By Sophie Yu and Brenda Goh

SHANGHAI (Reuters) – KFC operator Yum China Holdings (NYSE:) is focusing its store expansion efforts in China on smaller cities, as demand there has recovered from the pandemic much quicker than that in the country’s major centres, its chief executive said on Thursday.

China’s biggest fast-food operator, Yum China Holdings (NYSE:), is responsible for the KFC and Taco Bell restaurants in China. It has more than 11,000 outlets. On Thursday it announced to investors that it would accelerate its expansion of the store network in order to achieve a milestone of 20,000 outlets across 2700 cities.

It did not specify how many stores it planned to open in lower-tier areas.

However, Yum China’s chief executive Joey Wat told Reuters that the company targeted these areas because their residents have higher disposable incomes than those in larger cities like Beijing or Shanghai and are willing to spend more.

Wat explained that higher-tier cities have a greater living cost due to the rising costs of housing in recent years. That means there are less disposable income. People in higher-tier cities are more cautious in spending since the pandemic.

The company has been affected by the pandemic, even though China has managed to contain COVID-19. Beijing has implemented a “zero tolerance” policy which has allowed authorities to lock down high-risk areas even when there were only a few cases.

Yum China last week warned that the adjusted operating profit could suffer a drop of 50%-60% due to the fact that the Delta virus spread in China. More than 500 restaurants were forced to close temporarily or to only offer take-out.

Wat explained that China has seen a shift in consumer behavior since the Pandemic. Yum China is launching packaged and new foods and products to tap into the home-consumer trend.

Two pieces of steak can be ordered online from Pizza Hut and cost 99 yuan.

Wat explained that Pizza Hut doesn’t only sell cooked steak but also raw steak. “Many people learned how to cook while they were at home, regardless of age or gender.

Yum China and Italian coffee maker Lavazza, which formed a partnership in 2020, also said on Thursday that they aim to open 1,000 Lavazza cafés in China by 2025 from 22 by the end of August. In order to finance the venture’s future growth, both groups plan to invest $200m initially.

Wat explained that “this is only the initial phase.” Wat said that more investment would follow.

($1 = 6.4573 renminbi)