Fast Food, Fast Success

KFC, a flagship brand under Yum! Brands’ names, entered China in 1987, opening its first restaurant in Beijing’s Qianmen area. Its rapid expansion mirrored the country’s economic rise. By 1997, KFC had established a strong customer base in China, with consumers perceiving it as a premium U.S. brand. Recognizing China’s vast potential, Samuel Su, Yum!’s Asia-Pacific head, convinced senior leadership to allow more operational autonomy for the China market. His strategy proved effective—by 2015, Yum China accounted for over 50% of Yum!’s global revenue. In 2016, following shareholder pressure for higher returns, Yum China was spun off as a standalone entity.

By 2022, Yum China operated approximately 13,000 restaurants under multiple brands, including KFC and Pizza Hut. The China division generated USD 9.57 billion in revenue, surpassing Yum!’s earnings from the rest of the world (USD 6.84 billion). KFC played a dominant role, contributing USD 7.2 billion, or 75% of Yum China’s total revenue, and maintaining 9,094 stores, significantly ahead of its closest competitor, McDonald’s, which had 4,978 stores (see Table 1).

Three Stages of KFC’s Development in China

KFC’s success in China has unfolded in three key phases:

1987–2000: The American Fast-Food Icon

In its early years, KFC leveraged its identity as an American fast-food chain. Its classic combination of fried chicken, fries, and Coca-Cola appealed to a generation eager to experience Western culture. This premium positioning allowed KFC to maintain higher price points.

2000–2013: Localization and Mass Expansion

KFC adapted to local tastes, introducing menu items such as Old Beijing chicken rolls, fried dough sticks, and Chinese-style breakfast options. Simultaneously, KFC expanded aggressively into third- and fourth-tier cities, moving from a high-end brand to a more affordable, mass-market positioning. It also developed a robust local supply chain and logistics system.

2013–Present: Digital Transformation and Brand Reinvention

Rising operational costs, increasing competition from domestic fast-food brands, and shifting consumer preferences prompted KFC to overhaul its strategy. As KFC’s original customers aged, younger consumers sought more diverse dining options. Food safety incidents across the industry further dampened demand, leading to declining profits. In response, KFC adopted a dual transformation strategy—strengthening brand identity while leveraging digitalization to optimize operations and engagement.

A New Recipe: Digital Transformation

To rejuvenate its brand, KFC refocused on youthful, experience-driven dining, creating modern, stylish restaurants that went beyond fast food. The stores incorporated themed dining experiences, such as music or gaming, and introduced afternoon tea offerings. The company also deepened collaborations with entertainment and gaming franchises, including Tencent’s Arena of Valor and Pokémon, to drive customer engagement.

Simultaneously, KFC accelerated its digital transformation. The company launched an internal review board to oversee technological advancements, enhance infrastructure, and optimize customer interactions. Digital marketing became a priority, with social media emerging as a critical touchpoint for young consumers.

Enhancing the Customer Experience Through Digitalization

KFC’s digital strategy aimed to streamline every step of the customer journey (see Table 2 &3). By building an extensive membership database, the company analyzed consumer behaviors to tailor recommendations and promotions. Digital tools helped address key customer pain points:

• Before Arrival: Customers could locate nearby KFC stores using maps, browse promotions, and place mobile orders to avoid queues.
• In-Restaurant Experience: Enhanced menu navigation, automated combo price calculations, and AI-driven personalized meal recommendations simplified ordering.
• Speed and Convenience: Self-service kiosks, mobile mini-apps, and digital payment integration with WeChat Pay and Alipay improved efficiency.
• Takeout & Delivery: AI-powered logistics assigned orders to the nearest location, ensuring 95% on-time delivery. During the COVID-19 pandemic, KFC pioneered contactless delivery to reassure customers.

The Digital Payoff

KFC China seamlessly integrated digital marketing across public and private domains. Platforms such as Weibo, WeChat, and Tmall amplified brand awareness, while its private ecosystem—spanning the KFC app, WeChat mini-programs, and offline stores—drove customer retention (see Figure 1). By 2022, KFC China had amassed 380 million registered members, enabling targeted promotions, optimized inventory, and enhanced operational efficiency.

While digital transformation has driven long-term growth, challenges remain. In the fourth quarter of 2022, Yum China reported a 90% drop in profits, primarily due to the widespread COVID-19 outbreak disrupting operations. The outlook for 2023 remains uncertain, with signs of softening sales amid economic headwinds. However, KFC’s continued investment in digital infrastructure and operational efficiencies aims to sustain its competitive edge.

Notably KFC China’s digitalization efforts led to significant cost reductions and revenue growth. Yum China’s sales and marketing expenses as a percentage of revenue fell from 4.76% in 2014 to 3.78% in 2021.

Future Outlook: A Technology-Driven Fast-Food Giant

KFC’s investment in digitalization has positioned it as a “technology company that sells fried chicken”. Beyond customer-facing innovations, its advancements extend to supply chain, logistics, and inventory management. In 2021, Yum China launched digital R&D centers in Shanghai, Nanjing, and Xi’an, leveraging AI and big data to further enhance its operations. KFC’s story in China exemplifies how a global brand can successfully localize, innovate, and integrate digitalization to stay ahead in an ever-evolving market. As it enters the next phase of digital transformation, KFC China continues to lead at the intersection of technology and dining.

This article is part of the “Unleashing Innovation in China” series, which explores how companies are driving innovation and reshaping industries in one of the world’s most dynamic markets. For more insights, visit: Unleashing Innovation: Ten Cases from China on Digital Strategy and Market Expansion – CKGSB Knowledge