China is not a predominantly coffee-drinking nation, but that's changing quickly. Starbucks (NASDAQ: SBUX) has long been the leader on the front, drumming up interest in America's caffeine of choice with its premium menu. And up until a month ago, the train wreck that is now Luckin Coffee (NASDAQ: LK) was very quickly filling in the gap as the daily drinker's coffee of choice. Perhaps too quickly. After saying it was doing an internal investigation into large fabricated transactions, the stock tanked in value by some 80% and is now in an extended trading halt.
Pending some clarity, suffice to say Luckin is worth putting on the back burner for now. But on the coffee front, investors often ignore China's largest restaurant operator, Yum China (NYSE: YUMC). The sole Chinese licensee of KFC, Pizza Hut, and Taco Bell from former parent company Yum! Brands (NYSE: YUM), Yum China has long been my biggest bet on the Chinese restaurant industry. In the aftermath of the Luckin scandal, the company is making moves to double down on its own coffee business.
To be fair, Yum China is not going to be the high-growth affair that Luckin promised to be. It's already a massive restaurant business with 9,295 stores across the country at the end of the first quarter of 2020. Of the total, 6,661 are KFC stores -- China's most popular fast-food chain.