Thank you all for standing by, and welcome to the Yum China Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I'd now like to hand the conference over to Michelle Shen. Please go ahead.

Thank you, Melany. Hello, everyone and thank you for joining Yum China's second quarter 2022 earnings conference call. Joining us on today's call are our CEO, Ms. Joey Wat; and our CFO, Mr. Andy Yeung. We are dialing-in from different locations today. If we experience a technical difficulty during the call, please remain on the line as we reconnect. Before we get started, I'd like to remind you that our earnings call and investor presentations 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 3 sections. Joey will provide an update regarding our performance in the second quarter. Andy will then cover the financial performance and outlook in greater detail. Finally, we will open the call to questions. You can find the webcast of this call and a PowerPoint presentation, which contains operational and the 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. Second quarter was the most difficult quarter in the past two and a half years. With our main focus always on keeping our employees and customers safe. We also want to bring joy to our customers. We kept our morale high and came together to deliver better than expected results. I'm both glad and honored to fight the battle alongside a wonderful young China team. We operated with our Shanghai headquarters under lockdown for over two months and still managed to execute with extraordinary agility, quickly forming cross functional, and cross brand crisis management teams, while we developed flexible cares to tackle each problem as they arose. Through it all, we have stood firm and built the business stronger in so many ways. With innovative new manual offerings, delivery, and digital solutions, as well as cost optimization initiatives. These solve not just the imminent problem but can serve as our learning base to make us more agile and resilient for the longer term. During this trying time, we continued to execute our RGM strategic framework that is resiliency, growth, and moat. Let's start with resiliency. Our resiliency shines brightest in tough situations. Let me share with you some of the measures we implemented to overcome considerable operational difficulties. During the city lockdown in Shanghai with very limited restaurant, staff and riders, our goal was to sustain minimum level of restaurant operations and serve desired food to customers. With simplified menus, where you reduced complexity of operations and inventory management. At the extreme, we just have one bucket of fried chicken on the menu, one item on a menu and that's it. Fried chicken was perhaps one of the most desired food items in Shanghai during lockdown and brought…

Thank you, Joey. And hello, everyone. Let me share some color of our second quarter performance. The COVID situation has significantly impacted our second quarter results. In April and May, same-store sales declined by more than 20% year-over-year. On average, more than 2500 store were temporarily closed or provided only limited services. The situation gradually improved in June. We were able to capitalize on that improvement with same-store sales decline, narrow to high single digit year-over-year and a number of temporary store closure also reduced. We achieved operating profit of $81 million and restaurant margin of 12% in the second quarter. We were able to generate meaningful profit in the quarter, which exceeded our expectations not only by capturing sales when COVID situations improved in June, but also by taking swift and decisive actions. We adjusted offers and promotions spent tremendous efforts in driving productivity gains, secure one-time release and we base our cost structure. Let me go through the financials and our cost control initiatives. Unless otherwise, all percentage changes are before the effects of foreign exchange. Foreign exchange have a negative impact of approximate 3% in the quarter. Second quarter total revenue decreased 13% year-over-year, in reported currency to $2.1 billion due to the same-store sales decline and temporary store closures. This was partially offset by the contribution of new units and the consolidation of Hangzhou KFC. System sales were down 16% same-store sales were 84% of prior year’s level. By brand KFC same-store sales were 84% of prior’s year level with same-store traffic at 75%. Ticket average grew 12% mainly due to the increase in delivery mix and higher ticket average of community purchasing orders. Pizza Hut’s same-store sales were 85% of prior year’s level. Same-store traffic was at 80%. While ticket average increased by 6%. This…

Thank you, Andy. We will now open the call for questions. In order to give more people the chance to ask questions please limit your question to one at a time. Melany, please start the Q&A.

Thank you. [Operator Instructions] Your first question comes from Lillian Lou with Morgan Stanley.

Thank you. Thanks a lot Joey and Andy and also congratulation to the very solid results. My question is mainly on the margin side, because obviously, I think every cost line was controlled much better than expectation. Just want to understand with business gradually reopen, especially more stores are reopened, and they're running at normal hours. How do we see these cost line on a trend? Whether some of the -- because I think Andy and Joey mentioned some of relatively temporary measures for cost savings. So want to understand will same-store sales growth continue to be negative? How are we going to project this, I will say cost changes, especially on the margin side on the year-on-year basis? Thank you.

Thank you, Lillian, so let me answer your question. I think, first of all, I think as mentioned, the second quarter margins and profit exceeded our expectations. I think to make all possible, I think, first of all, is that all thanks to the very incredible efforts, feel and dedication of our team, especially, our restaurant employee, who did everything humanly possible and endure a lot of hardships during the lockdown and the pandemic to continue to serve customers in need and keeping our store open running as normal as possible. So I think those efforts, the Herculean effort, I don't think is possible on a sustainable basis. In terms of, obviously, the performance was dependent as to some the improvement in June in terms of the COVID situation, and our ability to actually capitalize on that improvement. And so, as we mentioned, our same-store sales declined now to high single digit in June. But in terms cost funds, we mentioned, already, some of these initiatives are temporary. So, for example like we have, so I'll cut back quite significantly on marketing and promotional activity. I think as you know we tried to drive sales, I think we stopped that. We also mentioned that in terms of managing the cost inflation in the first quarter was phenomenal, but I think, if we look at the commodity price is still in elevated level and we expect that to continue to creep up. In terms of labor, I think, obviously, we have simplified menus items, we have shortened our opening hours during the second quarter and then we also reduced hiring. And so, some of these is going to have impacts, especially, as we sort of tried to return to a more normal operations, so we will have more normal manuals and…

Lillian, I just want to give some color about these numbers -- behind these numbers, let's say [indiscernible], some of the day they will not continue, some of it will continue. For those who continue such as the sharing of staff across the store. Some of them will not continue, such as the extreme situation during April and a bit about May. These stores are run by very few number of employees. Typically they stay in a store for one week, they literally live in a store for one week and work on the store. And then, a week after, second shift of staff moving. However, for some monitoring, the most extreme case is one of my staff stayed there for 33 days, the other ones stayed there for 44 days. I have the fortune to invite some of them to have lunch with me recently to send them. It's truly heartwarming behind is numbers to really grateful that we have such amazing operation team. They work this hard so that they can protect their job, and they can serve the customer and that they can protect the company. But this kind of extreme arrangement, of course cannot be sustainable. But if we have gone this far other innovation and creative arrangement, our team become even more open minded to embrace any sort of innovation in terms of rebasing the cost structure. Thank you, Lillian.

Thank you. Your next question comes from Michelle Cheng with Goldman Sachs.

Hi, Joey and Andy. Thanks for taking my question. My question is about the incremental opportunity we observed during the tough time. So you mentioned that there are some new business, we are driving the community go purchase. And on top of that retail products are selling pretty well during a tough time. So are we going to be more aggressive exploring these new business line? And in addition to that, from the way we do the business, Joey, earlier, you mentioned that we have these AI enabled route to improve the delivery efficiency, et cetera. So just wondering that those opportunity we observed during a tough time, how we should think about the sustainability and how we are going to grow these opportunities even further in the future. Thank you.

Thank you, Michelle. Let me take a step back and then comment on your question about the incremental opportunities. Overall, quarter two, we delivered substantial operating profit versus expected load. The absolute number is not the highest quarter 80 some million, but my God, the quality, the amount of effort go into it and the resiliency our team has demonstrated is phenomenal. And we can see the result. April is tough, May improved a little bit, June came back quite a bit. The core of the core are the questions that you just asked, what did we do? How did we manage to do it? Well, I mean, it wouldn't go back to our strategic framework, which hopefully make it much easier for our key stakeholders to understand the management is going back to RGM, the resiliency, the growth and the moat. In terms of resiliency, the two example that you mentioned, Michelle, the new retail, the community purchasing and AI, these are great example about our resiliency, we will get very, very quickly. We are talking about putting together the community purchase program, starting with a hotline and later on with the many program. Within a week, across the brand, and we got the entire process team program down the middle of March. And then we roll it out and wait for two or three days and then the demand came in. And that's the kind of speed, agility and determination, the ability to execute innovative solutions that earned us the resiliency and thus the result. So the community projects happened. And then when they happen, of course, we are selling what we can sell at that time, which is fried chicken. But that's not enough. Because of all kinds of limitation, and also a home consumption, you can…

Thank you, Joey. That's very clear. Thank you.

Thank you. Your next question comes from Brian Wong with CMS.

Hi. So basically actually, I have one question. So I will talk to understand your number.

Brian, would you mind speaking up a little bit? We have very difficult time hearing you Brian.

Well, sure, thank you. Yes. Can you hear me now?

Yes.

Yes, sure. Thank you. So basically, I like to understand, your number of stores and the increase, how do you plan to increase your number of stores in the second half? Say for example, how to break them down by different brands, say, for example, like your plan of increasing your store counts in KFC and also Pizza Hut. And there will be a breakdown by tier of cities? And that's my question. Thank you so much.

Hi, Brian. Our new store opening, I think, as we mentioned, we have always deployed a disciplined process, and different methodologies to evaluate our opening. And usually, some sort of bottom up from the market where they propose appropriate site, one to the financial models, one to the committees to think about the financial return and the special implications, and overall market conditions, to approve those site. So I think we'll -- I don't think there's any change to that process. And so in terms of like by brand because KFC continue to be obviously, the largest brand within our portfolio, and will continue likely to be to account for the majority of the new store opening. Pizza Hut, as you can see, the new store performance is also very good, especially with our lifestyle, and you have seen the store opening accelerated last year and then this year, as well. So, I think, you can also expect that. In terms of other brands, I think, we can expect coffee, for example, Lavazza, will continue to and also Taco Bell too, will continue to expand in second half, although they're still a smaller portfolio of store. But in terms of percentage wise, I think it will be best. But in absolute numbers, they will be small. And then, regarding Chinese cooking business, there's some cyclicality to start opening there, they are opened by franchisee so, genuinely there will be more store opening before the Chinese New Year, for example. And so, that's potentially more, but again, like this year, because the COVID situations, it's a little bit more challenging for restaurant operator. And so franchisee, so we will continue to monitor the situations in the market, especially given our Chinese cuisine business [indiscernible] business concentrated in northwestern part of China, we'll have to see how localization was enhanced. But that's like, by brand. In terms of our key area, as we have seen over the past couple years, we are beginning to see more opportunities in multi-cities and concentrations or the number of new store opening in more these cities will have now accountable, the majority of this store open. Now, obviously, we continue to see the opportunity to increase the densities of our store network in the tier one, tier two cities. And I think that's the general trend and that trend will continue. So that's how we genuinely look at the store opening. Again, like this year, we have a target of about 1000 to 1200 net new store and as we mentioned, given the strong lines that we have, can often give them this strong economics that we have seen in our new store that have opened over the past couple of years and also recently. We're pretty confident that, we will have good opportunity to open more good profitable store that can help us grow our facility in the long-term. Thank you, Brian.

Thank you so much. Thank you, Andy. So I think this is very clear. So actually, I have one more question. So the competitive landscape, so because I heard that, in tier two and tier three cities, and then there are some kind of low price tiers, they are similar to KFC, so they are kind of like the Chinese version, cheap version, say someone like [indiscernible]. So how do you think, your strengths compared to them is because I've seen the manual and their manual is actually quite cheap. So how do you plan to compete with them in these lower tier cities?

Right. I think, we always see competitions, both cities and high tier cities, until we think the best thing that we can do is not to be just been cheap, but we were focusing on having quick value for consumer with value that that means, they are cheap or lower price, or means give the food at good values, good price to consumer, and so that they can enjoy it. We have a fantastic brand, our customer very loyal to our brand, we have great quality of products, delicious -- a very comfortable fun environment, that put in mind our brand identity. So, as you mentioned, if you look at during the epidemic and the lockdown in Shanghai, for example, I think by some indication, KFC fried chicken was mostly fast food, during that period of time. And so I think, our brand, working very well with consumer, our food and culture in a way, you can see, after you mentioned, each brand, continue to innovate with new products, with great fun food for consumer. And we continue to deliver great values. As mentioned, we are the reason why we focus so much on costs, and controlling costs is that in order to compete in value propositions, the most important thing is to have a low cost structure advantage. And that's what we try and do really quick and value the consumer.

To be more specific, at least in three way, we would do it slightly differently in lower tier cities, compared to tier 1 cities. Well, we have slightly different manual, the fried chicken, we felt that we could have like entity or something like that, which is targeting for lower tier cities to start with. We might sell in other top tier cities later on, but we do have different slightly different menu and the pricing is differential. So we incorporate it and then also promotion. We give our store manager flexibility to run certain promotions, that certainly the different model. So Andy mentioned investment is the cause of building up these stores in lower tier city could be slightly lower, and we have a slightly different way of doing it. So the operating model, the kitchen, blah, blah, blah, will be slightly different. So we are very, very focusing on children in lower tier cities, which is something very, very unique to us in the last 35 years. To give you an example in northern part of China, which is the most difficult part of our business even in the last two or three years, despite the impact of the pandemic, in eastern part of China, northern part of China, the business is still the more challenging ones. For this summer alone, we have run more than 10,000 children's summer events. So they're still manageable organizing events for kids during the summer. So you can see we do have different sites, different model. Of course, sites can take this opportunity to remind and analyze the other the lower tier cities, we have so many different business models of catering and customized more slightly different customer groups in different region in different consumption, occasions like a transportation hub, the highway station, and university these days, you name it. Okay, I'll pause here. Let's move on to the next question.

Thank you. A reminder to please limit your questions to one per person. Your next question comes from Xiaopo Wei with Citi. Please go ahead.

Good morning, Joey and Andy, congratulations for another resilient quarter result. I think in the past few years, Yum China have assumed great agility of being defensive. But being defensive about being ideal operation also means that you can switch back to offensive mode when opportunity arises. If China reopening continues, which I presume you share the same view, how could you be offensive again in operation. Joey had touched base on the new brand, new retail opportunity, et cetera. But if we only talk about the cooperation of KFC, Pizza Hut in the reopening scenario, how could you do differently versus a pre-COVID kind of operation with what you learned in [indiscernible] in the past two years? Thank you.

Thank you, Xiaopo. Let me share my thoughts here. Indeed, the business has become more agile, we just looked at the number for quarter two, our same-store sales at 84% and same is about system sales so 16%. However, we still deliver 4% profit. So technically, we reduced the break even point to about 80%. And roughly in our business, I guess, pretty normal to have the break even point at about mid-80s. So our ability to reduce to the 80s it is phenomenal, it gives us this agility to do things. Going forward, I think even for quarter two, you can see when our fundamentals are intact, and when things are a bit more stable, even though COVID situation is relatively more stable, we are able to bounce back rather quickly. That's what we can say even for quarter two. So we hope although for quarter three, as Andy mentioned, there's still a lot of uncertainties even as of right now, still landlords, still in a challenging situation. But in the long-term, we are optimistic and we're still very committed to this market and that we're still growing the store. But when things become better, how can we grow faster? If that's your question, the strategy is, is there, it's not going to be any different from what we have shared since 2019 is RGM is the resiliency, growth and the strategic moat. We might do it certainly faster, but the strategy is the same. It might be a bit difficult to say that in the last few years but right now, I think we can see that sometimes resiliency is even more important than both. We have the resiliency. And we'll continue that with our digital capability, with our innovative product, with our great value for money, with…

Thank you. Your next question comes from CJ Lin with CICC.

Thank you, Joey and Andy. Congrats again for such a strong and resilient performance. I have one follow up question on the margin side. So, we are showing a very resilient restaurant margin in Q2 through the extraordinary effort, since we have adjustments and [indiscernible]. And meanwhile, Andy mentioned that in the future, we are getting back some trade cost control measures to sustain a long-term growth. So how should we expect our restaurant margin in the long-term under the new normal? Would this still be like, around 17% targets? Thank you.

Thank you, CJ. So, obviously, as we talked a bit about short-term and long-term, as we mentioned, in the second quarter, some of these cost saving initiatives or efforts will last and what is more temporary in nature. And then, in the short-term, the biggest driver for restaurant margin right now is self-leverage and deleveraging that to quite extend depending on COVID situations. But in terms of longer term, I think, our goal is obviously, [indiscernible], community drive and grow over the top-line. And also, we turn profit in more normal level, as we have mentioned, in our last year's Investor Day, our longer-term goal is really to drive sales growth by high single-digit and to drive our profit growth by, high single digit too. And so, I think those empower, that's what we was trying to achieve in the long-term. One thing I think, the question was saying, in the new normal, or when things return to normal, we have confidence in capturing that opportunity, both in sales, and also potentially in margin. I always say, like, although history is not -- always the predictor of future, but it's probably the best predictor of future and show us some lessons. If you take a look at the period, the full year period between third quarter 2020 and the second quarter 2021, when you look at your situation was markedly more stable, you would see that, we were able to drive our sales growth. We're able to see significant margin improvement. And that's going back to what Joey have a lot of times emphasized on resiliency, and also, in terms of our excellent execution. And so, our planning help us to design our operations, in case things get worse, but also in case things get better, how we can capitalize on that opportunity and drive sales growth and then also drive sales in margin recovery. So hopefully, that gives you some perspective in terms of how we look at the shorter term and also the longer term margin perspective.

Thank you. Your next question comes from Anne Ling with Jefferies.

Thank you. Hi, management team, thank you for taking my call. My question is on the coffee business, I know it's still very -- it's a very small at this space. But at the same time, I understand that, this will be one of our potential growth moving forward, more like, mixes on top. And if I look at, like your store opening plan, versus like the peer, it seems that it's still a little bit slower. So, maybe, would you share with us that, your pace of your coffee like that will rollout, like are we -- are we still in the process of testing our model or we already like find the right models to roll it out. And once we roll it out, normally, this is the type of business that we need to sell and with back-end support and meaning that, if we have like 200 stores, we possibly might have to bet like some investment initially. So, I don't think that any of us as an analyst will factor in any investment in our model. So just want to check right, if the company -- if management can share with us like, some of your initial plan or what will be the investment in the powder coffee business, that would be great. Thanks.

Anne, thank you for your question. So, I think, first of all having -- we were very pleased to see the progress. And the progress may not be the same as how they measured by our company. Our company may measure by x hundreds of store open in quarter and whatnot. As we have mentioned, some of our investment, including [indiscernible] expansions, as with any other investment, in fact there are some pauses. Although, like all the newer brands like coffee building a brand, you don’t expect them to be profitable immediately on short-term. With a genuine expect that, they will figure out the right business model before they scale up, because otherwise, you're going to scale a big problem, right. So the way so far, we're very pleased with the progress so far, the store network right now has expanded quite significantly from last year. We have 74 store right now in four tier one cities, and plus a number of third tier cities as well. In household sales, we have more than doubled year-over-year, and then even in very challenging time, as Joey mentioned the team have done a very tremendous job in sort of like putting together a package, a product to sell in retail, whichever it would be almost better than last year same-store sales, last year, we had very small number of stores mainly in Shanghai. In terms of our customer base, right now, we continue to see growing customer loyalty. If you look at member now, member for Lavazza have grown four times year-over-year. And then, its number contributions continue to grow, very significant number now. So, obviously, the coffee business, this new brand, has also been impacted significantly by COVID, as in [indiscernible], a large number of their store, on top of that [indiscernible]. We have locked out and so was impacted. As I mentioned, they were able to fairly quickly pivot into community purchasing, your package coffee, retail, product like pastry and whatnot. And, this product really help us in certainly us reach to a bigger audience, maybe have not changed our product, but we are able to do it through community purchasing, and then some of the new initiative. Now, obviously, we cannot say, we have everything all figured out and perfect model. I think you would take some work to sort of streamline the restaurant operation there to strengthen some of the fundamental, it will take a while for KFC and Pizza Hut to figure out the rice bowl format, and in some of this product manuals, and also improving efficiency. I think we should still need to be a little bit more patient with that. And so, yes, so I think we're happy with the progress so far. But still a lot more work to do. But nonetheless, we're very confident and we think it's very important vertical for us. And we have a big partnership with Lavazza to do that in the coming years. Thank you.

Thank you. Your next question comes from Christine Peng with UBS.

Hi, management thank you for taking my call -- taking my question. So I actually have a similar question, which I am sure some of the analysts like to shovel and have asked previously, but I just want to ask management providing some updates about the new initiatives that you previously mentioned, as we are in looking for a post the COVID full recovery in China possibly in 2023. So I think the two key initiatives management previously mentioned, one is the integration of Hangzhou and leadership, can you provide us more updates as regards to this initiative? And in relation to that, maybe can you provide us more updates in terms of your maybe 2023 plans, or in terms of the extent of the Chinese cuisine business. I know that business has been struggling with COVID in the past three years, but when we think about 2023, what are your initial thinking behind the store extension plan, et cetera? So I think that's the first initiative I want you to check out. And the second initiative is regarding, introducing more franchise stores. Is this something management is thinking right now, given that management -- I remember previously, you mentioned about your initiative to emphasize the supply chain resiliency to provide more possibility of franchising. So, I just want to check out what are the latest thinking behind those long-term initiatives when we're going into 2023? Thank you.

Hey, Christine. Yes, so for Hangzhou and leadership as you mentioned, obviously, you have been impacted by the outbreak, because it's tight in nature, and then a lot of locations are in northern -- western part of China. Now, so I think, obviously, the number one priority for them is really to try address sales, recovery, and then also have the franchisees to strengthen the operations, particularly in the delivery business. So in the sense, they probably have not been -- have a big part of the business in delivery. So, I think this is something that we can help, the franchisee to do, given our four corporate building. Leadership also during the pandemic, also being quite creative and innovative, and make pretty good progress including goods and services. And also, the overall cost management and especially in Shanghai in June lockdown, they were able to sell, like -- capture a lot of opportunities in both delivery and also our community purchasing and retail business. So I think, priority for the Chinese cuisine business next year is really just trying to drive sales recovery, help the franchisees to win their business and then also continue to work on the fundamentals and integrations. So, Joey, do you want to comment on the franchise questions?

Christine, will continue to be the driving force for our business going forward. However, we do have the 35 franchise strategy. So right now, in markets that have a bit of long and thin market, like the [indiscernible] and these very good franchisee market and then also for some emerging new business models, such as the stores along the highway, station, we have established strategic partnership already to put the store. So the franchisee strategy, it's not going to be general, it will have its own strategic purpose. And given the time today, I think I'll just pause here. We could have more detail exchange our thoughts later on. Okay. Thank you.

Thank you. Your next question comes from Lucy Yu with Bank of America.

Hi, Joey. Hi, Andy. Thank you for taking my question. My question is more on the JV margin side. So how should we think about the promotion and discounting plan in the second half? Especially we are fighting against the commodity headwinds and a COVID uncertainty, while at the same time and we're trying to stimulate ourselves. So, how should we think about the promotion and discounting in second half? Thank you.

Thank you. Lucy. As we mentioned in the second quarter, obviously, we saw cut back on marketing and also in promotional activities. And then as we move into the second half and the third quarter with the coefficient improve a bit, even though with some volatility. I think the key focus for us is really driving sales recovery and so, we likely going to see greater marketing and promotional activities there. And then also have more value campaigns -- value for money campaign, because as you mentioned consumer sentiment is rapidly weak, because after prolonged COVID situations, and then some of these macro economic pressure. And so, value for money is very important and so that's how we see in second half this year. But as always, like, we were always trying to be very cautious about using price increase sort of like to offset inflationary pressure. We always try to first ask, it's a way for us to run our business better and lower the cost, before we say like, we have increased prices. But we do increase price anyway, by a small amount but usually below the inflation rate. Thank you, Lucy.

Thank you. Our final question today is from Walter Woo with CMB International.

Hi, hello, Andy and Joey, congratulation for your highly resilient results. My question was asked by another analysts previously, so perhaps I can ask about your members sales. So while the number of members continue to grow very healthily, but it seems the members sales as percentage of total system sales has declined a year-on-year. So do you mind explaining the reason behind? And is that a concern for you guys, and how do you see the growth potentials and those strategy over the members and member sales going forward? Thank you.

We equate, the member sales is around 60%-ish, it is not a more concern for us because the total members are still growing, which is very nicely actually, I mean, our member sales is 255 million roughly for KFC and then 150 million for Pizza Hut. And when it comes to member and non-member sales, the member cells 60 something is already high enough. And then the next target for us is to other than quantity is to work on the quality, the stickiness of the member, the overall experience of the member, etcetera, etcetera. So I guess, we cannot just increase the members for every, it does not make much strategic sense. For us is quantity first and quality. But it's a really, really important part of our business, and there's still so much that we can do to improve and to get something out of it. Just to give an example, what about the cross brands sales? KFC and Pizza Hut, how can we do better? And how can we serve the same customer better with KFC, Pizza Hut, Little Sheep and et cetera. So a lot to do here. But the focus is more on the quality of our experience for now. Thank you, Walter.

Thank you, Joey. And just a little bit follow-up. So if the members, growth is still very healthy, and the member sales mix has declined. So is that means, we have more new customers being affected in the second quarter or in the past few months. So do you see that trend? We have more new customers or new clients here?

I mean, the China population -- go on Andy.

Yes. So I think as Joey mentions, like, we have a very large commercial base. We already have like 280 million member. And we have large population urban area already. This is not always higher the member sales percentage of member sales are better, but you have 100% member sales. I mean, I have no new customers. So there's always a balance between, a mix of member sales and the new members. And so, there will be some fluctuations from time-to-time, depending on the marketing campaigns and depend on the condition. But I think 64% is really helpful level, and so that in terms of -- for us really as Joey mentioned, which is how to drive that quality of member sales, driving costs out among our customers, and then, continue to increase their stickiness and frequency over the long-term. So that, the payback for our marketing and new customer improvement continue to improve. So those are the number of matrixes. I think member sales is one of them, and is not always, the higher, the better.

I totally understood. Thank you.

Thank you.

Thank you.

Thank you. That concludes the call today and we look forward to speaking with you on the next earnings call. Have a great day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.