from this particular restaurant. In 1987, October, we opened the very first KFC restaurant in Beijing, Chairman Street.
It was a sensational event. At that time, the American ambassador to China and Beijing Deputy City Mayor went to open this restaurant together with us, and we find out there are many Chinese citizens in Beijing, they kill outside of restaurant, they want to taste the very first Western style of chicken. Since then, we step by step solidly build our internal capacity and capability in terms of our operation, our development, construction, IT, digital as well as our external supply chain's network, logistic network and our innovation capability. So 30 years past, we have built more than 5,000 restaurant here in China in each and every of province and major cities and tier cities. So with this restaurant, we provide convenience location as well as comfortables, ambiance and service for our customers.
They can happy and enjoy our craveable food and service in our restaurants. KFC rooted in China for 30 years. It also embedded in Chinese people's heart, becoming part of daily life in Chinese people. Right last month, in the 7th September, in Shanghai, Oriental Pearl Tower light up for KFC to celebrate our 30 years anniversary. Lots of our customers, together with our employees, we joined this celebration, we witnessed that, we feel so proud, so touching.
So let me use one video to share with you how did KFC China grows in the past 30 years. Please. Thank you. So all of us in our brand in Yum! China, we feel proud and pride for this brand.
We work together with the brand, grow the brand to serve our customer. But another 30 years ahead that we feel we have more responsibility and feel strongly how do we continue to build and enhance the brand to become a welcome part of Chinese daily life. So let's look into the business. So in the past 4 quarters, KFC in China continued growth in the same store sales. In the past quarter, so we have enjoyed exceed 7% of same store sales growth.
There are many factors to contribute our continued success in the past few quarters, our ambiance, our service, our digital, our food and our technology and also communication way. So these are the key reason to support us to our continued growth. But I would like to mention that in this quarter, right, it's higher than last year same quarter, as Mickey already mentioned. Some of the factors because of the softness of sales in last quarter because of the South China Seas impact. So but overall, the brand continued growth with a very strong sales momentum.
As I mentioned, right, food is our critical part of business. In this year, we did several disruptive innovation. Chisar is one of the most successful item that we launched. Chisar is called chicken pizza. It's made by chicken thigh on top of the toppings like pizza.
This is a very special format, and it's also not only delicious, but subject of talk. So this is a very word-of-mouth product on the Internet and also in our restaurant. So we're starting a warm up launch event, invited our KFC World membership to test our new product, and they love it. They share with their friends and social media. During the launch, we find out a lot of people coming to order that to enjoy that, and they share on their network.
So the sales was tremendous well and is so ahead of our schedule. Another good example is the Angry Burger. It's not only taste good, spicy, but also you can see the richness of the color, the freshness, the vegetable on top of the burger, we have dried meat flows. So this is also attract a lot of customer coming in to eat, to share and then to continue to buy it. So not only drive the traffic into our restaurant, we also continue to think about how do we increase our ticket average.
So in the beginning of this year, we put in some ingredient, which are fresh, are premium to lift our product. Avocado series on the burgers and pizza is one of best examples that we lift our ticket size. Other than the main windows, we continue to innovate some others dessert and drink. And starting from this last year, and particularly for this year, we launched an Internet popular product. It's called Creamy Ice Cream.
It was very popular in Japan, but you can now eat in our KFC restaurant. It's a premium item, but we received a lot of very good feedback and repurchase. It's RMB 25. So it is very premium product. But with that, we build up our ice cream image.
So we also enhance our ice cream with a lot of different time and season notes LTO like green tea ice cream, mango ice cream and such and such. So with good product, customers, they also like value. Value is a topic always embedded in customers' hearts. But if you have value on top of abundance, build it together, that's a treat. So occasionally, we use abundant value to attract our customer coming to enjoy our signature product like our chicken noodle, our wings.
So this is also a very successful tool that we attract customer coming to our restaurant. And we all understand that KFC now is young, fun and attractive. Other than our communication, our digital event as well as our new products that should be for young generation, but we also leverage celebrities that they like our brand. They embrace our brand culture, our food. So with their publicity power and their fans, they come together with us to share with our new product with customer.
Some of celebrity, right? They even feel strongly want to embrace our product during they are shooting the video. They have a lot of idea how to creative to share with their fans. So that I want to with that, I want to share with you one of the video that not only attract our customer from their friends, but also our product is still the key and the major role of the video. So please.
Right. So we all know that with good product that we can build a lot of data. In the breakfast time, it's also our range of business driver. We all know that breakfast is people who wants to have confidence food with convenient location and speed. So with our more than 5,000 restaurant convenient location, we think about how do we further enhance our operational process and leverage the system to help us to easy to let customer to take an order and pick up their food easily.
So our preorder and our internal system, that was a secret weapon to help us to let customer can easy their breakfast quickly and then within our store, they can just grab and go. So that create a lot of business opportunity for us and high customer feedback and satisfaction. And furthermore, other than our panini, Chinese dough, kangju, soft drink and coffee, right, we also invented the Chinese like cold rice roll. And this is a very success and signature product for our breakfast too. And coming to delivery, this is also another major growth driver for KFC in China.
We all know that there are so many brands they leverage third party to drive their delivery. KFC in China, we are among the first to invent our own application for customer they can order from PC or from mobile for their food. So we have built our very strong mobile app and together with the payment and also customer information, that customer can take the order from there and we can simply deliver from that. And our percentage through our own platform is the highest among the restaurant chain. And we also have a very high percentage of our own channels orders.
With that, we also try to add on the coverage of the store in different tier of city as well as add on the density of our restaurant. So our business was growing very fast in the past few year, and we are observing that we will continue to expand the business. Another exciting news that ever never in high speed rail in China, you can eat other brands' products other than the high speed rail bureaus product. But in this July, that you can simply take in order from your mobile phone and order KFC. And the you just need to tell them which trend you are taking and which station you want to have the KFC product.
So our reference in that particular railway station will produce, prepare the food, deliver it to the coach via high speed rail bureau and coach attendant will dispatch and deliver the food you ordered to your seat. Think about it. If you're sitting within the coach, the train coach, and you open the smell so nice, catch the chicken. How about the others, the other seats people, if they don't order, you will create a lot of trouble. But it's now right, there are around 20 rail station that already joined this service, and the high speed rail will continue to expand that.
So this is a very good opportunity for us, not only expand the business, but also to enlarge our courage and provide our service and food a different occasion outside of our premise and customer premise to enjoy our food and our service. In KFC coffee, we launched the coffee for relaunched our coffee for about 2.5 years ago. So the coffee was enjoyed a very good feedback, the test. And also in this year, we have more than 30% growth in the coffee business. But in this summer, we launched another new product we call iced coffee.
The coffee itself, it's good. We receive very good feedback. And also, we leverage our kernels to communicate. The kernels not only sell the best chicken, but also there is only one item probably can compete with the chicken, it's our coffee. So it was very success in the summers to enhance our coffee's business.
So children is the lifelong value for our customer. We treated the most valuable of our customer. So we are not only designed to suitable for kids menu, we also partner with Chinese Nutrition Association designed to fit kids meal requirements menu dedicated for our children. Above all, we partnered with Famous IP to design our campaign and our premiums to attract our young customers. And furthermore, we nearly host over 500,000 party in our restaurant by end of August this year.
And with that, a lot of kids, they enjoy our meal, enjoy the atmosphere in our restaurant to celebrate and the joyful moment with their friend and parents that embedded in their mind as a long term guest. We also partnered with China's Children and Women's Foundation that to select suitable for year 3 to year 9 book that we bought it, we buy it and put into our restaurant as a reading corner for children. They are not only enjoy food, they can enjoy reading over there too. So this is the serious what serious action and program that we did for our children's customers. And digital is very important part of our business.
If I would say in the future for KFC, there are 3 Ds. What are the 3 Ds? We call data, digital and deliveries. So before, when we do business, customer come into our restaurant, we don't know who are them, what are they like. But now with nearly 100,000,000 customers in our world membership, we can understanding who are they, we can reach them, they can communicate with us, we can interact with them.
So we know what they buy, we know what their behavior or their interest. So this is a very powerful data assets that we have, and we can further digest and learn from that to better and easier to communicate our customer. And now those our membership already contribute 33% of our sales by August this year. And for the digital part, I believe that Joy will share with you more. But in here KFC, we left our membership to do our 1st wave of 30 years anniversary series programs.
So in March of this year, we launched a campaign that our membership, they can use 30 years ago, our mashed potato price at RMB 0.8 and also our original flavored chicken, RMB 2.5 to buy the product. It create a lot of customer coming in to buy that, enjoy that, to memorize. So this is a very powerful tour. And we also use the free trial for our membership, as I mentioned, the Chisap product to warm up our new product. And each and every Tuesday is our KFC membership day.
So if you're looking into your mobile phone and your cash app that you can open, you have a coupon or you have Tuesday special offer items. So that in that particular day, it's also a higher sales day for us in the day, so that we create another small weekend on the Tuesday. And for a member, if they are particular day for their birthday, we also offer a half price chicken bucket for them. So the company not only invent for food in ambience operation, but we also care about the customer's lifestyle. So we partnered with National Marathons.
We did a 9 marathon across China City in this year, And we also hosted part together with the China Basketball Association that we enter into the 10th years of supporting 3x3 Basketball. In this year, there are more than 4,500 high school and also 300 1,000 youngsters, they play 3x3 capacitor in our program. As Mickey and Joey mentioned, right, we are a company with a huge heart. So KFC, we have many different charity program, not only to do because we want to do, but more importantly, each of this kind of people that we need to pay our special attention to the Keo. Like our little bird migration farms, the children, their parents, they work outside of their hometown.
So they the family can't see them very often. So we offer in their hometown for them to work opportunity that they can walk in our restaurant, so they can easily to have income and also take care of their children. And the YYuan donation that Mickey mentioned, I will not repeat again. The First Life Foundation was to help those universities, children that they don't have enough money to attend the school. So we give them not only for the cash, but also provide opportunity for them to walk into the nearby restaurant.
And certainly, the Angel restaurant, what we mentioned already, in this year, we built another 5 Angel restaurant for those people that they have hearing or other issues on hearing that they can confidently walk in our restaurant, communicate with our customer, so they leave more confidence in the society. And certainly, we do care about the local community for elder and children. So we continue to enhance our restaurant. So in this year, by August, we already remodeled nearly 100 restaurants, but we will continue to do that up until by the end of this year, we will have more than 80% of our restaurant been remodeled and the age of our assets are very new around 3.5 years. So in KFC, we are not we are big, but we don't want to be let people see that we are very similar and we are no different.
So other than different model, we also think about in the local history or culture, can we build those restaurants who are in line or tied up together with local culture? Like in Nanjing, we have we call Sushi, a silk restaurant that with a locals decoration. And in Beijing, we have a restaurant that nearby the universities. That people, they can sing and also enjoy the food and life band over there. So those kind of culture, especially that we are continuing to promote in that and you will be more and more with this type of restaurant in our KFC brand.
So lastly, I would like to do a summarize. So in the past 2 3 months 2 3 years, that KFC is a brand that continue to enjoy a new innovation, younger image, fun and more important, it's a trustworthy brand, right? So that with that, we feel strongly that in the next 30 years, we will continue to build KFC brand with a strong connection with our Chinese customers that we want to be and we are confident we will be have another 30 years growing in China. Thank you very much.
Thank you again. We have about 30 minutes for this session, digital and delivery. Again, you will know a lot of the sort of initiative Yum! China has done and will do. So for the half an hour, I would like to focus more on what we believe and the thinking behind a lot of these initiatives.
So start with digital, then we'll go to delivery. So for the digital effort, we believe in the future of building a digital ecosystem across all points of consumer journey. So everything we do is around the entire consumer experience. So let's start from the before store. Before they come customer come into the store, our mobile pre order, our virtual store geo targeting use LBS to have the last mile communication between that closest store to whatever the customer is.
Then when the customers are in the store, then we focus on the enhanced experience in terms of ordering experience, in terms of the menu book, in terms of the pickup, in terms of payment and entertainment. So I don't know how many do you know if you have a KFC app right now. If you want to listen to some music, go to our app, Craig. You can. We have many, many we have many, many songs there.
And if you really don't like the store music in that particular store, you can change that music too. But you need to use some of your burn some of your Keiko to do that. It costs you very little money. All our intention is to get you to use the CAGO. So the entertainment.
And then after store, of course, is about the membership and also the customer feedback because we also use our in store digital capability to collect customer feedback ourselves. And that itself is a treasure. So the belief behind is actually not very technical nor digital. It's very common sense and basic. And of course, all these happen with the enable of the membership program, Super App.
So what do we believe? It's a I'm thinking about how to describe this. I think it's about when you look at a 30 second or 15 second TV ad, for customer, you just look at it as 30 second, boom, very fast happening. For us, the way that when we create this 32nd ad is we look at every inch of the film, right? For the 32nd, we break it down every inch of the film.
And this is the entire customer journey, and we look at little minute details of the every inch of the film of the customer experience, which in the past, I'm sure we've been doing it for a long time. However, we believe right now with the new technology, we can use many, many different types of technology to change, transform that original customer experience. Customer experience is the same. Before you come to the store, you stay in store. After you left the store, it's the same, but we want to change the experience with the technology.
I hope that makes sense because we are very good at breaking the entire process into minute detail and how to increase the speed, etcetera. And we applied that discipline and focus on detail to the customer journey with our digital capability. That's what we believe. So even though we are not a technology company, we have many different little gadgets and different little fun things for our customer. So the entire journey goes like this.
I explained it before, before the store and then in the store and after that. And what I want to focus everyone is on the key focus area, which is pre order, in store digital ordering, payment and after store membership. And today, I'm going to spend a bit more time on pre order because I believe that's something we have not talked about it before in public domain. We started the preorder from the Q1 of this year, and we do it quite because we are learning. We don't know.
We might be making mistake. And then once you're in the store, you can order with the kiosk. If you go to 100 K Pro, you will see a row of them. If you go to some other store, in Yudong Pan, the transportation hub, you will see some of them. And of course, the signage called the order, right?
You can still use the traditional way to order, but then you can also use your mobile phone and then the whole digital menu bar. I mean even the digital menu bar, it seems such a simple thing because we always have menu bar. But to have menu board right now, we have different we have slightly different menu. We have slightly different price for different type of store. And we have 5,000 store.
The company you can do the math. The combination itself is not a small number. We are talking about thousands of version of them, even though we have only 5,000 stores. But we can manage it now. We can manage the complexity and we can react very quickly.
In the past, we might need 2 weeks to print and to send. No, we don't have to do that now. And then the mobile payment, 45% of the sales and then we have the 97 members. And on top of that, we have the gifting. So the gift card, we sell the gift card as well.
And then the entertainment, that's the music bit that I talked about earlier. So I'm going to talk a bit more about the pre order, in store payment and after store. So pre order, here's the numbers for yourself. We start the preorder Q1 this year, and we started with 2% of our sales is in pre order. And as of today, we are about 15% of the sales come through preorder.
And the increase is actually quite fast, probably a bit more fast than we expected. And going back to our needle focus on the minute detail to understand how customer in Chinese, we call it, right? The way the customer use our service. Here are the potential, the way the customer use preorder in real life. Surprise, surprise, we find out a lot of customer they order when they were top.
Think about it, you might have done the same thing, I don't know. When they wake up in the morning, they order first before they brush their teeth and make themselves look respectable. The other one is when they're in a store, there's a long queue, you use your mobile phone to order, to jump the queue in an official way. You can jump the queue by doing pre order and because there is a separate line for the pre order people to pick up their food. You don't have to get in the normal queue.
And then or because that's the beauty of KFC store, there's always a KFC store nearby, not too far away from you. So on your way to work, before you get to the store, you start to order when you are in tube station, whatever, in a car. You order, a few minutes later, the food will be ready. You can even decide if you want the food to be packed before you arrive online. You have a choice.
If you're really in a hurry, you want the food ready packed, you picked it up. If you're not, you want the food to be really perfectly warm with the perfect temperature, then you ask for the option to prepare the food only when you arrive. So it's very simple process. When you get in the app, you choose 1 of the restaurant. It's always restaurant based.
And then you order, you pay and then you go to the special lane and pick it up. And for because of the rise of preorder, Johnson and our team has done an amazing job to transform the counter because we have to transform the counter to have a separate link just for the preorder orders. So in the store, you can see now that this is a place where you do the normal ordering, and this is the place that you pick up the pre order and other, takeaway, etcetera. And then you can do the mobile ordering in a store, outside a store. You use a mobile payment, kmusic and then of course, the in store WiFi.
The mobile payment, I just want to sort of clarify one number, which sometime not sure which one is which is we always talk about the mobile payment is 45%, but actually the other cashless payment is 15% as well. So add together is 15% of cashless payment. So what are the other cashless payment? Here's the list. Of course, when you order Internet through the aggregator, it will be cashless payment.
And then our gift card and other methods of payment, they will be cashless as well. So 60% cashless, this is a huge contrast to before 2015 summer because we only launched a mobile payment 2015 summer. Before that, 100% of our business is cash based because we did not accept credit card in our entire KFC history. We jumped from cash to mobile directly. Okay.
K Pro. So K Pro has many, many elements and I'll show a video. But one thing that I would like to point out is KPRO is an experiment because we are a big portfolio. And we know we understand we need to stay ahead of the curve, but it's very difficult for the entire 1 or 2 store, whatever, as experiment 1 or 2 store, whatever, as experiment to try something different a bit ahead, maybe 2 steps ahead, maybe too far ahead. We don't know.
But because we know for the entire 5,000 plus store for KFC, when we move, we probably should only move half of 1 step ahead, not 2 step ahead because customer won't be able to follow. However, we always need 1 or 2 store to be ahead. So K Pro or PH plus to learn, just for the learning. And we are prepared for a lot of the failure, etcetera. So actually, K Pro is a very low power project going on for a while already.
We tried different things and we learned different things. But one key thing that we push to the extreme here is actually almost 100% is pre order. We only have one tiny little counter. The screen, you won't see the normal tilt. It's flat.
You cannot see the screen. But if there's always some customer who really, for whatever technical reason, cannot use the pre order, then we can still use the traditional way to take your cash, whatever. But you this is the entrance. You walk in, there'll be 1, 2, 3 kiosks, and you can use the phone to order outside or you go into a store, you scan the Coke first because that will tell our system where are you, where do you sit and your order. So over 95% of our order are through preorder in this particular store.
And that's how we learn. We push it to the extreme. Of Commerce, we also tried the Smart2Pay, right, Smart2Pay, and this is the 1st commercial store of Smart2Pay technology being used in China. Commercial application, the technology is being used in other area. So you will see a video about it as well.
So for those who are going to Hanzhou, please share your feedback with us because it's still a learning experience. For those who cannot go, here's the video about the Kaypro. So we have 2 videos. 1 is about the store, 1 is about the technology. But just a gentle reminder, the smart to pay technology is only for maintenance Chinese citizens.
If you have a maintenance Chinese ID card, if you don't, I'm sorry. There's nothing we can do at this point. And if you are twins, sorry, that's the beyond the technology's capability for now. Okay. So hopefully, that give you some idea about this restaurant.
And of course, for brand builder to have a brand that is so rare for 30 years in China, suddenly have one green store itself is a bit of a crazy move. But, I'm so pleased that customers like it and will continue to learn from this very meaningful experience. And I'm not going to dwell on the details about all the little things that we try behind because behind the scene in terms of technology wise, we try many, many things as well, see how can we speed up the process. One quick very very quick example is because of the growth of the delivery, we realized it's a bit like there's almost a bit like sort of virtual traffic jam in the store because with the pre order and delivery, etcetera, come to our POS system. In this particular store, we try something new is what about if we have a separate highway?
We have one highway for the traditional way. If we have a separate highway for delivery, how does it work? It really speed up the process. So things like that make us more how to say, more willing to try new things because it's something we only learn when we are in the process of trying. Okay.
Let's move on. What else? What's next? We're working on a lot of fun little things, but unfortunately, we can't really share until it's getting close to be launched. This particular feature will be available by the end of the year pretty soon.
It's you and your friend can order at the same time. Suppose you so you can easily go Dutch in the KC ordering in a party, whatever, something fun and you can agree what order, what not order, whether it's too little, too small. So I mean that also will be helpful for our catering business as well. So among the delivery business that one subset of catering business that we realize we can do more to serve our customer. So we are getting a bit more detail, more specific towards different type of occasion.
Okay. Come to the membership after the pre order. By the way, just one last comment for pre order. We love pre order because why? Because we are using our competitor edge.
Our stores are everywhere and customer can pick it up and they don't have to pay for the delivery fee. That's good. It's very good for our business, good for the business, good for the customer as well. So membership program, they're key enabler of the digital experience. So RMB120 1,000,000, so obviously you can do the math.
So far, we find out it's about RMB10 1,000,000 overlapping of the customer. Actually, it's a bit less than we expected, but we'll continue to work on it. As we expand the Pizza Hut one, the overlapping might be a bit more, but we'll see. So we actually both brands, we actually started the CRM program about the same time. So you might ask why the KFC program is growing much faster than Pizza Hut other than the fact that KFC is a bigger business.
Well, there's a little thing called Super App. KFC launches Super App a lot, lot, lot earlier than Pizza Hut because we Super App, we only launched this July this year. So the Super App really is an enabler to recruit members and then keep them. Therefore, we're putting so much effort to launch Super App for Pizza Hut so quickly this year. So for the KFC system, the members is 33% of the sales.
And if you remember, Pizza Hut right now is about 19%. So I think you can see that for Pizza Hut, we have more opportunities to further push the members, and we will. So we also launched the member exclusive campaigns, and Johnson talked about it already. Among all these campaigns, this year, 30 years is a very, very special year. So we really go heavy on it because of one unique advantage of KFC brand, which is history.
I'm sure many of you guys here have your own first KFC story. If you grew up in China, usually it's about if you do really well at school and exam, then mom and dad will bring you there. And that moment, that first moment was always special in many Chinese heart until today, and we want to capture that. We want to remind you, 30 years ago, many of you guys are still very young probably, less than 30 years ago, but we want to bring back that good feeling, that good feeling. Long time ago, when you went to KFC, the first time your parents paid JPY 2.5 for that OR chicken.
And many family, many kids or many young people today still remember the kid yourself was the only one who can eat the chicken. Your mom and dad were just watching because the price was too high. Was very expensive. But anyway, today, you're doing very well. You can't afford many of them.
But we still only want 2.5. So what are we doing here? What's the thinking behind? We want to thank customer. We want to thank you for your loyalty.
We want to thank you for your support. We want to talk to you. We want to give you the value, but we want to give you the ting huai as well. We want to give you the value in a meaningful way, because giving value everybody can do. As long as you have money, you just give the value.
No, we want to give you the Qinghai. We want to give you the good memory of your childhood. So that's what we want to do. What are the other thinkings about the member exclusive campaign here? We believe that when it come to doing value because of size, this actually is a disadvantage if you think about it.
Why? If you are a small business, if you have 1 store today, if I run the promotion, very deep promotion, it costs you this much. Today, we have 5,000 plus store for KFC alone. If we want to give a view of the value, it costs so much. So when it comes to value, we become less agile compared to our competitor actually because we are so big.
It's okay. It's okay. We have a way to address it, we believe, which is if I only focus on our members, then suddenly I'm not talking about 300,000,000 customers that we are targeting. We are only talking about 100,000,000 customers. Then we can afford that value.
Suddenly, the value campaign become more affordable. I hope it makes sense. And we've been doing that again and again. And we do find that the value perception towards our brand among our members is a lot better, a lot better now because we focus on giving member exclusive value because we want to spoil our members. So if you are not our members yet today, download our APP.
Lot of good stuff there. So we also have customized offers. So Johnson talked about Tuesday is KFC day and I also want to talk about Monday is Pizza Hut's day. So we have quite a few brands, so maybe in the future, Wednesday Thursday for other brands as well. But right now, Monday Tuesday, the members stay for 2 big brands.
And we also do free trial and Johnson talked about it. What's really fun and exciting about it is we only give away 2,000 portion for trial for new members. The cool thing is you can have it before everyone else, before all the customers in China have it. You can try it. So we gave away 2,000 free Cheezer.
The really cool number is we got 1,000,000 customers sign up for it. That's pretty cool. We like it. So we'll continue to do it. So now we have enough numbers of members.
In the earnings call, I talked about now we have the quantity, we want to achieve quality, how are we going to do it? And this is pretty straightforward. I don't think there's anything sort of that special about it. I think it's just a normal sensible next step is we're going to segment our customer from fans or mass customer, it's about the reach, lower cost of reach. Right now, we can reach them at relatively lower cost to frequent user, to heavy user and to brand lovers.
And then we have different slightly different program for different type of customer. Again, very common sense that for the welcome member, the product launch, so when you join, I give you some data driven coupon and product launch or integration via Keiko. So this is a very fun game. If you have our app, there's always a little game that you all you need to do is just press it and shake, shake, shake, shake, shake it. Try your luck today.
It's a silly little funny game, but somehow it's so popular. It burns so many or so much Keiko that we couldn't believe. But it's about just a little entertainment. Just light up your day a little bit, right? And then for the privilege member, we focus on the lifestyle and then for the brand champion who is really, really loyal, we want to talk to you.
You give us feedback, we want to reward you with Keiko. We want to talk to you directly. Please come talk to us. Don't talk in Weibo. Whatever negative comment, we want to know, but come to talk to us directly.
What about Pizza Hut? I talk a lot about KFC Pizza Hut. The direction is very, very clear. We launched CRM and delivery for the July version and then here come to the November version. The November version, what's the difference?
I hope you can see the difference. It look a bit more stylish, right? The design is a bit more trendy. And also, we are going to add the mobile self ordering too. I mean self ordering for casual dining is slightly more complicated than the fast food restaurant because the menu is a bit longer, but we believe it still can be done in the picture and the layout and we are learning.
If I have to make one more point about the Pizza Hut Super App is the same idea that when we do KFC Digital, we divide up the customer service experience into very small little point and focus on it. We're going to do the same thing for Pizza Hut, but it's going to be slightly different experience, isn't it, because it's a casual dining. So let's say for the app that coming, we're going to add a little feature, which won't happen in KFC, which is called you can wait for your table via your phone. So you don't have to come in to register with a lady standing in the front, you can just register your table before waiting for a table. Something very, very simple, but just take the stress away from the customer.
So KFC will continue to push ahead and try as many cool new things as possible and Pizza Hut, we're going to learn diligently after that, while making some changes to fit the different casual dining business. So that's the digital session. Let's talk about delivery. Let's spend a little bit time on the delivery. Delivery is important to both Cassey and Pizza Hut, and that's very, very clear to both brands, and the teams are pushing for it.
However, we believe this is a huge business for Yum China. We need to support the growth of delivery business in the brand at Yum! China level as well by having some thoughts about how to do it consistently across the brand by learning from each other. So it's a bit like this is a very, very promising young man. He is independent, but parents do want to help a little bit in our own way, but not too much, but in our own way.
That's the sort of the relationship. So KFC and Pizza Hut are the number one delivery brands in our respective categories with key value differentiators. So what are the key differentiator we want to defend and protect? Food, quality of food. So our menu our delivery menu is not the same as casual dining.
For long, long, long, long, long time, KFC did not deliver French fries, because by the time it reach you, it won't taste good until we figure out a way to do the French fry, the more chunky one, so by the time it reaches, it still tastes nice, then we start to do it. So we just don't compromise on food quality, and that's number 1, even it means no business. Service, why KFC have all our own riders? Because of service, reliability of service, especially during bad weather. When the demand starts to surge, that's how we make sure that we meet the customer demand.
Network, 5,100 delivery units, over 800 city. I think that footprint is pretty big Even compared to it's not as big as aggregators obviously, but for 2 brands, for 1 single company, that's a pretty big network. Again, for delivery business, we apply our same similar discipline to look at different segment of the customer experience and ask ourselves how could we do it better. So from the brand itself, that's one of the reason why we put home service and Pizza Hut casual dining together because from customer point of view, they want 1 brand. They don't want to be confused.
They don't want to be mistaken by it. And then we have our own delivery only value promotion, only for delivery platform, not for dining, not in the stores. We can order it anywhere, everywhere and Johnson already gave you an idea that right now, you even have to you can even order it for the high speed rail, but I have to remind you, you have to do it when you buy the ticket, I think, before the journey might be a bit too late. But that give us ideas, what are the other challenging, what are the other occasions, there's outside of store that they can order, something for us to think about and to work on. Easy to order, the touch point.
What about the package? What can we do with the package? So we have delivery specific packaging design and we need to continue to work on it. Even this particular food drink for Pizza Hut, this is designed for delivery. When it because in the past, we always served the drink in a glass, but for this particular product, it comes in a plastic cup, Nice one, even installed, come in plastic cup because it help the delivery business as well.
And even for some particular festival product, like this is the Chinese New Year the Christmas, the kaoji, the whole roast chicken for KFC, it was very, very popular. It's only for delivery only. It's not available for the store, and you have to reserve in advance. So delivery right now, we look at it as a separate business with a bit different customer need. That's just a bit different from Dine.
So the delivery network expansion, as you can see here, again, the massive increase is mainly driven by the pizza casual dining restaurant that add to the network in the last two years. It drive our growth it has driven our growth. And then we have 2 business model, one is the KFC 1, so 3,000 delivery store use KFC riders only and then Pizza Hut 1, 2,000 store use both third party and own rider. And as a company, the delivery business is 14% of Yum! China right now, and the growth for the Q3 compared to the previous year is over 50% for 2 business combined.
So if we looked at it as a separate business across all the brands, what can we do in the future? We're going to focus on 4 areas. One is campaign innovation, the other one is digital innovation, daypart innovation and network expansion. Campaign innovation. For example, this is the platform, what we call the platform for KFC delivery called Wow Bucket.
It's only for delivery. So if you buy, you can buy whatever you want up to JPY 80, JPY 100, then we give you 20% off. It's very simple mechanism. But it's brilliant because it's customization. But it's very simple customization that's driven by yourself.
And it's very difficult for the store to do. But on the delivery platform, it's very easy to do and customers got it right away. And then for each campaign, right, for each campaign, when we run certain massive campaign, then we might utilize it for the delivery or they can have their own campaign designed just for delivery. So when we use Lu Han for the fried chicken and for a long time, the Wild Bucket used Chaosan, who is a comedian. So it's a different way to tackle the campaign innovation.
And then value, we will we'll have value programs just for delivery business as well for both KFC and Pizza Hut. So we have the everyday one. Why we can do that but not in the store for example, KFC because ticket average for KFC delivery is like twice as those in a store. So for that alone, we can afford to run a 1 year promotion for 1 product because you will buy the other product and we net net, it still work. But it works here.
It doesn't work in the stores. So they will have their own value program. Digital. Digital innovation, obviously, 90% of our order coming from digital. So this is in terms of marketing campaign, everything is through the digital.
This is the way to go. But at the same time, we invest quite heavily behind the scene in the IT system to help our delivery rider to deliver to shorten her deliver speed to improve the customer satisfaction. Daypart. Delivery has their own daypart as well. It's a bit different from the dining too.
The breakfast, the convenience make a huge difference And also it's a habit. So when we sell the breakfast business, like we call breakfast coupon, you buy 10 breakfast coupon or 20 or 30. Why? Because while for dinner, you want to try something new each evening, for breakfast, you want to have something similar every morning. So it's okay if we sell you the 10 coupon for the breakfast business while delivery.
Afternoon tea, mainly for the urban professional, very target. Coffee, very good for delivery as well, iced coffee in particular. And then the special occasion because you have to go into our website to super to reserve it. So we have very clear sort of campaign program for delivery business themselves. And Johnson talked about it already.
So high steel railway, we're very excited about it because the food tastes so much better than whatever the bureau provide. I think we all have enough experience. So compared to the theme of stay true in high, let me summarize the delivery session in the with the 2 following points. Point 1 is other than all these campaign innovations, digital innovation, etcetera, etcetera, naturally, what else are we thinking? We are thinking about it.
We are planning, so not ready to have a concrete plan to be shared with all of you guys here. But we are starting to think about we have the delivery rider for KFC, we are the delivery rider for Pizza Hut, We also have the delivery rider for Sheper and Daojia. What can we do better? How can we get more efficiency out of it across different brands? It's a natural and logical question.
We are certainly thinking about it. So by the time we have a concrete plan, we'll come back to you guys. The last point is what I want to say is I'm very excited about the brand. I'm very excited about the business, the brands, I should have said the brands. I'm very excited about the business and I'm very excited about the team.
I think this is a fantastic business. In the short term, the role might not be that straightforward. We have a lot of challenges, particularly in Pizza Hut. However, the long term opportunities are good because the foundation is so solid and unique and special. And I don't only say about this now.
Actually, when I joined the company 3 years ago, September 15, 2014, the vibe of the company was very different because KFC was having double digit negative comp growth. For a brand like this, double digit negative comp growth was very difficult. However, even with double digit negative comp growth, it could not take away my excitement towards this particular very special and wonderful company. So with that said, I'm going to ask Jacky to come up here to share with you some numbers. Thank you very much.
So thank you, Joey. Good morning, everybody. Before I get started on our financial update, I would like to take this opportunity to quickly introduce myself since this last year before the spin off of Yum! Brands. And prior to that, I worked last year before the spin off of Yum!
Brands. And prior to that, I worked for Ernst and Young, including 5 years as a partner and the last 2 years as the Deputy Head for the Capital Markets Group for the whole Asia Pacific region. So out of my 17 years in the public accounting profession, 10 of those years were based in China, including 5 years in Shanghai and 5 years in Shenzhen. So throughout my professional career, I have had extensive experience working with U. S.-listed company, advising them on SEC reporting and compliance as well as capital market activities.
So I was really excited to have the opportunity to join Yum! China last year. But apparently, my 2 kids were even more excited than I was, Because you see, they used to have trouble explaining what my job was. But after I joined Yum China, they simply just tell people I sell pizza and fried chicken. So let's get started on our financial update.
As you have heard from Mickey and Joey earlier, our theme this year is Stay True, Aim High. So in the first part of my presentation, I'll talk about the core of our business model, how we stay true to our priorities and how we create value for our shareholders. In the second part of my presentation, I'll talk about what we aim to achieve from a financial perspective. So let's begin with how we stay true to our core. So many people ask me why I decided to join Yum China.
So let me start off by summarizing what I think make Yum China unique. So first and foremost, the management team here is one of the best is one of the most experienced team of restaurant operators out of the whole China. And because of these exceptional leaders, we are the top restaurant company in China with over 7,700 restaurants. And we have about 80% of which is equity owned. And for years, 2 to 3 decades, we have been successfully operating 2 major global brands in KFC and Pizza Hut.
And late last year, we were very excited to introduce a 3rd global brand in Taco Bell to China. So another unique strength of Yum! China is our nationwide supply chain, which was built from the ground up, and we have been fine tuning that over the last 30 years. So this is a competitive advantage that is very difficult to replicate in a short period of time. And last but not least, Yum!
China is a unique investment opportunity for investors because our shareholders get exposure to China growth through a U. S.-listed company with a long history of Western corporate governance. So going forward, we have a very clear plan on how to create value for our shareholders. We'll stay true to our 4 top priorities. First, we'll continue to drive system sales growth by building net units by adding net units.
2nd, we'll continue to focus on growing our same store sales, which is always our number one priority. And third, we will aim to control we'll aim to keep our restaurant margin as well as G and A costs under control. And finally, we'll be disciplined, but at the same time, we'll be strategic with our capital allocation. So I'll elaborate more on each of these priorities throughout my whole presentation. So let me start with development.
So today, we have more than 7,700 restaurants present in over 1100 cities. And we have committed to opening 550 to 600 new restaurants on a gross basis this year. So this means on average, every day, we open about 1.5 restaurant. So on top of that, all the new openings, we continue to upgrade our existing restaurants to refresh our brand image. So since January 2016, we have remodeled over 1200 restaurants across China.
So that's equivalent to remodeling 2 restaurants a day. So under Angela's leadership, I think we have the largest development team unmatched by any other restaurant company in China. Our 1,000 plus team members, they basically cover the whole every province in China with extremely valuable know how at the local level. And we have invested heavily in their training so that they are well equipped to operate effectively. And aside from our people capability, local intelligence is also very important.
So since many of you are experienced investors in the China market, I believe you would agree with me that reliable data is not always readily available. But at Yum! China, we have built up our own database with every single one of our site selection decisions, so which we can easily reference to for our future new builds. But despite our large scale, we still take a vigorous bottom up approach to our development. We evaluate our site selection proposal 1 by 1, and we get inputs from our development team, brand team, finance team to ensure we make informed decisions on every single site development.
And also we actively monitor the performance the financial performance of our new units. So this create a cycle of learning that helps us to make better and better decisions on future unit development. Now moving on to our new unit economics for KFC and Pizza Hut. Our average unit volume is typically higher in the higher tier cities. But at the same time, our operating costs are also higher in the higher tier cities.
So net net, in the end, our cash margin are quite consistent across city tiers. Our average pretax cash payback period is about 2 years for KFC and less than 4 years for Pizza Hut Casual Dining. And for both brands over the years, the size of the restaurants has gone down because of delivery. But cash margin has improved. And also our development team has made a concerted effort to lower the cash investment amount.
So this is why we were able to sustain and even improve on the pretax cash payback period for both brands. And finding the right locations and maintaining a consistent return profile in China is not an easy feat because traffic patterns are evolving as new trations develop. So how do we manage our return profile? This is where our local experience and scale give us a competitive advantage over our competitors. And I already touched on these aspects on the previous slide.
So I want to give you some background in terms of how we define our city tiers. So we classify China into 6 tiers, based primarily on the size of the population and the affordability of our brands. The Tier 1 cities are the well known development regional centers, but the Tier 5 and 6 cities are the county level townships that have been urbanized not long ago. So our geographical mix is gradually shifting from Tier 1 to the lower tier cities. But we will continue to invest in Tier 1 because there continues to be opportunities when new chase zones and transportation infrastructure are built.
And for the lower tier cities, we see even more room for development in the future. So many people have asked us whether we will be consider or we will consider switching to a franchise led model like our peers in the U. S. Our response to that is, we'll continue to drive growth by building mostly equity owned stores. This is the right model for Yum China because we believe China continues to be an extremely attractive market for capital investment.
And I also believe that our equity store model represents how strong our management capability is, our commitment to quality and also our financial strength. So we will continue to capitalize on the fantastic growth opportunities in China. So let's take a look at Yum China's leading position in China's restaurant industry. So KFC has a 2 to 1 lead over its nearest competitors in terms of store count. And Pizza Hut has almost 5 times as many stores as its nearest competitor.
And because of our development capability, we believe we are able to enter into new markets way ahead of our competitors. And also we are able to open multiple formats across different brands, city tiers and trace zones. Our supply chain is another key capability that allow us to stay so much ahead of our competitors. And you'll hear more about this from Danny, our Chief Supply Chain Officer, later this afternoon. So in terms of how many more units we can add to our system in the future in China, you have already heard about this from Mickey earlier.
We believe we still have a long run rate for growth in China because of our penetration rate and also the macro environment here in China. So our current restaurant penetration rate is about 5 restaurants per 1000000 people. So that compares to about 55 to 60 restaurants per million people in the U. S. And about 25 to 30 restaurants per million people in other Asian countries.
So even at a modest penetration rate of 15 restaurants per 1000000 people, we still have room to grow our store count by about 3x to over 20,000 restaurants. So one thing that China is experiencing right now is an unprecedented rate of urbanization. China's urban population is already bigger than the whole the entire population in the U. S. And this is still growing.
So we believe China continues to present a great opportunity for unit development and we'll continue to capture these opportunities with discipline and focus. Now moving on to same store sales growth. We have recently reported on the 3rd consecutive quarter of increasing same store sales growth for Yum! China and for KFC. The trend is very encouraging.
We are definitely moving in the right direction. And for Pizza Hut, same store sales growth was actually positive for all three quarters in 2017. But we'll continue to invest in upgrading the products and services at Pizza Hut Restaurants, which may create some pressure on our margins and operating profit over the next few quarters, but we believe this is the right thing to do for the long term health of the brand. We believe pizza has still has great potential in the casual dining category in China. Now let's take a look at how we plan to drive same store sales growth.
Since most of our restaurants are equity owned, so we must focus on driving transaction and same store sales to achieve sales leverage. On traffic growth, we use a combination of product innovation as well as marketing campaigns to attract customers. This year, we have launched over 70 new products across our brands, and we are already planning on our new product calendar for 2018, and we believe they will be just as exciting as this year's. And our view on marketing is that we do not want to be overly promotional because we think that excessive discount on our core products will eventually compromise our margin and brand value. So instead, we want to attract customers by giving them great value offers.
So this is how we define it. It's a 5 star dining experience at a 3 star price. So these value offers really help us build traffic across our dayparts this year. So let me give you an example. I'm sure most of you have looked at the Arabica videos earlier.
So we launched this high quality coffee brand coffee product, and we aim to offer this product basically to all of our stores in the future. But for RMB 20, you get 16 ounce or about 4 68 milliliters of very high quality coffee. This is freshly brewed latte. The price is extremely competitive in the market. And in fact, our coffee business has expanded so rapidly, I believe we are now one of the leaders in the coffee category in China based on the number of cups sold.
So on digital and delivery, you have already heard from Joey earlier, this is a powerful tool to drive same store sales. And also our loyalty customer program give us a great source to gain insights into our consumption behavior or into the consumption behavior of our customers. And we will harness the information and data to create incremental sales in the future. Now let's take a look at our restaurant margin. In the second half of twenty sixteen and the first half of twenty seventeen, there was a positive impact from the retail tax structure reform or the VAT reform in China.
But this is no longer a tailwind since Q3 this year. So going forward, we'll focus we have to focus on system sales, cost control as well as productivity initiatives to improve our margins. The single biggest driver of our margin improvement is transaction leverage as we drive same store sales growth. And we have already touched on this extensively on the previous slide. The second most important factor is inflations.
Whether we can keep our restaurant margins stable depends on our ability to offset inflations through pricing and also productivity gain. As a general rule of thumb, we will look to price out inflation. And when we decide on the timing and magnitude of our pricing actions, we will take into account the momentum of our same store sales growth, the consumer sentiment as well as the general macro environment in China. So for example, in the first half of this year, food and commodity inflation was about 4%, but we took minimal pricing. The reason was we wanted to return the value to our customers and to create core value for our brands.
And our supply chain teams also work extremely hard with our suppliers to negotiate price and to identify cost saving opportunities whenever possible. So I think our procurement strategy is one of the best, if not the best here in China. And also I believe as we go continue to grow in scale, we'll achieve bargaining power our bargaining power will increase as well. And finally, on labor efficiency. Depending on the momentum of our same store sales growth, there are potential opportunities around productivity initiatives, particularly on operating efficiency.
Wage increase is an inevitable nature of reality in our business. So we have to adjust the salary of our restaurant crew based on the minimum wage requirements set by the government. But what we can do is, we can work on scheduling to help our staff more work more efficiently. And you have already seen some of the installed technologies in Joey's presentation earlier. For example, like pre order, the mobile payment, face to pay, etcetera.
So these technologies are tools that help us reduce the workload on our staff and also help to speed up our services. And we are absolutely committed to improving our labor efficiency without compromising on the quality of our product or service. Now let's talk about G and A. We are currently in our 1st full year as a public company listed in the U. S.
So we incur additional G and A costs to support our governance, reporting and compliance requirements. For 2017, we expect G and A increase will be about low teens percentage year on year in local currency. But this sets the new base of our public company G and A cost going forward. So as management, we will actively manage the increase of our G and A cost. And we are working across functions to analyze and also enhance and optimize our G and A cost structure.
We are committed to identifying G and A cost opportunities whenever possible. So let me give you an example. We set up a shared service center in Wuhan, where some of our back office and also the more routine processes are located. The labor cost in Wuhan is much lower than the labor cost here in Shanghai. But yet, Wuhan has over 40 universities.
So there's a pool of very well educated young talents that we can recruit from. And we're always looking for ways to do things better here at Yum China. This is a very well established culture here. But in the longer term, our goal is to keep the increase of G and A below our revenue growth. So this will be our aspiration going forward.
So one of the most powerful aspects of Yum China's business model is our capability to generate substantial cash flow and the fact that our balance sheet has 0 debt. Between 2014 2016, our free cash flow actually grew at a CAGR of 26%. And in the 1st 8 months in 2017, we have generated close to US1 $1,000,000,000 of cash from our operations. As a restaurant company that operates mainly equity owned stores, I think this is quite an achievement. And also at the end of August, we have almost 1,600,000,000 yen in cash and short term investments.
So you all know we generate enough capital to reinvest into our core business and also support our new unit development, but we also have extra cash to return to our shareholders. And so far in 2017, share buyback has been the primary method we use to return capital to our shareholders. Our Board of Directors offer us to buy back shares at about JPY 550,000,000 and by the end of August, we have executed JPY 128,000,000. And also this quarter, we declared our initial quarterly dividend at €0.10 per share for a total of €39,000,000 And last but not least, I think most of you have already heard about this presentation yesterday from Sunny. Back in May, we acquired DowJia for strategic reasons.
So as a public company that is not even 1 year old, we have successfully executed on all three aspects of our capital allocation plan. And most importantly, we deliver on our promises to our shareholders. So we are very confident in the long term in our cash flow generation capability and also in the strength of our core business. And for 2018, and we'll as you have heard from Joey and Mickey earlier, we'll continue invest into our core business. This is our top priority.
But we have existing authorization under our share buyback plan. So we aim to buy back more shares in the most opportunistic and cost effective manner. And also we aim to pay higher dividends on a per share basis, subject to our capital needs. So finally, we will implement various strategic growth initiatives that leverage on our core business and our unique strength in China. And the focus will be here in China as you heard from Mickey earlier.
Now I would like to share with you what we aim to achieve from a financial perspective. So to recap, our ongoing financial targets are high single digit system sales growth, a long term restaurant margin of 17% and also double digit operating profit growth ex FX. And over the last 2 or 3 quarters since we have become a public company, we have been encouraging our investors to focus more on our long term operating profit growth. Although year on year, this is never predictable. So there may be a year here or there that we may miss the long term target.
But in the long term, we are confident that Yum! China will achieve double digit operating profit growth. So over the next couple of years, we would encourage you to focus more on our overall operating profit instead of our EPS. The reason why you should focus on operating profit growth instead of EPS growth is because there are multiple factors that cause volatility to our EPS. So let's take 2017 as an example.
There are 2 factors that caused significant volatilities to our EPS growth. The first factor is our effective tax rate. Well, our current effective tax rate comprises 2 components. The first component is the China corporate income tax rate, which is 25% And the second component is the 10% withholding tax whenever we repatriate cash out of China. So the more cash we repatriate, the higher the effective tax rate will be.
And the impact so the impact on our annual effective tax rate depends on our plant on the amount of cash we plan to repatriate in a given year. And as you can see on this slide, the first 8 months, our effective tax rate was already higher than the effective tax rate for the same period last year. But for the full year, we expect our effective tax rate to be no higher than 30%. The second factor that's caused significant volatility to our EPS growth this year was our diluted share count. So if you look at our diluted share count at the end of August this year versus our diluted share count at the end of August last year.
That was a 9% increase. It was mainly due to the common shares as well as the warrants we issued to our strategic investors upon spin off on November 1, 2016. Also, some of the share based awards we granted to Yum! Brands employees earlier that were carried forward after the spin off as well as share based awards we issued to our own employees. So going forward, as the share price increases, the dilutive impact from the warrants and the share based awards will also increase, which will lower our EPS growth.
But however, our buyback program will offset some of these dilution impact. So this concludes my presentation for today. Thank you.
Thank you, Jackie. Now we'd like to open the floor for Q and A. Because of our time constraint, I appreciate if you keep to one question and one follow-up.
Yes, take the question in any order that you like. But I expect that a lot of the questions will be directed towards the speakers who spoke today, which is Joey Johnson, Jackie and myself. But just as a reminder, our entire leadership team is present here. We also have people like Connie, who's our Head of Central Planning. We've got Melissa, who heads up our tax.
So we'll be happy to take your questions. So I think it might be best, Elaine, if you can pick the order of the people asking questions and then we can answer them to the best of our ability. We have about 40 minutes, so should have plenty of time.
The gentleman at the back, please.
Is this working? Okay. Since most of the KFC stores have been remodeled about 80%, what would be the run rate for maintenance CapEx over, I don't know, next 5 years or so as a percentage of total CapEx that we see in the investment part of the cash flow statement?
I don't know whether we've given that number up. I think we may have some issued some directional numbers with regard to maintenance capital as a percentage of total CapEx. But I don't want to give you a wrong number off the cuff. I don't know, Jackie, whether you can help or Joey with some information. But the essential point is that a lot of refurbishment was done over the last couple of years.
To get an estate up to 80% refurbished is quite a good achievement in our industry. And I will remind you that it can never be a 100% because many leases expire with 1 or 2 years remaining and it's no point redoing those stores. In other cases, there are technical reasons why refurbishments cannot be done. So I think we are in a pretty decent position as of now. So as regards the total CapEx, I think we've given some numbers out before, Jackie, of the total amount of CapEx on existing stores, I think, was the order of about $400,000,000 as I recall.
And approximately 25% of that also would be towards maintenance. But I don't quote me on that. I mean, you can quote me, of course, but we have to verify those numbers and get back to you with exact. But the bulk of the exist of the total CapEx is towards new construction. So Jo, you want to add?
Without talking about the number, maybe it's helpful to talk about our thinking behind the remodeling. Even though the state will be 80% remodeled by year end, we will and we need to continue to invest because with the bulk of our estate, the store actually age quite quickly reinvest. In the past, we look at 7 years as a time to reinvest. Right now, we look at 5 years because customer want a new store, our store cannot wait for 5 years. Actually, 5 years is the total remodeling.
We also have the partial remodeling. Every 3 years, we do it. So the actually, as the state grow bigger and bigger, we need to continue to do that. Otherwise, they age very quickly. Johnson talked about 3.5 years.
3.5 years after 3 years, really hard to kind of go down to the path that we don't want to see. We have a range. So typically, full remodeling costs about RMB 2,000,000 plus. However, we have partial remodeling as low as RMB 500,000 or RMB 1,000,000 or RMB 800,000 is a range. The way that I looked at it is the parent are quite rich.
We can say that we are quite rich. We have a lot of cash, but each kid need to be on his own. So how much are we going to put into each store? Well, how much can you afford? Each store, that drives the decision more than there's a standard formula.
And also there's a variety of reason like a busy store like Beijing. We even though the kid can afford full remodeling, but we won't do it because the full remodeling, we'll shut the store for 30 days. If we do partial remodeling, so we in between the holidays, the busy time, we have little gap and we do some remodeling. Maybe 2 months later, we do another bit. So quite flexible, but the key thing is do the right thing to give the customer best experience with minimum impact on the sales because the biggest cost of remodeling is not the remodeling cost.
The biggest cost of remodeling is the lost sales. So we wait against the time and the cost, and we have a flexible model to address it. But our key goal is nice stores for the customers and for the employees.
Okay. Let's take the next
question. Christine?
Hi, management. I have two questions for Joey. So I guess, earlier this year, when you were appointed as President, you did mention 18 to 24 months of time spent for turnaround Pizza Hut. So given the time you have spent with the brand, what's the target now? Is that still on track?
Or can we expect it to be sooner than the timetable? I think that's the first question for Pizza Hut. Follow-up question is, you mentioned that the integration of delivery platforms among 3 brands, obviously, you have Pizza Hut, KFC and now you have DowJaa. So I know right now, it's a bit too early to talk about concrete details, but is there any timetable we can hope for? Thank you.
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Thank you, Christine. For the first question, 18 to 24 months is still roughly the schedule. We believe that we're still on track. Obviously, we set the initial target and then when we start to go down the road turnaround, there are many new things that we are learning and will maybe push back here or push us us a little bit more, but we believe that's still sort of the schedule we are shooting for. If we at the point that we learn that, okay, we need a bit more time in certain area, we certainly will communicate in the right place and right time.
For your second question, so what we are doing right now is take the practical approach. What is the practical approach is between Pizza Hut Casual Dining and Pizza Hut Home Service, we are consolidating the rider operation. And we are working on the system integration because we need to make sure the system talk to each other between the two business. And this is a very intricate process, and we're doing it carefully in a solid and robust way. And then on the other side, Daojie and ShepE, there are some probably not probably, I'm sure there will be there are some learning between Daojian and Shepa in terms of rider operation that we can learn from each other and consolidate.
So these are happening at the same time right now. Is there a time frame about the further integration with KFC? We don't have a time frame yet because we always push ourselves. But in this particular case, the technical capability and technical process matters. It's okay.
We can do it with good pace. But right now, they are sort of happening at the same time. KFC is left alone. KFC is doing very well. Obviously, this is our most important business.
And if at the time that we can see there's opportunity for further integration, we'll certainly think about it. But let's take the practical approach about the Pizza Hut and the DowJian and Sheppard first. Thank you, Christine. John, at the back.
Thanks very much. I wanted to just follow-up on the pace of developments. You said 550 to 600 gross units. Is that a long term target? Miggy, you talked about sort of the inefficiency in tax leakage of spending your money by exporting it to the U.
S. So is there a goal to accelerate that process at some point, better use of cash here than saying the tax leakage? And can you talk a little bit about current trends in development? For example, are malls still a good idea in China from a development standpoint? Are rents becoming prohibitive on high streets that's changing the way you where you open and how you open and size of the stores?
If you could comment on those.
Yes, sure. Thanks, John. I think my mic is still working. Okay. A couple of things, John.
One is and this question came up during the break to me as well. The more we can spend on new store development, the more we will spend. That's our first priority. So if we could accelerate our new unit build rate, of course, we will do that. The thing is the criterion for doing that is not just a target for the sake of a number, a round number of 20,000 or 10,000 or whatever.
It's based upon the returns that we are getting. Now the world over development tends to be a lagging indicator. So if you get strong same store sales growth, the pipeline enriches and vice versa. I think on KFC, as you saw, the cash and cash payback numbers are better than what we had revealed before because the sales have been very good. And Pizza Hut is behind KFC, but it's still respectable.
At the moment, I think you should look at $550,000,000 to $600,000,000 as kind of shorter term guidance. Thereafter, it depends. If you can Taco Bell is a lucky strike extra. If that happens, I think it's at the moment, we are in no position to say how big it will be because we just got one store. We're building out some more now in the next couple of years, and we'll see how the response is.
We could do other brands, which we could theoretically do under our new status as a public company, independent. We can do those. So I just want to reassure you that a question kind of related came up to me in the break was why you're returning capital to shareholders? Why don't you spend more on the existing business, especially because of the tax advantage? And of course, we'd love to do that.
We'd love to prioritize to do that. We did a very detailed reckoning of our cash flows for the next several years and concluded that even with the most ambitious of newbuild targets as well as really good refurbishment programs, the cash flow in this business was so strong that we felt comfortable initiating a dividend. And we felt very comfortable with our existing cash because we're sitting at $1,600,000,000 of cash and that typically dilutes our returns because you know what the interest rates are like. So we don't want to hang on to that money. We would love to so we've got authorization now to spend over €500,000,000 on buyback.
The dividend is relatively modest. It's €0.10 a share. So even at the current yield rate, it will be relatively small. We've got significant dividend cover. But to your original question, John, if we can accelerate the new unit build rate in some stage, then we will definitely do that.
But the criterion for that will be returns. It's just really very good quality returns. The other is kind of related to the first question that was asked is that we significantly operate on leases here. We don't own property, significantly leases. Now going forward, that could change.
It depends on new lease laws are coming. There's new accounting standards coming on the way leases are treated. Anything is possible. But our first preference would be to use as much capital as we can in China as physically possible for Plattico.
And I'm sorry, just type of formats in terms of in line stores, stand alone, drive thrus, malls, is there a change in that?
Well, there are nuances. I think all channels are pretty productive right now in China. Unlike the United States, malls are still attractive because malls are very flexible here. They're moving rapidly into entertainment and to other food and other formats so that the traffic continues. I think in general in developing markets with air conditioning in the summer and everything else, malls continue to be a destination.
So we are building in malls and our experience has been pretty good. I think the one that is really standing out is high traffic locations, high speed rail, for example, which is very productive for us, very good returns as well as a rapid build out in the infrastructure. But we are and I think as Jackie referred to, just the physical size of China's development, the Tier 5, 4, 5, 6 cities will be a faster rate of growth. However, I think one of Joey's biggest contributions was turning around Shanghai and Beijing, And we're seeing new found signs of being able to invest productively in these markets as well. But broadly speaking, we're investing across the spectrum and malls in line, high speed traffic locations, as you can see in delivery very aggressively.
I think long term, probably lower tier cities will take a greater share as we go along. Yes, sir?
This is Xiaopo Wei of Citigroup. I have two questions for Joey. I think the first question is about your plan to revitalize Pizza Hut business. You talk about initiatives. In your mind, what are those most difficult job to do and what are the easiest part or the low hanging fruit?
And a follow-up question to that is, we are seeing that as you are integrating the home service with karaoke dining for Pizza Hut. But if you in the long term, you're seeing your basic or your foundation for your business is you have a great number of KFC loyal members. So have you thought of taking advantage of that resources to help Pizza Hut in the long run? Although I know that it is a different positioning, different business model, but what is your on your road map to that business?
Thank you. For the Pizza Hut initiative, turnaround is challenging. I don't know if that's really quick obviously quick and obvious low hanging fruit. However, we do see attractive opportunities in working day lunch day part. That was, therefore, one of the first initiative we test in Shanghai.
Why? Because it is about speed, It's about value. So we tested very quickly in Shanghai, 9 store, and then we already rolled it out to Beijing and Shanghai. Our goal is to get the customers back, And that seems to be the most exciting day part because KFC, the breakfast business is very big and it's a good way to build traffic. But Pizza Hut, our breakfast business is not so big.
Our working day lunch daypark actually is quite sizable. So we are obviously working on it. And we invest and we invest. We give very good value. So for Pizza Hut Shanghai or Beijing, the starting point of working day lunch is only JPY 35.
You can get a main course, which could be spaghetti or pizza with a salad and a drink for JPY 35,000,000. That's very good value. Your second question, in terms of the most difficult part, food. Food, we have very extensive menu because it's a casual dining restaurant. And KFC compared to KFC, KFC food is quite focused target, fried chicken, right?
We're good at fried chicken, fried chicken, fried chicken. We come out with different flavors, fried chicken, and there's a such loyal group of fried chicken customers. With Pizza Hut, we our menu range is quite big, although pizza is the biggest one. But there are more challenges to fix the more extensive menu than a shorter menu, put it that way. But we will continue to work on it with our utmost sincerity because I use the word sincerity a lot because I do believe food is about sincerity.
I love food. It's hard not to like your friend who always give you good food. So we will do our very best to put in the best ingredient that we can do and we can afford to our customer to win by our customer. In terms of integration, there are things that we can leverage from KFC for sure. For the digital technology, super app, that's a very good example.
Without KFC's learning capability, success of the super app, we won't be able to come up with the Pizza Hut super app back to July so quickly. It was very, very quick launch because of KFC. So we'll continue to leverage on it. And then also, obviously, KFC has much bigger member base, 97,000,000. And the Liulian, the traffic flow from big to small, I don't think we need to explain it, it will be helpful and we will use the family's help, put it that way.
Thank you.
Lillian? In France, please. Thank you.
Thanks for management for the great presentation. I have two questions. First is on the integration of Pizza Hut Home Service and Pizza Hut Dining In. So when we evaluate the existing stores or locations, is there anything that's significant we need to kind of look at the store locations right now? Are there going to be big closure?
Or are we going to see some empowerment that's significant in Q4 next year? 2nd question is a follow-up question on Joey comment on breakfast because we noticed that during yesterday's store tour, it's quite a highlight of breakfast even every store. So basically on the door of the store. So can management share with us about the breakfast contribution right now for both formats? Thanks.
For the integration, we okay. First of all, let me point out that the store portfolio, Pizza Hut home service store portfolio focused on 2 places, Beijing and Shanghai. So it's not a national phenomenon that we have to tackle. And then within Beijing and Shanghai, we also, of course, given our retail background, we look at it store by store basis. It shouldn't be a surprise.
And we look at the trade zone because it's just like KFC, right? We have many stores in the trade zone and then we look at it as a trade zone. Can we support the trade zone with our existing store portfolio? Then we'll take a decision. Your question about the impairment, we always optimize the store portfolio, whether with the integration of the 2 brands or not.
It's a healthy move, by the way. There's always like 3% to 5% sort of the change of the mix in any retail business. So we look at the closure, we look at the potential opportunity, whether we can serve the trade zone and then we'll take a decision on store by store basis. Would that be a bit more than the past? Possibly.
Possibly. However, depending how do you look at the impairment number because this particular 2017, we have a little bit of benefit, which is KFC's impaired number should come down a little bit because the we have already gone through the cycle because it's a cycle of sorting out the negative UC store, negative closed store. So KFC should have a bit saving that allow us the little opportunity to take impairment for Pizza Hut if we need to. So net net year on year shouldn't be a surprise, I would say. In terms of the breakfast, the specific number, I think the finance team can get back to you guys.
But what I can say is breakfast has been a highlight of growth this year, which is lovely. We don't make a lot of money from breakfast because breakfast is about value. Because your budget for breakfast is slightly different for lunch. So we don't have the same profitability for breakfast compared to lunch per se. However, it's a very good business this year for a variety of reasons.
Coffee helps, but the rice roll that you guys saw, that helped massively because how many so that rise row, we end up having a lot of fun about it. But at the beginning, that was a hell of a product to do for QSR because it involves 7 steps to get the rice roll because it's done with your hands. It's not machine made. So we have to train our staff, each restaurant to do it properly and we even launched competition how to do how to be a master of doing the rice roll. So and rice roll and this is a little trick about that we learned about the breakfast.
Rice roll is not a national phenomenon, isn't it? Most of the part of China don't eat rice roll. They eat Dabi. They eat GM. They were the roll, the roll, not rice roll, but the other roll.
But when it's regional, when it's popular, it's rice, there's opportunity nationally. So even though breakfast it's quite hard to introduce breakfast item because we are so loyal to whatever we are eating. But if it's something that is popular enough regionally, there's opportunity to bring it to the customer nationally. So rice roll is a very good example. So we're happy we're very happy with the growth and we believe we strongly believe and we see that it built the transaction, which built a habit.
In retail business, I probably talk about in many previous occasions, building a habit is so important. Once your habit is formed, I got you. Pass to the middle to Zach, please. Hi,
thank you very much for the presentation. This is for whoever management And maybe just some detail in terms of how you take your competitive advantage in other spaces onto what's much more of an egalitarian platform that's kind of just ranked in a way that I don't know how much control you have over it? And the follow-up would be if you could give us any type of breakdown in terms of the share of your delivery, how much is coming from the aggregators and how much is coming from your own app, that would be really helpful. Thank you.
I'll ask Joey and Johnson maybe to give you some color on because they've been very actively dealing with all the aggregators. I think the our net judgment is that the aggregator business is here to stay. It's good, it's powerful. As you know, there was a recent consolidation where number 23 kind of merged and become 1. So there really is now 2 aggregators operating in this market.
We see them as a channel that we should actively use but not get dependent upon. And I think that's been the operating philosophy. KFC was far ahead of the game because KFC always delivered the last mile themselves. Even if the orders came through the aggregator, the delivery was done by us, which gives us control. The other part, I think, the team deserves a lot of credit for is that we keep the data in all cases.
So we are able to keep active data for all the transactions that are being done. Now there are a lot of nuances between KFC and Pizza Hut, so I'll let Joey and maybe Johnson, you can talk about the you're dealing with the aggregators.
I'll talk about the share and then Johnson can comment on context. In the earnings call reason the recent earnings call, we talked about the share of traffic from the aggregator is a bit different between the brands. So KFC, the share of the traffic not the delivery, the share of the traffic from the aggregator is about 50%, 60%. The rest is from our own app. Whereas for Pizza Hut, it could be about 70%, 80%.
It really depends on whether we run promotion. So it has a lot of quite a few factors impacting the numbers. So that's sort of the rough cut for the content, Johnson.
Thank you, Joey. For aggregator, right, we work together with those major player in the market for quite a long while. Even before they launch, we maintain a good relationship with them. So in KFC, we have a strong power on building our own and also distinguish between ours and aggregators. So although they have around 50% of this deck, but again, that is because of we have our own power on the pricing, on the marketing funding as well as what product we want to select to launch in our platform or their platform.
So again, we are not entirely up on the aggregator. So more we are cooperating with the aggregator to build our brand in delivery business. So we work together for new product and new customer. So on that angle, we are quite healthy in KFC. For Pizza Hut, right, mainly it's because of buy in, it doesn't have it didn't have their own app.
So the percentage on the aggregator are higher, but now we are building our own channels. So you can see the Pizza Hut portion for our own application will continue to increase. So that's the I think that's the healthy percentage what we currently see. We are different from the other brands. All of our customer, no matter whether they order via our own app or via aggregators, we own the data.
We own each and every of the customer data. We know what are they ordering from where, so that easier for us to understanding customer and serve our customer better. So that's the differentiate between us and the other brands. Thank you.
Before we wrap up the morning session, maybe we can have the last two questions. To the left side please, Betty.
Thank you, management. This is Chen Luo from Bank of America Merrill Lynch. I've got two questions. First of all, I noticed just now during the presentation, management commented that we are focusing on turning around Pizza Hut, but this may create some margin pressure in the coming few quarters. And can we elaborate more on that front?
Is it more because of store impairment related charges or more because of investment in food and other part of our business? And the second question is on competition because we also noticed that for some of our long term competitor globally, they have done a pretty good job in China as well over the recent few quarters with pretty decent same store sales growth, and they also announced to accelerate their store expansion in China. So would that have an impact on our own operation or have an impact on our own decisions such as the new store build decision? Thank you.
Well, the second question first, obviously, just like yourself, we respect our major competitors a lot. And we hope they do really well because that helps to expand the market. At the moment, from all that we see, we don't expect that to have an impact on our announced plans or the rate at which we are going to be building stores. Especially in the lower tier cities, we are in several 100 more cities than our competitors are present. But obviously, this remains an item like I said at the start that is subject to change.
I mean, the competitors get very aggressive. We have to react accordingly. But from what we've seen right now, we've seen the same press releases that you have. When they translate into reality, we'll react appropriately, but we don't see that as an extraordinarily competitive pressure. As regards to margin question, I'll let Jackie answer that on Pizza Hut, so that you can have an idea of what we were talking about.
But you saw from Joey's presentation that one of the big priorities in Pizza Hut is to make the food more attractive. And you saw that we are, for example, giving larger sizes of products and not taking pricing. So the impact on the food cost for Pizza Hut is the one that is significant. And we'll see that should have an impact eventually on the consumer franchise and the ability to get customers back, but that will be the more immediate pressure. I think on the impairment question, Joey already answered that, that yes, there may be some higher impairment on account of rationalization of the estate, although I wouldn't right now draw too many conclusions to be able to announce our results.
But overall, as a company between KFC and Pizza Hut portfolio, we'll find a way to manage that. So Jacky, any color on that?
Yes. So thank you for the question on the margin pressure. But basically, as you heard from the presentation earlier, our focus will be on revitalizing the brand through investment in products and service and also promotion. So we you have seen throughout the presentation, we'll improve the size of our drinks, for example, or like for pizza, they will be the source of our pizza. So these are costs that will probably impact our COS.
But in terms of impairment, I think we have a very rigorous impairment assessment here, and we've strictly followed the accounting standard. So we are still only 1.5 months into the quarter. So we are still assessing the whole Pizza Hut stores networking. So after we have more details on that, we will get back to you. But we don't anticipate the margins or the impairment will impact the margin that much.
It will mainly come from the COS investment.
One last comment on the impairment, sort of related but not directly related, but still very important and dear to our heart is we are not going to lay off any staff because of store closure. Not going to do it because we are opening many new stores. We can't absorb this staff. And these staff are very, very good to us And we'll do everything we could to find if we have to find them another job, we take each of them independently, and we'll do our best to find them a new job within our company. So no layoff.
Thank you, Joyce. We'll take one last question and then okay.
Jackie, if the U. S. Enacted tax reform and the statutory tax rate dropped from 35% down to something lower, probably something presumably closer to China, would that change your thoughts on capital redeployment across the board, given that it would likely be a higher impact form of capital return than it is now, if you didn't have that 10% withholding?
Any other questions? Well, thank you for the question. So we're still waiting for some clarity in terms of the details of that whole tax reform. But at this point, if the tax rate is below, let's say, the China corporate income tax rate, then yes, definitely, we would like to repay we would like to our priority is always to reinvest in China to grow our core business. So if but if the rate is below, then we can definitely look at our whole tax structure, and that may impact our the whole cash deployment plan.
But I think at this point, we don't have visibility to the details of the whole reform. But once we have more details on that, we'll definitely discuss with our Board of Directors like what's the best approach to our cash deployment.
Got it. And second one is on kind of gross unit growth versus net unit growth. So for a couple of years, especially on the KFC side, you've had reasonably good percentage growth rates as it relates to the new unit growth. You cleaned some of the stores up in 2014, 2015 and 2016, you had higher net closures. This year, it's reasonably high though still on the KFC side.
Is there an obsolescence rate or something that we should assume? I I mean, I would have thought that given the closures last year that, that gap would have narrowed more significantly when you're 80% remodeled now. Should we still expect I don't know, is there some rule of thumb or some net number that we should expect that would be closed every year?
We don't. But relative to last year, you we can assume we have lower number of impairment for the store. So impairment come from closing the store or the store, for whatever reason, is still running, which is but being impaired for some reasons. So the store closure for after we've gone through the changes will come down a little bit. But as Jackie mentioned, we really look at it on individual store basis.
We don't set a target, whatever, but we have very rigid accounting rule. If it doesn't pass the test, then we're impaired. It's not something that we can have some room for maneuver. We don't play that game.
Are you using impairment and closure as the same word? Or do you mean like an impairment, like you take a financial impairment, but you'll keep the store open?
There's very, very, very few example. There's some technical reason why we cannot close the store, but there are very, very few example of that, but there is example. I just want to give a complete picture of that.
But in terms of the classification, they are the same. Yes, but for impairment, we assess that semiannually. But closure happens throughout the year, then it is but it's reflected on the same line in the income statement.
So sometimes the landlord need to redevelop, then it might be a profitable store we need to close. So sometimes it's not we our own decision. Therefore, the closure, we cannot say do it it's sort of ongoing because it's a moving situation.
Got it. Thank you.
Okay. Thank you very much for all your questions. I'd like to wrap up the Q and A session. And if you I'm sure some of you didn't get a chance to ask any questions because of time constraints, but IO is always available for discussion afterwards.