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Foreign firms see hope in China's love of fast food
By Andrew Moody (China Daily)
Updated: 2009-05-11 08:01
China's love affair with fast food continues unabated, even though it can cost up to 40 percent more than local alternatives. Total spending on fast food increased by nearly 16 percent from 340 billion yuan in 2007 to 394.3 billion yuan last year, according to Euromonitor International. The Chinese have different perceptions of eating a burger at McDonald's or to working their way through a bucket of fried chicken at KFC than many Western consumers. For them it is often a family occasion or something of a celebration rather than a quick throwaway meal. "Fast food in China is positioned in a very different way. A lot of US fast food companies come here and position themselves not as fast food but as family restaurants," said Max Magni, partner and who leads the consumer practice at management consultants McKinsey & Co. "Going to McDonald's is a big deal and it is the family saying let's go out and celebrate, whereas in the United States it is a quick meal and let's have done with it." The economic downturn can even hit even this buoyant sector, however, and McDonald's, which has just opened its 1,000th store in China, announced late last month that it was scaling back its number of expected opening this year from 175 to 150. Ralph Alvarez, president and chief operating officer at McDonald's, said recently the "pull-back" was occurring where the fast food chain had been "counting on more infrastructure, growth, homes and roads" than will actually happen. The cutbacks were announced just shortly after the chain had lowered the price of its combo meals consisting of Filet-O-Fish sandwiches and double cheeseburgers by as much as a third in China. Meanwhile, Yum, which owns both KFC and Pizza Hut and has 3,100 restaurants in China, said it has plans to open 1,500 more over the next three years, a capital investment of around $ 1 billion.
"McDonald's targets the middle to high end of the market so some consumers may be switching to cheaper Asian fast food. Opening 150 outlets is still pretty big growth, however. It is still 15 percent," she said. But she added that Yum's China operations are much more key to its overall business. "China is the biggest market in the world for KFC so it is going to be a primary focus, whereas McDonald's biggest market is the United States. Despite McDonald's and Yum having substantial presences in China, they still have very small market shares if you include in the fast food sector 1.03 million outlets, according to Euromonitor International, of unbranded very small chains that exist in the country. "The China market is, in fact, very fragmented. There is plenty of space for chains that are not here yet to come to China and then grow bigger and bigger, " said Max Magni. "With the top 10 fast food service restaurant chains having 4 percent of the market means that there is a lot of room for consolidation." Some question whether there might be a major health backlash against fast food as has been evidenced in the west. To ward this off, many of the fast food chains put on healthy options such as salads, vegetables and Chinese dishes. "The way they do it here is much more core than in the west," added Magni. "In the United States or Europe they tend to do it so the restaurant chains feel good about themselves. These healthy alternatives are much more prominent on the menu and in demand by customers in China." "We are, however, seeing some consumers starting to raise concerns about obesity." Huang at Euromonitor said some Chinese consumers see a trip to McDonald's or KFC as a healthier alternative. "I think consumers think that hygiene standards are better than in some of the Chinese alternatives, where the food can have too much oil and too much MSG (monosodium glutamate) content." Other brands are expanding rapidly in China too. 7-Eleven, which straddles the fast food and convenience store markets and which has existing outlets in Beijing and Guangzhou, announced it was moving into Shanghai with 300 more outlets over the next three years. With evidence that a trip to a fast food outlet is becoming a weekly, rather than a monthly event, for well heeled Chinese, Magni said he believes there are still huge opportunities for growth. "There are still many opportunities. There is still plenty of room in tier-3 and tier-4 cities. The market is wide open," he said.
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