ChineseconsumershavedevelopedanenduringtasteforfastfoodISTOCKBeijingresidentWangLihu,37,stillfondlyremembersthefirsttimehebitintoahot,crispypieceofKFCfriedchicken.Itwasin1987,theyearwhentheU.S.fastfoodgiantopeneditsinauguralrestaurantinChina,onQianmenAvenue,nearbyTian’anmenSquare.Itwasthefirsttimehetriedwhathecalls“Westerncuisine.”
“MyparentsagreedtobringmetoKFCbecauseIwassick.Sincethen,Ihavebeenvoluntarilyillfromtimetotime.ButassoonasI’moutofKFC,theillnessisgone,”saidWang,withalaugh.Feelingnostalgic,herecallsthelonglineofcustomerswhousedtostandinfrontoftherestaurantandthesmelloffriedchickenthatmadehismouthwater.
Wang’sexperienceisnothingunique.ThefirstMcDonald’srestaurantinChinaopenedinOctober1990inShenzheninsouthChina’sGuangdongProvince.Inonemonth,theoutletregistered226,000transactionswitharecordturnoverof5.88millionyuan($882,600).Qianmen’sKFCrestaurant,foritspart,wasabletorecoveritsinitialinvestmentof3.75millionyuan($562,800)injustoneandahalfyears.
Observersbelievethattoacertainextent,thiswasthe“goldenage”ofAmericanfastfoodchainsinChina.TheyenjoyedimmensepopularityamongChineseconsumers,whofoundthereanaffordablewaytoexperienceacertainaspectoftheWesternwayoflife.Indeed,theirsuccesswasdrivenbythecrazeforeverythingexoticandforeign,andhadbeenoneofthesymbolsofChina’sopeninguptotheoutsideworld.
Outofmomentum
Butasglobalization,reformandopeninguppickedupspeedinChina,U.S.fastfoodoutletslosttheirmomentum.“Today,KFCisnothingspecialforme.SometimesIdoeatthere,butonlybecauseit’sgoodvalue,”saidWang.
IndependentfoodindustryexpertZengHuialsobelievesthat“whiletheU.S.fastfoodoutletskeepputtingoutnewproductsandmarketingcampaigns,forChineseconsumers,oneoftheirmostvaluableaddedvalues-thelureofcuriosity-hasbeenlost.”
Moreover,asChinesepaygrowingattentiontowhattheyareeating;consumersareshyingawayfromfastfoodoutlets,whoseproductsareseenascontainingtoomuchfatandsugar.
Asifthiswasnotenough,thereputationoffastfoodchainsinChinahasalsobeentaintedbyanumberoffoodsafetyscandals.InJuly2014,aTVreportrevealedthatasupplierofYumChina-ownerofKFCandPizzaHut-usedmeatoutofitsexpirationdate.Thefalloutwasnotlongincoming:YumChina’ssalesdropped10percentinthesecondquarterof2015,morethanthedeclineof8.4percentexpectedbyanalysts,accordingtomarketresearchfirmConsensusMetrix.
ButaccordingtoBenCavender,ananalystwithChinaMarketResearchGroup,thebiggestchallengeforKFCorMcDonald’scomesfromincreasedlocalcompetition,especiallywiththeriseofonlinecateringservices.AccordingtoareportbyMeituanWaimai,afooddeliveryfirm,thevalueofChina’sonlinecateringmarketreached204.6billionyuan($30.7billion)in2017,up23percentyearonyear.AccordingtoYangWenjie,anexecutiveatMeituanWaimai,thisgrowthoriginatesmainlyfromsmallercities,wheretherehasbeenafasterincreaseinonlinefoodorderingcomparedtolargercities.Thisboomhasalsobeenboostedbythepopularityofmobilepayments:About60percentofChinesepeoplehavepaidformealswiththeirsmartphones,accordingtotheChineseCuisineAssociation.
Seekingafreshapproach
Struckbyaseriesofscandalsandfacingeverfiercerlocalcompetition,foreignchainsarebettingon“localization”toregainlostground.Oneoftheirassetsistoaddsomelocalspecialtiestotheirmenutostrengthencustomerloyalty.ThatishowKFC’sBeijing-stylechickenrollsandchickenwingswithricecametobe.EvenMcDonald’s,whosestatusastheBigMacKingseemsunbudgeable,couldnotresistthistrend.In2013,thehamburgergiantlaunchedfourrice-basedproductsfortheChinesemarket.Threeyearslater,theGoldenArchesadaptedtheirmenubyaddingsteamedbreadsandporridge,whichareindispensablepartsofatraditionalChinesebreakfast.
Thelocalizationstrategyisnotjustaboutchangingthemenu.Toreducetheiroperationalcosts,U.S.multinationalsareturningtothelocalmarkettoensuretheirsupply.WhenKFCenteredChinain1987,itimportedalmostallrawmaterialsfromabroad,includingsalt.Nearly15yearslater,thesupplylocalizationratehadalreadyreached95percent,withmorethan1,400productssourcedfromthelocalmarket,saidHanDingguo,thenVicePresidentofYumChina,in2003.
Inaddition,theworld’sbiggestfastfoodchainsarenowexpandingtheirpresencetosmallandmedium-sizedChinesecities,oftenseenasgreatdriversofeconomicgrowth.Infact,thesethirdandfourthtiercitieswillhave45percentofMcDonald’soutletsinChinaby2022,accordingtoastatementreleasedbythefastfoodgroupinAugust2017.
Meanwhile,thegroup’smanagementconfirmeditspartnershipwithChineseinvestmentfirmCITICGroupandU.S.investmentfundCarlyle,whowilljointlyadministertheMcDonald’sChinesefranchise.AnalystsbelievethatfortheIllinois-basedgroup,franchisingallofitsactivitiesinChina,whilekeepingaminoritystake,isamoreeffectivewaytodevelopitsnetworkintheChinesemarket-seenascrucial-whileconsolidatingitsprofits.
McDonald’sisnottheonlyonelookingforanewbusinessmodel.YumChinaalsoaimsatbecomingapurefranchisor.Thisshiftwillsignificantlyreduceoperatingcosts,andbecameimperativefollowingtheriseoflocalcompetitors,saidanalystBenCavender.
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