Foreign fast-food brands lead in China

04 August 2011

BEIJING: Fast-food companies such as Dunkin' Donuts, McDonald's and KFC are well-placed for growth in China, thanks to a shared reputation for being "healthy" and trustworthy.

The China Market Research Group, the insights provider, surveyed 5,000 adults in fifteen cities, and reported food and product safety was the number one concern among respondents, ahead of paying for medical bills and children's education.

It also revealed many shoppers saw firms like McDonald's and KFC - owned by Yum Brands - as a "healthy" alternative to local restaurants, largely as they are trusted not to pursue sub-standard production processes.

"They fear tainted ingredients more than fat," said Shaun Rein, CMRG's founder. "Those concerns continue to be top of mind because of regular allegations that food companies and restaurants are using poor quality ingredients."

As a demonstration of this, the share price of Ajisen, a chain of noodle restaurants, recently fell by almost 10% after rumours circulated that it utilised instant broth flavouring and not genuine stock, as stated in its ads.

"A mere allegation is enough for businesses to lose customers, see their bottom lines hit and their share prices decimated," said Rein.

"If Ajisen noodles misrepresented their cooking process, they will have to spend more money rebuilding their reputation than they would have in buying the healthy ingredients they claimed in their marketing."

Yum Brands currently runs 3,400 KFC and 544 Pizza Hut branches in China, and estimates the domestic "consuming class" could increase in size by between 200m and 500m people over the next ten years.

"As the middle class grows, more people have resources to purchase our food and become loyal Yum customers," Rich Carucci, its CFO, said last month.

Alongside unveiling a projected 200 restaurants in China in 2011, McDonald's has a network of dessert kiosks offering a quick and convenient "treat" to consumers and providing an introduction to its brand.

"Broadening our accessibility remains a key strategy for us ... and we see significant opportunity for new units for many years to come," Peter Benson, McDonald's CFO, said in July.

Elsewhere, Dunkin' Donuts operates less than 100 stores at present in China. The US firm is focusing on major cities such as Shanghai, but boasts the long-term goal of opening thousands of branches.

Data sourced from Moneycontrol/SeekingAlpha; additional content by Warc staff