KFC, Pizza Hut, and Taco Bell parent Yum China has found a novel way to tailor its products to China’s changing demographics: target pet owners, in addition to parents.
“More and more 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 for kids. Now, we have toys for cats and dogs.”
Yum China offered both fluffy toys and pet beds as Kentucky Fried Chicken promotions in the fourth quarter. Both items, originally designed for pets, even became popular with human customers. “They’re doing pretty well!” Wat said.
Wat said that Yum China’s “focus on pets” reflects a shift in attitudes among younger Chinese. The country’s Gen Zers and millennials are prioritizing individual comfort and well-being over social norms that demand they get married and have children.
The number of “double-income, no kids” households are growing in official data, and some of households are choosing to get pets. A 2021 paper from the China Pet Industry Association estimated that China’s pet market grew more than fourfold between 2015 and 2020, reaching $46 billion, and predicted the market will hit $70 billion this year.
Meanwhile, Beijing is trying to encourage families to have children, rolling back strict controls on household size. Yet ordinary Chinese families complain about poor work-life balance and access to childcare. The country reported its first population decline since 1961 earlier this year.
Yum China said many of its toys generated “huge social buzz,” such as a dancing Pokémon toy distributed via KFC branches last year. The toy, named Psyduck—intended for humans—is a rotund duck-like creature prone to splitting headaches.
Chinese customers embraced the toy as a symbol of their frustration with the country’s snap lockdowns and seemingly never-ending mass testing. The toy reportedly sold for as much as $75 on China’s secondary market.
Wat said the company’s marketing team turned to Psyduck for a different reason: The character was less expensive to license than more famous Pokémon, like the franchise’s mascot, Pikachu.
“There was a practical consideration: the pandemic. Our budget was tight.” Wat said. “Psyduck is much cheaper!”
She also explained that these more “invisible” characters presented new marketing opportunities for Yum China’s team. “They might give us a surprise,” she said.
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.
Yum China released its fourth-quarter earnings on Tuesday, reporting a 9% decrease in quarterly revenue year on year, though the company said revenues grew slightly if measured on a constant currency basis. Net income fell to $53 million, a drop of 89% from the same quarter a year earlier.
The company admitted that COVID disruptions in China hurt its ability to operate. As local governments tightened lockdown measures in October and November, Yum China said that up to 4,300 outlets, or a third of its stores, had to either close or limit operations.
China rolled back many of its COVID measures in early December, but the dropping of restrictions was followed by a massive wave of COVID cases. Yum China said the outbreak caused a “shortage of restaurant staff,” forcing it to close or limit operations at an average of 1,300 stores, or one-tenth of its total.
Yet the company is “cautiously optimistic” as China’s COVID surge fades and its reopening continues. The company still plans to open as many as 1,300 stores in China this year.
“The real test will be the sales trajectory after the [Chinese New Year] holiday and how the economy will rebound, given the fluid COVID conditions and macroeconomic headwinds,” Andy Yeung, Yum China’s CFO, said on a call with analysts. The company also warned of the threat posed by new COVID variants.
“We plan for the best and prepare for the worst,” Yeung said.
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