Welcome to Yum China second quarter 2021 earnings conference call. I would now like to hand the conference over to our first speaker today, Ms. Michelle Shen. Thank you. Please go ahead. Thank you, Davina. Hello, everyone, and thank you for joining Yum China second quarter 2021 earnings conference call. Joining us on today's call are our CEO, Ms. Joey Wat, and our CFO, Mr. Andy Yeung. Before we get started, I'd like to remind you that our earnings call and investor presentation contain forward-looking statements, which are subject to future events and uncertainties. Our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our filings with the SEC. This call also includes certain non-GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non-GAAP and GAAP measures is included in our earnings release. Today's call includes three sections. Joey will provide an update regarding recent developments in our second quarter 2021 results. Andy Yeung will cover the financial performance in greater detail. Finally, we will open the call to questions. You can find a webcast of this call in the PowerPoint presentation, which contains operational and financial information for the quarter on our IR website. Now I would like to turn the call over to Ms. Joey Wat, CEO of Yum China. Joey? Thank you, Michelle. Hello, everyone, and thank you for joining us today. Our business has recovered remarkably well, although the pandemic is still impacting our business and will continue to do so. We have learned to live with it, and we are focusing on the future. We focus on our core: good food, great value, and customer experience. We penetrate further into lower tier cities. We increase our store network density to suit the shift to off-premise dining post-pandemic. KFC remains resilient and continues to grow at a very fast pace. Pizza Hut achieved stellar performance and expected to become another growth engine of Yum China. COFFii & JOY and Lavazza are making good progress. We delivered a solid second quarter. System sales grew 14%, operating profit grew 83%. We expand the store footprint at a accelerated pace, opening 404 new stores in the quarter. In less than one year, we add more than 1,000 net new stores and increase total store count to over 11,000. Our team is laser-focused on driving sales. Our powerful digital platform enable us to swiftly adjust our marketing campaigns. We can reach members directly with targeted offers. In a quarter, we recruit over 10 million new members, ending the quarter with over 330 million members. Notably, off-premise and home consumption are becoming more popular in a post-pandemic era. Our delivery sales grew over 60% compared to 2019. We also launched retail products across our brands, leveraging our online and offline assets. We intend to learn and innovate to address evolving consumer needs. Let me update you on our core brands. First, let's start with KFC. KFC led our new store opening. We increased store density in existing cities and entered over 100 new cities in the last 12 months. With 280 new stores opened in the quarter, we now have over 7,600 stores across China. More impressively, new store cash payback and profitability remain very healthy across city tiers. System sales grew 14%, led by same-store sales growth and accelerated new store openings. KFC successfully navigated this tough operating environment with reduced volume at transportation and tourist locations. Our operating profit grew by 50% to $240 million. It goes without saying the crucial role good food plays in our business. In the second quarter, KFC added the Wagyu and Angus beef burgers to the permanent menu. KFC also launched the Double Down, a meaty boneless chicken sandwich, as a limited time offer. These innovations generated strong social buzz and are well received by consumers. We know our consumers well and cater to local taste buds. KFC has introduced regional menu items such as hot dry noodles, Wuhan Re Gan Mian, and steamed dumplings, Xiao Long Bao in Hangzhou. We also launched a Sichuan spicy plant-based beef wrap and an oat milk latte to provide more choices to consumers. With our good food, we also offer great value. Throughout the quarter, we launched attractive promotions to drive traffic. Our May Labor Day holiday buckets are the first-ever mix and match buckets for dine-in locations. On the digital front, we focus on growing our member base and driving their spending. We launch a new privilege subscription plan, giving our members the choice of perks from a range of offerings. This provides flexibility for our members and drives incremental sales. We saw 8 million privileged memberships in the quarter. The average spending of our privileged members doubled that of regular members. Let's move on to Pizza Hut. Our transformative initiatives in the last four years have yielded great results. Compared to pre-COVID levels in the September of 2019, same-store sales continue to recover. System sales growth turned positive. Operating profit more than doubled from the same period last year. We accelerate our new openings and add 70 net new builds in the first half of this year. This is the highest total net new units we add in the first half since 2016. It shows our confidence in the business model now. Hub and spoke and other small store formats have proven to be successful and now account for most of our new stores. Store economics continue to improve. New store paybacks remain healthy, in particular for the hub and spoke and small stores. We will continue to increase density and penetrate into more new cities. In the March new menu, we changed 40% of the menu items compared to the previous year. In the second quarter, we continued to improve our product offerings for better customer experience. In June, we upgraded our hand-tossed dough with more premium flour and low temperature long fermentation. This makes the pizza dough crispy outside and soft inside. It tastes particularly good and very suitable for delivery. We also launched sirloin steak with Parmesan cheese and knife-slide noodle. Not a very proper translation, but the Chinese name is called dao xiao mian. It's a traditional specialty noodle of Shanxi Province. This is a great fusion product combining elements of East and West. To enable value proposition and enhance our value proposition, Pizza Hut has expanded the price range of its pizza offerings. In June, we launched 13 new pizza flavors at more affordable price points, mainly for the new upgraded hand-tossed dough. We also launched another successful all-you-can-eat campaign offering abundant value. The Pizza Hut membership reached a significant milestone of 100 million members. Member sales now account for over half of system sales. Digital and technology continue to play an important role in driving sales. Digital ordering increased to 84% of sales from just 29% two years ago. Delivery and table-side mobile ordering became more popular. Coffee. Our coffee business is making good progress. Lavazza triple its store count, although the base is a bit small, in the second quarter. Initial results of our new store openings are encouraging. We now have 14 Lavazza stores in Shanghai, and we are opening our first beautiful store in Hangzhou, which is the first store outside China, in about one hour today. We are confident in the potential of this 126-year-old Italian coffee brand. COFFii & JOY doubled its per-unit sales compared to 2019 and had a meaningful number of stores breaking even at the end of the quarter. We are reinforcing its specialty coffee brand positioning, expanding daypart with more food choices, broadening the customer base, and have better value for money. To conclude my session, we are well-positioned to capture the market opportunities in China. Our store network is growing at an unprecedented pace. We are investing ahead to fortify and future-proof our infrastructure and digitization. At Yum China, we are committed and confident to achieving sustainable growth in the many years to come. With that, I'll turn the call over to Andy. Andy? Thank you, Joey, and hello, everyone. Let me now provide additional details on our second quarter financials and then share our perspective on this year's outlook. Unless noted otherwise, all percentage changes are before the effects of foreign exchange. Let me first cover our second quarter financial results. Total revenue grew 17% year-over-year and reached $2.45 billion. System sales increased 14%, led by same-store sales growth of 5% and accelerated new unit development. Similar to last quarter, we are providing pro forma measures here for convenient comparison with 2019. Same-store sales recovered to approximately 94% of the second quarter 2019. System sales grew roughly 9%, benefiting from new units and the consolidation of Huang Ji Huang. Sales were recovering in April and May, but the trajectory was disrupted by the Delta variant outbreak in Guangdong Province at the end of May. Guangdong Province is the largest economy in China and one of the largest markets, housing two of the four Tier 1 cities. The outbreak led to temporary closures in the region and affected consumer behavior across China. Same-store dine-in volume is still well below 2019 levels, while off-premise occasions continue to grow rapidly. KFC remained resilient and delivered robust growth on a year-over-year basis. System sales of KFC grew 14%, led by strong unit growth and same-store sales growth. On a two-year basis, system sales grew an impressive 7%, this is at 2% faster than the Chinese restaurant industry growth of 5%. Despite subdued traffic at transportation and tourist locations, same-store sales recovered to approximately 93%, with the same-store traffic at approximately 86%. Average ticket grew roughly 8% versus 2019, mainly due to the increase in delivery mix. Pizza Hut delivered exceptional performance. On a year-over-year basis, system sales grew 16%, same-store sales grew 11%. On a two-year basis, system sales growth in the quarter returned to positive. Same-store sales recovered to approximately 97%, a two-point sequential improvement from the first quarter 2021. It was led by a 9% increase in traffic, driven mainly by more delivery and breakfast sales. Restaurant margin was 15.8%, up 210 basis points compared to last year. This was mainly driven by sales leverage, favorable commodity prices, and operational excellence. Cost of sales was 30.7%, 220 basis points lower than last year. Commodity prices declined by 7% year-over-year, mainly helped by lower poultry prices. Cost of labor was 24.2%, 150 basis points higher than last year. This was mostly due to lapping of COVID-related government subsidies received in 2020, and wage inflation of 3%. Labor productivity and labor shortage partially offset the increase. Occupancy and other was 29.3%, 140 basis points lower than last year, mainly attributable to sales leverage, savings in operating costs. G&A expenditure increased 10% year-over-year, mainly due to higher compensation costs, consolidation of Suzhou KFC, and a resumption of some business travel. Operating profits grew to $233 million, a 65% increase year-over-year, or a 6% increase compared to 2019. The increase was mainly driven by system sales growth and restaurant margin improvement. Our effective tax rate of 24.8% is similar to last year. We expect full-year effective tax rate to be 27%-29%. Net income was $181 million. Adjusted net income was $185 million. Excluding $5 million net investment gains, it was $180 million, up 55% year-over-year. Diluted EPS increased to $ 0.43 from $ 0.34 a year ago, despite enlarging our share base by roughly 11% as part of our secondary listing in Hong Kong last year. Let's turn our attention to the outlook. As we continue to drive sales growth and accelerate store network expansion, we need to be mindful of the near-term challenges. It may sound like a cliché, we continue to expect the impact of COVID-19 to linger, and that there would be periodic regional outbreaks. Full recovery of same-store sales to pre-COVID levels will take time. Sales recovery will continue to be uneven and non-linear, impacted by a few factors. One, subdued traffic at transportation and tourist locations. Two, some health measures and restriction on mobility to remain in place that will continue to impact dine-in traffic. Three, shortened school holiday. Operating profits and margins have improved year-on-year. In the first half, benefiting from sales leverage, favorable commodity prices, moderate wage increase, and labor productivity improvement. We expect certain tailwinds to turn into perhaps headwinds in the second half. First, Cost of sales, which will be pressured by our focus on value campaigns and increasing commodity prices. We have already seen an uptick in poultry prices and we lap the low prices in the prior year. The commodity prices will potentially turn into inflationary pressure later this year. Second, Cost of labor. Cost of labor will increase in the second half of 2021 for two reasons. First, most of our stores have increased restaurant staff wages in June and July. Wage increase will be higher in the second half compared to 3% in the first half. Second, we are also increasing staffing levels to ensure customer services. As a reminder, the speedy recovery last year creates a tougher comparison in the second half of this year. Despite these challenges, we remain confident in the long-term potential of China. We're accelerating store network expansion with increased store density to capture market opportunity and to better serve the shifting demand to off-premise. We now expect to open around 1,300 new stores in 2021. We also will incubate our emerging brands for future growth. To support this growth, we will continue to invest ahead in technology and infrastructure to further solidify our competitive position. We now expect full-year CapEx of approximately $700 million-$800 million. As we step up the investment, restaurant margins as well as G&A, will reflect higher depreciation costs. Finally, following an assessment of the COVID situation, our financial position, the board has approved the resumption of share repurchases. There's over $690 million remaining under the current authorization. We're committed to drive long-term returns for our shareholders. With that, I will pass you back to Michelle to start the Q&A. Michelle? Thank you, Andy. We'll now open the call for questions. In order to give as many people as possible the chance to ask questions, please limit your questions to one at a time. Davina, please start the Q&A. Our first question comes from the line of Michelle Cheng from Goldman Sachs. Please ask your question. Hi, Joey, Andy. Congrats for the very good results again during this environment. My question is about the labor cost and also the new guidelines from government to protect delivery riders' interest. We all understand that Yum China has been taking care of the employees, but still want to hear management's thoughts on the future labor cost management. More specifically, given we have high revenue contribution from delivery business, so how should we think about the delivery cost increase due to government requirement? Also, since we are also talking about the Delivery 3.0 to enhance the efficiency, so can we expect some efficiency upside to offset this potential cost increase? Thank you. Hi, Michelle. This is Andy. Let me first give you some color on the Cost of labor. As we have mentioned in prior quarters, we were facing labor shortage in some of our restaurants. We also have some moderate our wage increase over the past year because the pandemic situation. Now, we have decided early on in the second quarter to increase wages at our market for the restaurant staff. As I mentioned on my prepared remark, we have increased wages in June and July in China. Obviously we roll it out, as I mentioned, over the two-month period across China. As a result, we do expect that the wage increase will be higher. We are talking 7%, which is going to be roughly normal to returning to the pre-COVID level of wage increase. As a result, as I mentioned, we should expect higher COL in the second half because of the wage increase. Of course, we as a company, we always want to pay our staff more, high salary and high wages. We always find that we're focused on also maintaining profitability and delivering value for our shareholder. We have invest over the years, and then we'll continue to invest in technology, improve our efficiency in operations, in investment in automation, so that we can continue to drive that labor productivity improvement. Hopefully in the long run, we can continue to pay our staff more, at the same time, maintain a reasonable profit margin for our business. Thank you, Andy. Michelle, I've just one comment about the labor cost. Then I'll address your question on rider labor law and Delivery 3.0. We increased our delivery sales mix from 11% to right now over 30% since 2016. I think you can see from our P&L statement that we manage the overall delivery rider cost, and also to find a saving to fund it and also to continue to deliver the profit margin for our shareholders. We have done it in the last five years, as proven in the numbers, and I believe that Andy also gave you some view about we'll continue to do that in the near future as well. Let me address the rider labor law question and Delivery 3.0. For the rider labor law question, I would like to make three comments. One is, we are compliant to applicable laws and regulations, and we also require our service provider to sign a Yum China supplier code of conduct to ensure they are legally compliant with all applicable laws and regulations. Second is, regarding the rider safety, we have a very comprehensive delivery management system, clear guidelines, and we conduct regular audits to ensure food safety and rider safety. Of course, we also provide our riders training and equipment with safety measures. Third, very important, we actually work with our service provider to manage riders' work intensity. Our riders, unlike other riders in the market, they are dedicated to serve only Yum China brands, so KFC, Pizza Hut, and we focus on service quality. One thing rather different, which we have been criticized in the past, but now I think we can see the beauty of it, is our order density for a rider is roughly 30% lower than the platforms. You ask the question, so how do we make sure we pay the rider well so that we can keep them? Well, we pay our riders more per transaction. They got paid a bit more money. Net-net, the take-home pay for the rider is competitive. On top of that, our riders enjoy stable income with less stressful work intensity. In the short term, it might sound like a disadvantage to our cost, remember, as I mentioned earlier, we managed the cost okay. That's absolutely the right thing to do for the long term, with happier riders, better service quality, and protect our brand in the long term. Let me move on to your question about Delivery 3.0. We upgrade our rider platform in 2020 to optimize our delivery trade zone and rider routing. As of right now, this platform covers 75% of KFC stores, and by the end of 2021, we will complete the rollout for all the KFC stores. At the same time, on top of we share the rider within a few stores or few KFC stores within the same trade zone. We are also trying and going through the testing phase to share the rider with Pizza Hut as well. All this work will continue in 2021. We do expect the improvement in the trade zone optimization, the routing will result in improving in rider cost. Of course, there are more to be done as delivery business continues to grow, but the progress is good. Thank you, Michelle. Thank you, Joey. You're very clear. Our next question comes from the line of Xiaopo Wei from Citi. Please ask your question. Good morning, Joey and Andy. Can you hear me? Yes. Yes, Xiaopo Wei. Go ahead. Thank you. My question is on Pizza Hut. We are glad to see the strong recovery both in sales and the margin in Pizza Hut, as we know that casual dining has been very difficult segment for years for everybody. According to the public information, while a few of your competitors actually did a very weak performance in the casual dining sector, but you guys really surprised the market on the upside. I know that Joey and team had done a lot for the Pizza Hut in the past four years, products, delivery, innovation, et cetera. What do you think is the most important factor that contributing to the surprise on the upside? Why it suddenly take off, and how long this kind of strong recovery can be sustainable? Thank you. Thank you, Xiaopo. I would say there's no sudden recovery. It's really the hard work of last four years. It's hard to translate, but I think the Chinese way called [Non-English content] is a good way to describe it. You work on it for over four years, day by day, on all the key areas, and then finally we get to the inflection point that the results start to speak for itself. Let me comment on the path so far we have taken. Also, what is next? I think it's fair to say that our four-year revitalization program have yield great result, almost in all the key dimensions from same-store sales traffic, same-store sales, system sales, margin, operating profit, and right now new store opening. They're all trending to the right direction. I'm not going to repeat the number, which you all have it. If you remember, when we start the journey, we had a very bold goal to turn the same-store sales positive within 24 months, and we did. We delivered that. We turned the same-store traffic positive first, then same-store sales. In terms of which particular analytically, we like to say there are few focus. In reality, when we come to turn around business, I have to be honest that we have to work on all areas. There is no such luxury of just focus on one or two factor. We roughly categorize them into four pillars, the fundamentals, delivery, digital, and store format, which you guys should be more than familiar, if not bored with the repeat focus. All of them have delivered. But if I really am pressed to single out one or two, I would have to say is the great food with great value. As simple as that. Food right now is fantastic with great value for money. My recent favorite chicken curry or curry vegetables. It's hard to imagine that, but that's national dish for British people. The pizza has improved a lot, not only the topping but the dough. Right now, as of now, we are having pizza topping that's with baozhi and heniu. That's abalone sauce with Wagyu beef, and that's a Michelin star recipe. The price is very, very good. That has to be a key attraction and turnaround. On top of that, we have really worked hard to improve the technology, the digital ordering, and then the delivery, et cetera. I'm not going to go through all the detail about the four pillar. What I would like to comment is what's next. Well, we now have confidence in the Pizza Hut business, and we are very clear that we want to make it another solid growth engine. What is next? Well, you guys are familiar with that, too. The next is resilience and high growth. We want the Pizza Hut business as resilient as KFC business so that it makes money during good time, but it also make money during bad time. That's the best way to protect the jobs of our staff in this big market. Also, now we have good food, good value for money. We also have found a way with the new store opening has industry-leading cash payback and in-store profitability that's even comparable to that of KFC. What a fantastic thing to have, particularly for the satellite store and small store. You can expect we are going to pursue high growth for these very profitable stores to pursue profitable growth now and in the future. Focus on four pillars in the last four years. Going forward, we're going to focus on resilience and growth, in particular profitable growth. Thank you, Xiaopo. Thank you, Joey. Our next question comes from the line of Chen Luo from Bank of America. Please ask your question. Hi, Joey and Andy. Again, congratulations on another strong set of results. I also have some follow-up questions on Pizza Hut. I noticed in the announcement, Joey described Pizza Hut as another growth engine. We have not seen this level of confidence on Pizza Hut in the past few years. Just now, Joey also elaborate on a lot of initiatives regarding Pizza Hut. In particular, I noticed that Joey Wat mentioned that for those satellite stores, the payback could be similar to that of KFC. Can you actually elaborate on the unit economics of those satellite stores? Also among the 1,300 store addition target this year, can we offer us a rough breakdown between our brands such as KFC, Pizza Hut, and other brands? Lastly, in terms of margins, is it fair to say that our medium term normalized restaurant margin for Pizza Hut could possibly return to the level that we saw during the years of 2017 or 2018 before we started to turn around the Pizza Hut business? Thank you. Okay, thank you. I'll comment on the Pizza Hut conference and then the payback for the stores, and then Andy will address the other two questions that you asked. I hope you can see our increasing confidence on our Pizza Hut business in the last four years. We did take the prudent approach, and it's very clear what are the steps that we have taken. Traffic first, and then sales, and then profit. When we get to the point that we can get all three, then we'll grow more. It's just like as I mentioned in previous earning calls, sales is vanity, profit is sanity, and we like both sales and profit. What is even better is even more profit, right? That's the growth that come in. The confidence of the Pizza Hut business model, it does not come from one or two quarter positive results. It come from the fact that we have been working very hard on improving fundamentals of the business. The pain of working on the fundamental is good thing does take time. The joy of the fundamental improvement is the benefit is long-lasting. It will help our business model for the many years to come. It's not because of one-off promotion or et cetera, it's because the improvement in food, value for money, store look and feel. The majority of our stores is very nice looking right now. Unfortunately, you guys cannot see because it's very difficult for you guys to travel from Hong Kong to China. I really look forward for your visit to our new stores. Might be a bit too feminine for gentlemen, but it's okay. We care about the ladies because they make the critical purchasing decision most of the time. The improvement at all fronts and the technology and now the customer like it. Last year, the challenge on COVID-19 further challenged our business model, and we took the challenges positively and with great results. Give you an example. Last year with the big impact on our dine-in business, our Pizza Hut business took the opportunity to make the virtual out of necessity to use our existing ingredient to make very high value food, such as one person meal, [Non-English content]. That right now is bringing in incremental sales because our party size traditionally has been big. The one person meal is incremental business to Pizza Hut. Also, because of the pandemic, we pushed ourselves to grow the new retail business. Not only we deliver cooked steak, but we also sell raw steak, marinated, but raw steak that yourself or your ayi cannot destroy. All these are the result of hard work in the last four years, and particularly last year. We are at a point that we can be very responsible with our view that we believe Pizza Hut is another growth engine, given the size of the store, right? We have over 2,400 stores of Pizza Hut and in over 500 cities with fantastic brand, particularly in casual dining business. That's the fundamental. For the payback for the small store, particular hub and spoke store, which is the business model I introduced to our shareholder investor back to 2019 March. Much lower investment, it really supplement our current Pizza Hut store density. It also help to make our current Pizza Hut store, which are not too small, make it a real asset because the original stores will be what we call mother stores. These are the big stores, and they will be helping to open the kid store, which is the satellite store, to provide better convenience to our customers, focusing on off-premise consumption. Now the satellite store, together with our original casual dining store, is fantastic network. It's a great way to grow our business. It's not like we have to go very far away and we're just putting one satellite store and logistically it's very difficult. No, we have stores there already. We have the casual dining stores there already. We're just going to increase the density of our stores to help the delivery of off-premise business. When I say the case cash payback is good comparable to KFC, our numbers show that the success rate is very high because the investment is very low. The payback is about two years. That's fantastic. Okay. Luo Chen, hi. Let me address the question about the 1,300 new build-outs that we're looking at for this year. I think, if you look at the breakdown, I think obviously somewhat similar to before. Mainly, KFC is a very strong, powerful machine. It continues to generate very strong cash payback. We should continue to expect very robust growth for KFC, and it's going to continue to be the lion's share of the new store units. As Joey mentioned, we continue to gain confidence in the economics for Pizza Hut, and then especially for the satellite store and the small store format. You should see some acceleration on Pizza Hut's new store openings in the second half as well. You probably have, and Joey has mentioned on her prepared remarks, we are seeing obviously very strong consumer reception for Lavazza. We triple in our store count, almost triple, from about five stores to 14 stores in the second quarter. We also have a number of stores in the pipeline. You should also expect Lavazza coffee business to be a driver. Pizza Hut, we, the Chinese cuisine business, hotpot business, also would see an uptake in store openings in the second half. That's generally the composition of those 1,600 stores. Again, like I mentioned, usually the store opening will be probably faster in the latter part of the year. That's generally the trend for the Chinese New Year. It's not completely linear, but that's generally, we just see some acceleration in the store growth for new store openings. Now in terms of Pizza Hut margins, I think we're very pleased with Pizza Hut's improvements. As Joey Wat mentioned, it's not only improved very strongly on SSSG, on system growth, but more important on the traffic. The biggest driver obviously for margin improvement is sales leverage. The other part is also labor productivity improvements in the store economic model. If you look at the first half though, we did benefit from, as I mentioned, two factors. One, lower commodity prices. Right? Two, we have felt like more moderate l abor cost increase, that helped improve the margins in the first half. Now, in the second half, I think similar to KFC and Pizza Hut, we have rolled out wage increase across China in June and July for our restaurant staff. Also likely to increase hiring as well. You should expect an increase in labor cost there. The other part is that we also think commodity prices will be less favorable. They were very favorable in the first half. Commodity prices was down 7% year-over-year. I think we have seen, for example, poultry prices, which is low in the first quarter and then have been rising since. We do expect that commodity prices also would do some pressure there, and then perhaps turn into inflation pressure year-over-year. Those are the long-term headwinds that we're facing. I think for Pizza Hut, we have continued to drive, I think the priority for them obviously is really to drive traffic, drive sales, that's their goal. We're still at a recovery phase for the pandemic, number one thing for them obviously is continue to focus on making sure that customers will come back to the store, come back to, again, increase spending. We will continue to drive that profit improvement as business returns. We also looking into driving that long-term profit improvement for Pizza Hut. That should be a longer-term point of view. That shouldn't be being as immediately to drive, to squeeze profit. In terms of the new store economics, I think a couple things. One is that the stores are generally smaller. The satellite store is a small store, as the name would imply. The throughput per store for a new store is probably lower than the Pizza Hut existing portfolio. However, the profit margin is good, and then we have lower up-front investment. The overall return is very strong. As Joey mentioned, for a satellite store, it's almost comparable to what KFC can do. That's very strong for those returns. Hopefully that will address your question. Thank you. Yes. Thank you, Joey and Andy, this is really helpful. Operator? Our next question comes from the line of Anne Ling from Jefferies. Please ask your question. Okay. Thank you very much. Most of my question's been answered. Just one follow-up question on the cost side. Andy, you mentioned about the cost increase for commodity as well as labor. In the past, you shared with us that in terms of quantifying it, for example, in the beginning of year 2021, you mentioned about labor cost increased by mid-single digits. Now we're into second half. Maybe I have missed it. Would you share with us the cost increase for commodity side, labor cost, and for SG&A? Also maybe a breakdown in terms of the CapEx for the $700 million-$800 million CapEx, which is the revised number. Thanks. Okay. Hi, Anne. Let me address the first questions about commodity price and wage increase. Commodity prices, I think, if you look at the first half, we benefited from the lower commodity prices by almost 10% year-over-year. As I mentioned, we have seen commodity prices, especially poultry prices, which is, I guess, they've been low in the first quarter and have been rising. We're going to see much less benefit of the lower commodity prices in the third quarter compared to the first half. Obviously, commodity prices are very hard to predict. The current trends suggest that based on our contract prices and whatnot, suggest that maybe perhaps in latter part this year, the commodity prices could turn from a favorable 7% year-over-year inflation pressure to a inflationary pressure, right. That's our near-term outlook for commodity prices. In terms of labor cost, in the first half, our wage increase was about a rate wage cost compared to last year was about 3% increase. As I mentioned, we have decided to adjust our restaurant staff wage, we have rolled out that wage increases in June and July. That is about approximately 7% year-over-year increase there. That's been a part of that. The third part, I think, for the cost of labor, is twofold. One is that obviously, the delivery continue to be a higher mix of that. If you look at the hiring, I think we also have mentioned over the past two quarters that there are some labor shortage and hopefully with the salary and wage increase over there will ease that situation as well, we're going to increase hiring. Obviously, as Joey mentioned, we continue to look for ways, savings to pay for that. We'll continue to do so in second half to look at productivity improvement, how we can better utilize our IT technologies to help that. As Joey also mentioned, we continue to try to improve our delivery operation as well and drive efficiency. That's a short-term outlook for us in terms of both COS and COL. The second question is about the $700 million-$800 million CapEx for this year. I think, obviously, the lion's share of that is going to be in new store build, and then some part is going to be for remodeling. Remodeling continue to be an important part of our CapEx program. We want to keep our restaurants fresh. We generally have a pretty robust remodeling program. The third one, obviously, is investment in our IT and infrastructure. That's sort of like the main categories of our spending, roughly in that order. In terms of, what's it? G&A. G&A, right. G&A. Obviously, on a year-over-year basis, G&A, one is, we will have less government-related subsidy. Last year, as you remember, there was some reduction in the social security insurance payment for workers here in China, that has expired. The other part is that obviously we also have moderate salary and wage increase, compensation increase for our staff. The third one, and third point, and hopefully folks don't forget, is that last year we have two acquisitions. One is the consolidation of our burger operation. The other one is the acquisition of Huang Ji Huang. Both of them will absorb that G&A expenses. Finally, and then, last year, because of the pandemic, we basically have stopped almost all the business travel. With the improvement in the COVID situations, there will be some return to some, not all, but like some return to some business travel. I think that's a normal path. Hopefully, that give you some ideas about the expense and cost environment that we're facing right now. Thank you, Anne. Thank you. Our next question comes from the line of Lillian Lou from Morgan Stanley. Please ask your question. Thanks, Joey and Andy, for the very detailed explanation. I have a question on the new store expansion, because I think so far you've been doing a very good job in terms of managing both very fast store expansion and margin improvement. I just want to understand more in detail about the increase of store density impact to the existing stores. Does that have any impact on the same-store sales growth of the existing stores? That's one side. The other side is, yes, the payback and return of new store are quite good. How are we going to look in the future with a continued store increase, especially we uplift the target again? What kind of a dynamic we should look at in terms of the new store margin and also the impact to the existing stores? Thank you. Hi, Lillian. Well, thank you for the questions. Obviously, we are very pleased with the pace of store opening. With that, we continue to capture the market opportunity that this presents to us, especially in the lower tier cities, and also allow us to better serve our existing market. We have, in due time, as you mentioned, our store network in the existing market so that we can increase the density and better serve customers' needs for delivery and take away. Obviously, when you open a new store, especially increasing the density, we naturally see some sales transfer. Also the impact is not the same everywhere. Today, if you look at SSSG impact, I think the pandemic obviously is the most important one right now. The sales overall, sales overall is quite sensitive to, for example, some of the regional outbreaks as we have seen in the first quarter as we have seen in June. We have always asked analysts and investors to pay attention to regional outbreak as we are. We don't need to be overly alarmed by that. We need to stay alert because our experience tell us that periodic regional outbreak is to be expected. We have seen that in December, January. We have seen that in June in Guangdong. Now we're seeing a potential outbreak here in Nanjing. The management team is actively solving the situation. What is driving SSSG, there's many impacts, many different factors there. Again, going back to the main point here, which is Yum. Yes, for lower tier city, there will be some impact, if you look at lower tier city overall, the SSSG growth is actually faster, right? For some urban area, I think, as we design our network one thing that will impact SSSG is to reduce that delivery trade zone. For example, if you have a store that was 5 kilometer before, now you can shrink it to 3 kilometer because you want to have better delivery services and whatnot. That would naturally, with that increased density, we are able to cover that, able to do that to serve our customer better. I think, would that have an impact on SSSG? Probably a little bit. Exactly, why do we do? Absolutely. Especially when we look at some of these changes that have been accelerated by COVID-19, one of them stands out is obviously delivery sales, right, off-premise consumption or at-home consumption. This is something that I think when we mentioned the store opening and SSSG, I think it's something that to be aware of. The other one is payback in the future with increased target. Increased store target. In store target. If you look at our store opening, we always have a very disciplined process. That has been so for past many years, it continue to be so and will continue being in the future. That's why when Joey mentions we will maintain accelerated growth, she put a special emphasis on profitable growth. If you look at our payback period for both KFC and Pizza Hut, they all have been very robust and very stable. For KFC, roughly two years, and for Pizza Hut, roughly three to four years. As Joey mentioned, for some of the smaller store and satellite store nowadays, the payback period could be even shorter than that. We'll continue to do that, maintaining a balance between faster growth to capture market opportunity to better serve our customer, but also maintain our financial discipline as we pursue profitable growth. Thank you, Andy. Lillian, I just want to add three highlights to your question. First of all, we would really like to reiterate our focus on system sales growth. In the short term and the long term, because this is not a mature market yet. It's still a developing market with huge opportunity to open new stores. We are only in 1,600 cities in China, and there's still a few hundred cities for KFC and there are 1,000 cities for Pizza Hut. Let's look at the system sales in the short term and long term. In margin, we always have the balance on the profitable margin growth. I would like to add three things. One is, in the past few years, both KFC and Pizza Hut, particularly KFC, we have made ourselves very flexible, and that flexibility is part of resilience for us to open more stores within the gap of existing stores and to open more stores in the new cities. I'll give you a few drivers here. Andy mentioned it, and I would just like to touch upon it. Well, the dine-in traffic is subdued right now. It probably will stay. We see that. Therefore, what are we doing? We try to grow incremental growth from the day part. For example, late night, Shenyangjijia, it's the chicken bone from Shenyang. It's fantastic new product innovation that really drive the sales of the late night. Is it enough to fill the gap of the dine-in? No. For now, the dine-in business is challenged and probably will stay, but we see the opportunity to grow incremental business. We also see the opportunity in regional menu, which we have not further explored the opportunity. For example, the Wuhan Re Gan Mian. Actually, it's selling even better in Jiangxi and Shenzhen because for Wuhan people in Jiangxi and Shenzhen, KFC is the only place that they can buy the Re Gan Mian, hot dry noodle. We also start a new retail that's across all the brands. That is fantastic incremental business to delivery business as well as off-premise business. That's internally, we become [Non-English content], right? Internally, we become more flexible, stronger, that allow us to take advantage of more store location to open more stores. Well, secondly, we have become a better tenant. If you think about last year, what happened is we are one of the very few food retailer that can continue to pay rent, and we did not lay off any people. Whether you're a good tenant or not is decided by the landlord, and the landlord right now really like us, and if not love us, particularly in the lower tier city. We are a clear traffic driver and anchor tenant, and the rent that we are getting in lower tier city is fantastic. That helped the economic of the new store opening. We also have become more clear with our new franchise strategy, the channel franchise strategy, the remote area franchise strategy, so that we are helping our franchisee to open more store in the area that, we can still do it, but it's not as efficient as for the franchisee to run the operation locally, in the remote area. With the three combined factors, we believe that we can continue to pursue system sales, which is a combination of profitable new store opening and the recovery of SSSG. Also protect the margin because it would not be right for our shareholder in the short term and in the long term if we buy market share. We don't. It's a discipline. We only pursue profitable new store growth with industry-leading cash payback and in-store profitability. Thank you, Lillian. Thank you. Thanks a lot, Joey and Andy. Thank you. Go ahead, operator. Yes. Thank you, Davina. Go ahead. Please go ahead. Okay. Our last question comes from the line of Christine Peng from UBS. Please ask your question. Sure. Thank you, Joey and Andy, to share so many colors on your company's latest operation as well as management thoughts towards many questions investors have been asking the analysts about. I have a question regarding the coffee business. I think Joey mentioned briefly about the latest operations about Lavazza, COFFii & JOY. I remember when I was in China at end of last year, I visited the store of Lavazza near office. When I look at some of the commentary on the social media platform, I realized there has been a lot of changes to Lavazza newly operated stores in China compared with one I visited end of last year. Joey, maybe can you share with us more colors about the latest progress you are making to Lavazza, especially how you think about the long-term positioning of the brand, compared with existing competitors such as Starbucks, and if you can share with us some of the financial details such as store economics, that'd be even more appreciated. Thank you. Thank you, Christine. I hope one day you can try our Wuhan Re Gan Mian and see whether you like it as a local person. Compared to the coffee bit, let's take a step back. We have three coffee brands in Yum China, KCOFFEE, C&J, and Lavazza. I'll come to Lavazza a bit. I'm very happy to report KCOFFEE for 2021 first half, we increased the sales of coffee per cup by as much as 30% compared to the pre-pandemic 2019 number. That shows that our focus on good coffee at affordable price is a viable strategy. It's good for the coffee business, good for KFC business itself, right? C&J, we have been working on it. Now we have 38 stores, and we're being very transparent that we are learning the operation side of a business, of a new business. We have huge respect towards new business. I'm happy to report that we are there because a meaningful number of stores will be breaking even by end of this quarter, and more will be by end of year-end. That allows us to build the people. Business is about people. Without good people, there's no business. We build our operation people, and we become sharper with our marketing positioning and pricing, et cetera. These learning are all helpful, very helpful when it comes to the experience of building Lavazza brand in China. It take much less time compared to C&J for us to get the operation right, to get the marketing right, and also with our fantastic partner, Lavazza, help to get the food right, to get the Italian flavor of the whole environment, the food, the drink, et cetera. Lavazza, Andy said it earlier, I'm going to emphasize, we are going to have an accelerated pace of development for the second half of the year compared to the first half. First half, we moved from five stores to today 15 stores, mainly in Shanghai and now one store in Hangzhou. For the second half, we will accelerate the store opening pace, and we'll enter into more cities in China. That's in terms of footprint. In terms of business model, right now, we so far in Shanghai for the 14 stores, we have half of the stores what we call large stores to build the brand. The other half are either slightly smaller stores or mini stores. These are the stores with much better economics to make the money faster. A combination of flagship store to build a brand and then smaller store to build a sale. That seems the right thing to do, and we are very happy with the initial results. That is the second. Third is we already are encouraged by the initial result and working on dayparts, menu combo, delivery, and others. Our off-premise sales mix right now is over 50% for Lavazza store. That's good, right? Because we know that right now, the off-premise is the trend. For Lavazza, obviously, finally, my comment is the positioning is premium. It's authentic Italian-style coffee with a nice environment. We believe that Chinese consumer can have a choice, can have alternative other than one single choice in this beautiful premium coffee segment. That's where we are right now, and we cannot wait to see more beautiful stores with fantastic food. I suppose it's hard to get our Italian partner to produce bad Italian food, and we are not complaining about it. We really look forward to have opportunity for investor and for analyst to try our Lavazza coffee and food in China. Thank you very much, Christine. Hopefully in Hong Kong one day, by the way. Thank you. Thank you, Christine. Before we end today's call, please know that we will host a virtual Investor Day on the morning of September 23rd, Shanghai time. We will announce more details as we get closer to the date. With that, we will conclude today's call. Thank you for joining. Have a great day. Thank you. Thank you, everyone. Thank you. Thanks, everybody. This concludes today's conference call. Thank you for participating. You may now disconnect.