Chongqing - On August 5, Yum China Holdings, the operator of KFC and Pizza Hut in the Chinese mainland, reported record second-quarter revenue, operating profit, and margins for the period ending June 30, 2025, with Pizza Hut adapting to new customer groups.

Revenue for the quarter rose 4% year over year to $2.79 billion, while operating profit increased 14% to $304 million. The operating margin improved to 10.9%, up one percentage point from the same period last year, driven by higher restaurant margins and lower general and administrative costs. Net income edged up 1% to $215 million. For the first half of 2025, revenue increased by 2% to $5.77 billion, with net income also rising by 1% to $507 million.

KFC opened its first restaurant in Beijing, the Capital of China 1987. (Photo/KFC)

CEO Joey Wat highlighted KFC's resilience and Pizza Hut's continued momentum. She noted that Pizza Hut's strategy of widening its price range through new menu offerings helped reach previously untapped customer groups, fueling double-digit growth in same-store transactions during the quarter.

In terms of brand performance, KFC's system sales have increased by 5%. The restaurant's margin improved to 16.9%, benefiting from favorable commodity prices and operational streamli. This was partially offset by higher rider costs resulting from delivery growth, the introduction of more value-focused menu items, and rising wages.

Pizza Hut delivered system sales growth of 3%, same-store sales growth of 2%, and a 17% jump in same-store transactions. Restaurant margin improved to 13.3%, supported by lower commodity prices, operational efficiencies, and automation initiatives.

A Pizza Hut store in Yubei District, Chongqing, advertises an Italian Bolognese pizza for 36.9 yuan ($5). (Photo/Zheng Ran)

Product innovation played a role in both brands' quarterly performance. KFC's limited-time "Extreme Spicy Chicken Burger" drove sales in the spicy chicken burger category up by more than 30% during the promotion. Pizza Hut's annual buffet campaign, featuring tomahawk steak, seafood, and durian pizza, drew strong market response and brought in a wave of younger customers seeking variety.

Expansion continued alongside menu innovations. Yum China added a net 336 stores in Q2, bringing its total to 16,978 as of June 30. Franchise stores made up 26% of net additions, and the company reaffirmed its target of 1,600 to 1,800 net new stores in 2025.

A user on Xiaohongshu shares a KFC outlet in their hometown of Baise, a prefecture-level city in Guangxi Zhuang Autonomous Region. (Photo/Xiaohongshu)

Lower-cost store formats are a growing part of this expansion. Pizza Hut's WOW membership store model, designed for lower-tier cities with reduced capital investment and streamlined operations, has already entered more than 10 new markets. Management reported improving profitability for the format and sees it as a key lever for market penetration.

Yum China is also accelerating its coffee business. KCOFFEE, KFC's coffee sub-brand, opened 300 new locations in Q2, bringing its total to 1,300. Menu innovation, including the popular sparkling iced Americano, helped raise average cup sales, with the category accounting for over half of beverage revenue in June. The company raised its year-end target for KCOFFEE outlets from 1,500 to 1,700.

Digital and delivery channels continued to expand. Delivery revenue grew 22% year-on-year to account for 45% of restaurant sales, up from 38% in the prior year. All brands are now listed on major third-party delivery platforms, while the company is also enhancing its app and mini-program channels with exclusive offers and member benefits.

Management emphasized that larger brands like KFC and Pizza Hut benefit from more favorable subsidy-sharing terms with delivery platforms, helping balance sales growth with profit protection. Despite the dynamic market environment, CFO Andy Yeung maintained a cautiously optimistic outlook for achieving 2025 store opening, sales, and margin goals.

Industry data places the company's performance in a broader context. According to the National Bureau of Statistics, China's restaurant industry generated 5.57 trillion yuan ($775 billion) in 2024, up 5.3% from the prior year. 

According to the Western Fast-Food Category Development Report 2025 released by the Hongcan Industry Research Institute, the fast-food restaurant market in China expanded 6.9% in 2024 to 1.33 trillion yuan ($183 billion), while Western fast-food sales climbed 11% to 297.5 billion yuan. Store counts grew fastest in lower-tier cities, underscoring the segment’s deepening reach beyond major urban centers.

The report said product innovation is a key competitive driver. From January 2024 to February 2025, KFC led all Western fast food brands in new product launches, averaging 7.5 per month. Drinks accounted for 21.7% of those launches, overtaking fried chicken and burgers.

Analysts say Yum China's results reflect both operational efficiency and targeted market strategies. Lin Yue, chief consultant at Lingyan Management Consulting, said Pizza Hut's low-price model has boosted sales volumes and profitability through cost control but may not be sustainable if traffic slows. KFC's sales growth, he noted, stemmed mainly from a higher delivery mix among existing customers rather than new traffic, underscoring the challenge for a mature brand with high market penetration.

"Whether through new sub-brands or franchise expansion, Yum China is adapting to market conditions with value-driven strategies," Lin said, adding that the balance between brand positioning and scale will be a key challenge in the years ahead.