Yum China’s parent KFC, Pizza Hut, and Taco Bell have found new ways to adapt their products to China’s changing demographics: targeting pet owners, in addition to parents.
“Many young people have pets,” said Joey Wat, CEO of Yum China, in an interview with fortune. “In the past, we had toys for adults and children. Now, we have toys for cats and dogs,” he said.
Yum China is offering soft toys and pet beds as a Kentucky Fried Chicken promotion in the fourth quarter. Both items, originally designed for pets, have instead become popular with human customers. “He’s doing great!” Wat said.
China’s population crisis
Wat said Yum China’s “focus on pets” reflects changing attitudes among younger Chinese. The nation’s Gen Z and Millennial generations prioritize individual comfort and well-being over social norms that call for marriage and having children.
Courtesy of Yum China
The number of “double income, childless” households is increasing in official data, and some households are choosing to get pets. A 2021 paper from the China Pet Industry Association estimates that China’s pet market will quadruple between 2015 and 2020, reaching $46 billion, and predicts the market will reach $70 billion this year.
Meanwhile, Beijing is trying to encourage families to have children, lifting strict controls on household size. But Chinese families regularly complain about work-life balance and access to childcare. The country reported its first population decline since 1961 earlier this year.
KFC’s Psyduck toy goes viral
Yum China said many of the toys generated “huge social buzz,” such as the dancing Pokémon toys distributed through KFC branches last year. A game meant for humans – featuring Psyduck, a rotund duck-like creature prone to headaches.
Chinese customers embraced the toy as a symbol of their frustration with the country’s lockdown and endless mass testing. The toy reportedly sells for as much as $75 on the Chinese secondary market.
Wat says the company’s marketing team turned to Psyduck for a different reason: the character is cheaper than more popular Pokémon licenses like the franchise’s mascot, Pikachu.
Qilai Shen—Bloomberg via Getty Images
“There are practical considerations: the pandemic. Our budget is tight.” Wat said. “Psyduck is cheaper!”
He also explained that this more “invisible” character presents new marketing opportunities for the Yum China team. “They might give you a surprise,” he said.
Yum China Q4 earnings
Yum China, which was spun off from Yum Brands in 2016, owns and manages restaurants like KFC, Pizza Hut, and Taco Bell, as well as other brands serving Chinese cuisine.
The company released its fourth-quarter earnings on Tuesday. The company reported a 9% drop in quarterly revenue year-on-year, although the company said profits were up when measured in constant currency. Net income fell to $53 million, down 89% from the same quarter last year.
Yum China admits that the COVID-19 disruption in China is hurting its ability to operate. As local governments tightened lockdown measures in October and November, Yum China said up to 4,300 stores, or a third of its stores, had to close or limit operations.
China lifted many of its COVID measures in early December, but the restrictions were followed by a large wave of COVID cases. Yum China said the outbreak had caused a “shortage of restaurant staff,” forcing it to close or limit operations at an average of 1,300 stores, or a tenth of its total.
But the company is “cautiously optimistic” that China’s COVID-19 outbreak is easing and reopening. The company still plans to open up to 1,300 stores in China this year.
“The real test will be the sales trajectory afterwards [Chinese New Year] holiday and how the economy will rebound, given the fluid COVID situation and macro economic headwinds,” said Andy Yeung, CFO of Yum China, in a call with analysts. The company also warned of the threat posed by new variants of COVID.
“We plan for the best and prepare for the worst,” Yeung said.
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