In addition to filling up the tank or grabbing a cup of coffee, now drivers in China can pick up some Mexican food or fried chicken at gas stations.

Fast-food chain Yum China Holdings Inc — parent company of the China operations of KFC, Pizza Hut and Taco Bell — has joined hands with the country's two largest gas station chains to open 100 restaurants of various formats and brands in the country over the next three years.

The move is expected to quickly boost its fast food presence along the country's vast highway network and further diversify non-fuel services at gas station chains.

Yum China announced this month the opening of its first group of franchised restaurants in collaboration with China Petrochemical Corp (Sinopec) and China National Petroleum Corp.

On Dec 17, the first franchised KFC under the cooperation agreement opened at a CNPC gas station in Kunming, Yunnan province. In Dalian, Liaoning province, the first KFC-franchised restaurant in a Sinopec gas station opened on Monday.

The two gas station operators will open new restaurants — either franchised or leased on their properties. Yum China began opening drive-through restaurants at gas stations using a lease model in 2008. But it was only last year that Yum China started to draw up plans to work with CNPC using the franchise model.

A pilot KFC-franchised restaurant, which opened in October 2018 at a CNPC gas station in Tangshan, Hebei province, has been a big hit, serving as proof of "the synergies achieved from combining the unique location of gas stations with Yum China's operating management expertise", Yum China said.

To franchise, Sinopec and CNPC are responsible for investing in store operations and offering Yum franchising fees, the company said.

The franchising model only applies to KFC restaurants. According to the agreement, KFC has become CNPC's only Western quick-service restaurant franchise partner at its gas stations.

Other Yum brands will be operated using the leasing model in collaboration with Sinopec and CNPC, the company said.

Lin Boqiang, head of Xiamen University's China Institute for Studies in Energy Policy, said that adding retail and catering operations is beneficial for Chinese oil and gas companies to tap new growth potential by leveraging from their massive network.

For example, in September, Sinopec's Easy Joy chain of convenience stores rolled out an Easy Joy cafe in Suzhou, Jiangsu province, offering delivery and in-store consumption services. Lin expects more oil and gas service companies from the private sector will expand into retail.

Zhu Danpeng, an independent food and beverage analyst, said collaboration with the catering giant will further enhance the diversification of business offerings and thus boost income-generating capacities for State-owned enterprises such as Sinopec and CNPC. The two SOEs collectively operate more than 50,000 gas stations across China, of which over 30,000 belong to Sinopec and more than 20,000 to CNPC.

Diversification of non-gas services has been on the agenda for Sinopec and CNPC as they attempt to boost profitability. The franchised model will encourage gas station operators to open restaurants at key locations, said Jason Yu, general manager of consultancy Kantar Worldpanel.

"For fast food franchises, availability is critical. So building their presence in petrol stations helped further drive availability and create new consumption occasions for travelers behind the wheel," Yu said.

Easy Joy, the retail unit of Sinopec, had 27,259 outlets in 2018, tops nationwide among convenience stores. It is followed by 19,700 uSmile convenience stores operated by CNPC, according to a report jointly released by KPMG and China Chain Store and Franchise Association.

Yum China, which also owns brands including Little Sheep and East Dawning, had more than 8,900 restaurants in over 1,300 cities by the end of September.

The partnership with both companies will enable Yum China to accelerate the expansion of its portfolio of brands into a previously underserved segment of the market, specifically gas stations and highway service areas across the country, according to Yum China.

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