After raising $4.5 billion at a $60 billion valuation earlier this year, Alibaba affiliate Ant Financial — which operates the Alipay payments service — is hungry to put some of that money to use to build out its business. The company, alongside key Alibaba investor Primavera Capital, is investing $460 million into Yum China, a new spinout from Yum Brands — the parent company of fast food giants KFC, Taco Bell and Pizza Hut.
Primavera will be putting in $410 million, while Ant Financial will be putting in $50 million. And going hand-in-hand with the capital from Primavera and Ant Financial, Yum China plans to spin off from Yum Brands on October 31 of this year and will operate all of Yum’s brands in the country. Yum China will trade on the NYSE under the ticker YUMC starting November 1.
This is a strategic investment for Ant Financial, as part of its bigger “online to offline” strategy. OTO is a catchphrase that is used a lot in Asia and refers to the plethora of opportunities in the market to apply tech solutions to non-tech businesses, providing growth opportunities for both.
In the case of Yum, the company plans to incorporate Alipay mobile and point of sale payment services across KFC, Taco Bell and Pizza Hut restaurants, and also help them develop and run consumer loyalty programs and other commerce initiatives.
“Through this collaboration, we aim to help Yum China provide world-class mobile payment services for tens of millions of customers across its brands. These services include hassle-free Alipay for customers to help shorten queues at the cashier as well as membership solutions for Yum China designed to help manage their customer relations and promotions,” said Eric Jing, President of Ant Financial Services Group, in a statement. It’s already been working with some of the restaurants in the group ahead of this. “Leveraging our Big Data capabilities, KFC and Pizza Hut witnessed promising marketing results through their promotion on multiple Ant Financial platforms. We look forward to further collaborating with Yum China in the future.”
This is not Ant’s first investment into the food vertical. Alongside Alibaba, it made a $1.25 billion investment into Ele.me, China’s equivalent of GrubHub/Seamless, earlier this year.
Past non-food investments that Ant has made include on-demand transportation giant Didi Chuxing, media business 36Kr, and India’s Paytm, a payments company that is in the process of closing a fresh $300 million round that sources have confirmed to us will include further investment from Ant Financial.
Food is a very obvious category to get more attention from Ant Financial: it’s a business that, by its nature, lends itself to repeat transactions, and in this case Ant is investing into some of the more successful and proven brands within that space.
By collaborating both on payments and other programs like loyalty and reward services, as well as analytics, it helps Ant build a more diversified range of revenue streams, which could help it with its own eventual public listing.
“We have long admired the Yum China business and are looking forward to collaborating with the Board and management to realize the company’s full potential,” said Dr. Fred Hu, the founder Primavera who will become Yum China’s non-executive chairman. “Yum China is an established leader in the retail and restaurant industry which we believe is poised for continued strong growth and unit expansion as cities across China invest in new transportation hubs, shopping malls and other physical and electronic infrastructure that will support consumption. I look forward to leading the Board of Directors of Yum China in its new and exciting chapter as an independent company.”
“Primavera and Ant Financial both have deep insights into the rapid urbanization and digital transformation which is driving the evolution of China’s economy, and we are excited about their investment into Yum China,” said Micky Pant, Chief Executive Officer of Yum China, in a statement. “The investment is a clear endorsement of our business strategy and growth potential, and their diverse experience and relationships will be extremely beneficial. Dr. Hu’s extensive market insights and experience scaling businesses in China will be invaluable as we move to expand the footprint of our brands. In addition, Yum China is already the leading restaurant company for cashless payment systems in China, and we expect Ant Financial can provide further unique insights to help us better connect with consumers through mobile technology.”
Yum isn’t the only fast-food giant that is looking to raise its game and compete better by incorporating more tech into its operations: Burger King owner RBI last year acqui-hired the team behind startup Brewster (which had originally built a clever contacts management app) to rethink and recast the company’s approach to how it used new innovations in technology to improve its fortunes and get people eating more Whoppers.
Building separate Chinese entities is a common route for larger international brands, who use the structure to raise more capital locally — or provide opportunities for international investors to focus specifically on the China opportunity — and subsequently plough that money more directly in regionally specific initiatives. It’s also a way of creating a more local structure that can better navigate regulatory and competitive waters.
Not all those entities remain independent, though: earlier this summer Uber China announced it would merge with its big rival Didi Chuxing, although that deal is now being questioned by China’s antitrust regulators.