Yum China, the operator of KFC and Pizza Hut restaurants in China, delivered resilient performance in the third quarter despite the downward pressure on the economy and cautious consumer spending. The company's operating profit increased 77% year-over-year to $316 million and system sales grew by 5% year-over-year, outpacing the 2% national restaurant industry average for the same period.
The Company's industry leading digital capabilities help it maintain strong business performance despite a challenging environment. Significantly, the company invests heavily in digital to enhance its delivery and digital ecosystem to make the business fundamentally stronger.
Yum China's digital capabilities also serve as key touch points with customers. Incredibly, KFC and Pizza Hut loyalty programs now exceed 400 million members combined, making it one of the largest membership programs in the restaurant industry globally, while member sales accounted for approximately 62% of system sales in the third quarter. In addition, since 2018, KFC has sold over 100 million privilege subscriptions. The company's privilege subscriptions offer great value for money, and have been an effective tool, in driving frequency and spending.
Yum China's ability to capture off-premise demand not only enables it to effectively serve customers but also cushions store closure impact due to COVID conditions. Nomura seemingly agreed in an analyst note following Yum China's third quarter earnings saying that, "Off-premise channel continued to drive sales in an environment of weak dine-in traffic," while Morgan Stanley stated in a separate analyst report that, "YUMC's digital initiatives continued to drive growth for both online and offline orders."
The company's digital capabilities are also crucial to streamlining restaurant efficiency. For example, digital orders optimize in-store labor efficiency and Pizza Hut's table-side mobile ordering sales have grown exponentially since its launch in 2018. This has the added benefit of helping to mitigate rising wage inflation and freeing up staff members to enhance customer service.
Customers love convenience and Yum China continues to capture the growing demand for delivery and takeaway. The complex COVID situation in China has meant that delivery continues to be a popular option while dine-in volumes remain subdued. The company has also been maximizing delivery coverage and flexibility using AI technology. Most recently, Yum China launched Smart Delivery to dynamically adjust delivery coverage for each store by daypart, taking into account the operating hours of nearby stores. The upgraded system helps the company serve more customers more efficiently. Empowered by Yum China's dedicated delivery drivers and leading digital capabilities, delivery contributed approximately 38% of KFC and Pizza Hut's Company sales in the third quarter.
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