FAST FOOD IN CHINA

FAST FOOD IN CHINA

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The Chinese fast food industry is worth $48 billion a year (2004). Fast food has become popular as income levels have risen, people are more in a hurry and working harder and have more money but less time to cook. A survey by A.C. Nielsen found that 41 percent of people interviewed eat at a fast food restaurant at least once a week, compared to 35 percent in the United States.

Fast food is not a new idea in China. A fast food restaurant was opened some 1,000 years ago in China and still serves customers to this day.

Middle class Chinese are finding it increasingly difficult to find the time for big sit down meals any more and prefer eating out or eating prepared food at home.”The lifestyle is changing,” a restaurant executive told Time magazine. “People are getting more urbanized and busy, with less time to cook at home.” On average, one fast food restaurant opens in Beijing every two days. Western fast food is considered more sophisticated and more hygienic than Chinese fast food but is is also blamed for China’s increasing obesity problem and rising rates of diabetes and high blood pressure.

Carrie Gracie of the BBC News wrote: “Just 50 years ago, if a Chinese had declared a preference for American food, it might have cost them their liberty, if not their life... But by the 1980s, foreigners were being welcomed back. Which is why, 20 years ago, I attended the opening of the first McDonald's restaurant in Beijing. Now it feels as if there is American fast food or coffee on every corner. [Source: Carrie Gracie BBC News, October 9, 2012 ***]

Explaining the appeal of Western style fast food restaurants like McDonald’s a college student told the Washington Post, “If you go to one of these traditional Chinese restaurants there are big differences between one and another, and you have to know where you are and what to order. Here, there’s a standard. A familiar taste. You always know what to expect.” A couple of girls at KFC said, “Chinese food, that’s all I ever ate when I was growing up. I want something different.”

Supermarket fast food and food courts are also very popular. Popular items in supermarkets include instant noodles and microwavable frozen dumplings that cost about 70 cents a bag and comes in dozens of varieties, including pork, celery, shrimp and vegetarian. Jiayang Fan wrote in The New Yorker, “In China, food courts are on the rise precisely because they fulfill the urban Chinese’s desire to eat eclectically and economically, without the fuss and mess of preparation. In Kunming, a Yunnan city, the food court in the basement of a newly opened Walmart resembled nothing so much as a college cafeteria. [Source: Jiayang Fan, The New Yorker, January 14, 2015]

Baskin-Robbins opened its first outlet, in Beijing, in the late 1990s. In 2008, it announced plans to open 50 outlets in the Shanghai and Xian areas over the next five years.

Kentucky Fried Chicken, Pizza Hut and Yum Brands in China

As of 2015, there were 4.600 Kentucky Fried Chicken restaurants in over cities in China. This is up from 2.100 outlets in 2010 and 1,759 outlets in 2005. Kentucky Fried Chicken was the first Western fast food chain to arrive in China and still is the most popular restaurant franchise in China. The first KFC opened in 1987. By 1997, it had 100 outlets in 33 cities. In 1999 it had 320. By 2007, a KFC oulet was opening at a rate of about one a day. Kentucky Fried Chicken's biggest Chinese competitor is Fast Food Dajiang.

Kentucky Fried Chicken is owned by Louisville-Kentucky-based Yum Brands Inc, which has made lots of money from the restaurants. The facial features of Colonel Saunders have been altered slightly to make him look more Asian. The first drive-thru in Beijing---a Kentucky Fried Chicken---opened in 2003 in a suburb popular with yuppies. KFCs in China offer fried dough and preserved egg porridge alongside the usual boxes and buckets of chicken. Many customers don’t even buy chicken. In April 2010, customers at Kentucky Fried Chicken outlets became angry and overturned tables and had be dispersed by police when KFC outlets refused to take coupons downloaded from the Internet, saying they were fake.

Yum Brands had more than 6,400 restaurants in China, including 4,600 KFC restaurants and 1,100 Pizza Hut restaurants in China as of 2015. Pizza Huts and KFCs are regarded as trendy rather cheap places to eat and this attracts people with money. In Beijing, people are sometimes turned away at Pizza Hut because they don’t have reservations. As a result they are at least twice as profitable as U.S. outlets. The $500,000 or so necessary to start up an outlet can be recouped in two years compared to five or six years n the United States.

Louisville, Kentucky-based Yum Brands, which runs Pizza Hut, and Taco Bells as well as KFCs in China, is the biggest restaurant operator in China, with 2,400 outlets in 2006. Pizza Hut had 261 restaurants in China in 2005. It is pioneering the concept of delivering food to homes. Yum-brands is marketing American Chinese food and American-style delivery through its East Dawning chain of restaurants. Other American fast food restaurants found in Beijing include Shakee's Pizza, Carl Jr., and Dairy Queen.

Yum Brands says the Chinese market is its main earnings driver. In 2008, Yum operated 2,500 KFCs and Pizza Huts with $2 billion in sales. Yum opens about 500 KFCs and Pizza Huts a year. It grew at a clip of 36 percent in China, Taiwan and Thailand in 2006 and hopes to have 20,000 outlets one day. China accounts for more than 25 percent of its profits compared to near zero at the end of the 1990s. Within a few years the company figures it will make more money in China than it does in its largest current market, the United States.

Yum brands opened around 600 new restaurants in China in 2011. Profits were slightly down in the same period as a result of higher commodity and labor costs. It opened 168 new restaurants in China in the first quarter of 2012.

Yum Brands Hurt By Meat Scandal

Yum Brands was badly hurt after state television reported in December 2013 that some poultry suppliers violated rules on drug use in chickens. Yum said KFC sales in China plunged 37 percent the following month. KFC launched an effort to tighten control over product quality and eliminated more than 1,000 small poultry producers from its supply network. [Source: Associated Press, July 21, 2014]

In 2014, Yum Brands reported a fourth-quarter loss as its recovery China from a tainted meat scandal was taking longer than it expected. AFP reported: “The parent of KFC, Pizza Hut and Taco Bell restaurant chains said it had a net loss of $36 million in the October-December quarter compared with a net income of $321 million a year ago. The company said its earnings were affected by the July tainted meat scandal involving a former supplier, after a strong first half of the year. "Our top priority is to recover sales in China and capture the significant profit leverage we have in this business," said Greg Creed, Yum's chief executive. [Source: AFP, February 4, 2015]

See Bad Meat Scandal, Food Safety

McDonald’s in China

left China is McDonald's third-biggest and fastest-growing market as measured in number of restaurants and new restaurant openings. About 200 to 300 McDonald’s open up in China every year. As of 2012 McDonald's had more than 1,400 restaurants in China. As of early 2010 it had 1,100 restaurants in over 110 Chinese cities, and 60,000 employees. This is up from 600 outlets in 2004. McDonald’s plans to have 2,000 outlets by 2014. Items on the menu include pork burgers, spicy beef wrapped in dough, and red-bean-paste ice cream sundaes. The China Mac, a hamburger marinated in black pepper sauce, was introduced before the Olympics. Yao Ming is one the company’s top pitchmen. Explaining its appeal a marketing representative told the Washington Post, “It’s a decent place, it’s clean, they have music...There’s the feel of a Western experience.”

McDonald's opened it first outlet opened in 1992 on Wangfujing Road in Beijing. After teh restuarant opened it was besieged with long lines of customers waiting for Big Macs and Chicken McNuggets. Party elite took their children there; young men trying to make a good impression took their dates there; families had their picture taken with Ronald McDonald out front; party cadres even held banquets there while ordinary people came to gawk and window shop.

By 2001, there were 69 McDonalds in and around Beijing (by contrast there were only 63 in Paris). The government requires the McDonald’s in Beijing to pay some strange fees for things like family planning, flowers for city streets, advertisements telling people to be more polite, and river dredging. McDonald’s and China Petroleum & Chemical collaborated to produce some fo China’s first drive-through restaurants.

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Gathering place for
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Chinese kids love McDonald’s. According to a study at three Beijing elementary schools, nearly every student was familiar with the name McDonald’s and some pupils said they eat there 10 times a month. One couple in Shanghai couple told the Washington Post, “It’s not nutritious, and they don’t have the variety that a Chinese restaurant would have. But children like it, so we’re here.” The lack of nutrition doesn’t seem to bother some adults. A 24-year-old woman told the Washington Post, “It's convenient and it tastes good. I don’t care whether its healthy or not.”

McDonald’s is not cheap. A large order of French fries costs $2.50. By contrast you get a plate of eight pork buns for 25 cents. Many people go there and don’t order anything. Inevitably you will find people studying and sleeping there.

McDonald’s has been the target of protests and litigation. After being criticized for paying low wages McDonald’s raised wages by up to 56 percent in 2007. A lawyer in China sued McDonald’s because the receipts it gave out were mostly in English, arguing that not having the receipts in Chinese violated the “consumer’s right to know.”

In April 2010, McDonald’s opened a $250 million Hamburger University in Shanghai, whose main purpose is to train new restaurant managers and encourage skilled Chinese managers to stay with the company. Tim Fenton, McDonald’s president for Asia, said, “It’s because of China’s strategic importance to McDonald’s that we have chosen to have our new Hamburger University in Shanghai. We have to stay ahead of the people curve.” Most of the courses at the institution are on management and business not flipping burgers or making fries. Some courses can count for credit at accredited universities.

Burger King’s Plan To Open 1,000 Restaurants in China

In June 2012, AP reported: “Burger King is setting its sights on China. The world's second largest hamburger chain says it will open 1,000 restaurants in the country over the next five to seven years. It's the largest multi-unit development deal in Burger King's history. There are currently just 63 Burger King restaurants in China. Burger King, which has more than 12,500 restaurants worldwide, said that its China expansion is a joint venture with the Kurdoglu family, which runs 450 Burger King restaurants in Turkey, and private equity firm Cartesian Capital Group. The Kurdoglu family currently operates Burger King's largest international franchise. [Source: Candice Choi, AP, June 15, 2012]

It's just the latest international expansion deal for Miami-based Burger King at a time when the fast food industry at home is becoming increasingly crowded. Earlier, the chain announced plans to open several hundred new locations in Russia. It made a similar expansion deal with a franchisee in Brazil last year. In the past year 80 percent of Burger King's new stores have been in Europe, the Middle East and Africa.

Burger King, which has seen its market share in the U.S. decline in recent years, was taken private by New York investment firm 3G Capital in late 2010. The company has since been overhauling its operations. In the U.S. the company is focusing on modernizing restaurants. In April it launched its biggest menu expansion, which included fruit smoothies, snack wraps and salads.

Doughnut Shops in China

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In 1996, Dunkin Donut leased out part of the Great Hall of the People to launch it's first Beijing donut shop---renamed the Dange Ken Sweet Rings Shop. For promotion Dunkin Donuts often hires men to stand outside their outlets in donut suits. In October 2005, Krisby Kreme Doughnuts announced it was going to open up 35 outlets in three cities in China. Reporting from Shanghai, Keith B. Richburg wrote in the Washington Post, “Doughnut shops, once a rarity here, have proliferated across the city, with a huge number of rivals---including American giants Dunkin’ Donuts and Krispy Kreme---now battling for supremacy in the race to give Shanghai’s middle-class consumers their morning coffee-and-sugar fix. [Source: Keith B. Richburg, Washington Post July 18, 2011]

The opening of so many doughnut shops in so many locations is a testament to Shanghai’s growing affluence and the belief that young Chinese with more disposable income will be hankering for more leisure food. As China has opened its doors to the world, American fast-food chains such as KFC, McDonald’s and Starbucks have exploded here, mostly in wealthier cities and coastal areas, with varying degrees of success. So an American-style doughnut, with a cup of coffee, would seem a perfect fit for China’s modern, on-the-go city lifestyle.

Dunkin’ has the most ambitious plans. The company opened its first store in China in November 2008, and announced plans to have 100 across the country within 10 years. There are now 40 in China, with 18 here in Shanghai, according to Frederick Sze, Dunkin’s managing director for greater China. “We are number one in the U.S., and we want to be number one in China also,” Sze said.

Krispy Kreme, Dunkin’s main U.S. rival, came one year later, and snagged a prime location on a popular pedestrian restaurant street just off fashionable Nanjing Road. The 3,000-square-foot, two-story store has couches, wireless Internet and an open viewing window onto its “doughnut theater,” showing the sugary dough rings rolling off a conveyor belt. Local chief executive Jujing Lim said there are plans for three new Krispy Kreme outlets in Shanghai, and his team is still scouting for the best locations.

The oldest of the group is Mister Donut, a brand which largely disappeared from the United States but remains strong in Asia under its Japanese corporate owner. Mister Donut has been in Shanghai since 2000 and has eight outlets in the city. And there’s an Australian usurper, Donut King, which arrived in 2008 and now has 11 stores in Shanghai, plus several local versions of the doughnut shop, such as the Taiwanese-run Cafe 85 C.

Dunkin’ Donuts to Open 1,400 Restaurants in China

In January 2015, Dunkin’ Donuts said it planned to open more than 1,400 restaurants in China. Angela Chen wrote in the Wall Street Journal, “Dunkin’ Donuts said it will partner with Golden Cup Pte. Ltd., which will open and operate the Chinese restaurants over the next two decades. Golden Cup has rights to expand Dunkin’ in places including Beijing, Macau, Hong Kong and Guangdong, the company said in a news release. Canton, Mass-based Dunkin’ currently has 16 restaurants in China, and about 2,200 across the Asia Pacific region.” [Source: Angela Chen, Wall Street Journal, January 8, 2015]

“The first new restaurant in China is expected to open in the fourth quarter of 2015. Golden Cup Pte. Ltd is a joint venture between Jollibee Worldwide Pte Ltd., part of the largest food-service network in the Philippines, and Jasmine Asset Holding Ltd, an Asian investment firm, the company said. The new agreement, the largest in the company’s history, is the latest piece of the chain’s international plans. The company already operates in 36 countries.

Doughnut Saturation in Shanghai

“But others look at the swelling number of doughnut shops here wonder if it’s just too much,” Keith B. Richburg wrote in the Washington Post. ‘some shops have disappeared. Many others appear mostly empty at peak hours---and Chinese customers seem more interested in the drinks than the sugary doughnuts. And following the lessons of other American retailers, the doughnut shops are finding that some of their best-sellers would be barely recognizable back home, like Dunkin’s dried pork and seaweed doughnut, or the doughnut made with dried Bonito fish. [Source: Keith B. Richburg, Washington Post July 18, 2011]

Retail industry analysts think Shanghai’s once-languid doughnut market might already be saturated. Some speak of an ensuing “doughnut war,” which might leave just a few survivors. ---We’re going to need a U.N. resolution very soon---they’re going to have to declare a sugar-free zone over Shanghai,” said Paul French, the British-born founder of a market research company, Access Asia, that focuses on the retail sector. “There’s too many, because we’re starting to see them close down.”

Do Chinese Even Like Doughnuts?

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Keith B. Richburg wrote in the Washington Post, “But what isn’t at all clear is whether Chinese consumers particularly like doughnuts.The average Chinese breakfast might consist of congee, or rice porridge, maybe some soybean milk, sometimes fried noodle, or perhaps a dry roll or bun. The idea of something as sweet as a glazed or cream-filled doughnut in the morning would seem an anathema to many local palates.

“I’m not a big doughnut lover, and I only have one once a month,” said a 28-year-old woman working as a marketing manager, who stopped by Krispy Kreme on a recent Friday. “There are too many calories, and they’re too sweet, unacceptably sweet, especially the chocolate ones. But the doughnut looks really cute!”

Several of the doughnut shops appear empty in the mornings, when they should see heavy traffic. Dunkin’, like some of the other chains, is discovering that coffee and other drink offerings, including jasmine green tea and lichi green tea, are more popular than doughnuts. Krispy Kreme, meanwhile, is offering its quarters, with easy chairs and quiet surroundings, as a place to relax, surf the Web and enjoy a huge variety of cream-filled doughnuts at a more leisurely pace. “People stay a long time,” Lim said. Here in Shanghai, he said, “we position ourselves differently than in the West.”

Still, the pessimists think the doughnut might have a hard time finding a toehold in China---as evidenced by the largely empty doughnut stores, and the number of leftovers on the shelves at closing time. “It’s one of those food concepts that has singularly failed to set the country alight,” said French, the retail analyst. French noted the biggest obstacle yet: In Shanghai, police officers seem to prefer smoking cigarettes to taking a doughnut and coffee break. “They haven’t cracked the cop market,” he said.

Chinese Restaurant Chain East Dawning Looks to Overseas Growth

In June 2012, the Shanghai Daily reported: “Chinese style fast food chain East Dawning looks headed for international expansion after the chairman of Yum! Brands said he saw "great" potential for the brand overseas. Yum!'s East Dawning, or Dong Fang Ji Bai, began life in Shanghai and now has 30 locations in eight Chinese cities selling a domestic menu that includes pork rice, plum juice and tea. [Source: Emily Ford, Shanghai Daily, June 11, 2012]

In an interview David Novak, the chairman and chief executive of Yum!, which owns KFC, Pizza Hut and Taco Bell, said that after two decades of exporting Western-style fried chicken and pizza to China it was time to begin taking Chinese fast food dishes to America. "I would love to see East Dawning become the first global brand that emanates from China. But the first task is to make it a big success here. All of us in China know we have huge potential with East Dawning," Novak said, fresh from his arrival in Shanghai.

In November last year the group received clearance for its takeover of Little Sheep, the Mongolian hotpot chain, for US$860 million. "We think the Chinese fast food market will develop and we want to have the leading brand in that category," he said. Yum! is also planning to double its stores in China by 2020 to take advantage of a consumer population set to hit 600 million within eight years.

"If you look at China you see the No. 1 retail and restaurant opportunity of the 21st century. We are still on the ground floor," said Novak, who was giving a speech at Fudan University on leadership to mark the publication of his book Taking People With You: The Only Way to Make Big Things Happen.

KFC and Pizza Hut are already in 800 cities in China, the only country in the world where the group beats McDonalds, with its eateries outnumbering its rival's by a ratio of three to one. Part of its success is due to adapting its menus to suit local tastes by offering congee at KFC or rice dishes at Pizza Hut.

Image Sources: Beifan.com , Perrechon blog, Nolls China website http://www.paulnoll.com/China/index.html ; Wiki commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated July 2015


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