Yum China Holdings, Inc. (YUMC), China’s largest restaurant operator, together with Luigi Lavazza S.p.A., the globally-renowned Italian coffee chain, plans to open 1,000 new Lavazza stores by 2025 in an effort to develop Lavazza into a leading coffee brand in China.
Shares of Yum China gained 1.1% on September 22 to close at $54.42. (See Yum China stock charts on TipRanks)
Yum China and Lavazza Group entered into a joint venture agreement in early 2020 to develop the Lavazza café network in China. Yum China holds a 65% stake in the JV, with Lavazza Group owning the remaining 35%. The opening of the Lavazza flagship store in Shanghai in April 2020 marked the coffee brand’s first store outside of Italy. Since then, 20 stores have opened in China across Shanghai, Hangzhou, Beijing, and Guangzhou.
The combination of Yum China’s digital capabilities, world-class supply chain, operational expertise, and in-depth knowledge of Chinese consumers will lead to a meaningful expansion of the Lavazza café network.
To fund the expansion, $200 million will initially be injected into the JV to fund its future growth. Further, the JV will be Lavazza’s exclusive distributor in mainland China to market, sell, and distribute more products from Lavazza’s global portfolio, including coffee beans, ground coffee, and coffee capsules.
Per the expansion plans, more and more Lavazza café will be launched in higher-tier cities, with a variety of store formats targeting different occasions. Notably, the JV aims to double the number of stores by the end of 2021.
Yum China CEO Joey Wat commented, “The recent progress of Lavazza cafés in China has been encouraging and reaffirms our belief that our partnership is well positioned to capture the significant coffee opportunity in China with accelerated store network development. We are excited about what the future holds for this iconic Italian brand.”
Macquarie analyst Linda Huang recently downgraded Yum China to a Sell from a Hold with a price target of $52.90 (2.8% downside potential).
Overall, the stock has a Moderate Buy consensus rating based on 3 Buys and 1 Sell. The average Yum China price target of $70.75 implies 30% upside potential from current levels.
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