Yum China (YUMC) wants to expand to the coffee business to attract younger customers to its stores, according to an announcement made during its virtual meeting this week.

This announcement comes after a series of success stories with Lavazza’s idea.

“Rapid same-store sales growth at COFFii & JOY and the early success of Lavazza reaffirm the Company’s belief in the potential of the coffee market in China,” says the announcement. “COFFii & JOY is positioned to attract younger consumers with its artisanal coffee and small store format. Lavazza is a top-quality and authentic Italian coffee shop.

The joint venture between Yum China and Lavazza Group (a world-renowned, family-owned Italian coffee business) will help accelerate China’s expansion. They aim to open 1000 Lavazza shops by 2025. It will also be Lavazza’s only distributor in China, allowing them to offer more products from their portfolio.

Yum could see a rise in its overall margins due to coffee being a high-margin product. The company could gain younger customers, which would help fuel brand buzz.

Aggressive Expansion Strategy

Yum China’s expansion into the coffee business comes when the company continues to open new stores at a feverish pace, shaking off the risks arising from the pandemic.

Joey Wat CEO stated that as long as we are able to manage the risks quickly, there will be plenty of growth opportunities. To reach the milestone of 20,000 stores, we are increasing our store network expansion.

Wall Street’s Take

Wall Street has been skeptical of Yum’s expansion plans. Its shares have lost 1.1% of their value year-to-date, as the gained 20.2%.

Yum should interpret its numbers with care, though, since Yum’s performance is affected by China crackdowns on businesses and the pandemic.

Five analysts only have been following its shares over the last twelve months and rate them as Moderate Buy. The $71 average YUMC price goal implies that there is upside potential for 25.8%. Prices targets vary from $52.90 down to $78.10.

Bottom Line

Yum China seems to do whatever it takes to expand the size and the scope of its businesses, a strategy that could reward long-term investors.

Disclosure: Panos Mourdoukoutas was a Yum China employee at the time of this publication.

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