BEIJING: KFC and McDonald’s, both emblems of US fast food culture, are opening new stores at a rapid rate with the most fertile territory to be found in China’s small cities, according to reports.
China’s fast food market generates annual revenues of $125bn, according to Euromonitor data reported by the Financial Times. Finding a compelling offer to Chinese consumers will be central to US quick-service success in the world's most populous country.
New openings for KFC, operated by Yum China, are set to increase revenues by around $180m this year alone, accounting for roughly half of its projected growth, an analyst told the paper.
But entering the market with the Colonel’s trademark fried chicken has not been plain sailing. Yum’s China sales have not risen since 2013, a phenomenon relevant to both brands, as increasingly health-conscious consumers went elsewhere.
The key to growth, says Joey Wat, Chief Operating Officer of Yum China, is to establish a presence in China’s untouched small towns. “We operate in 1,100 cities in China,” he told the paper. "But there are about 900 we are researching. That just shows the potential.”
Meanwhile, McDonald’s, which only has around half of KFC’s 5,300 outlets in China, aims to double its stores. By 2020, the brand is planning to have 45% of its stores present in the country’s lower-tier cities.
The economic situation of these locations illuminates these companies’ evaluations. In fourth-tier cities of fewer than 2.6m inhabitants, the average wage climbed 5.4% last year, according to McKinsey Global Institute.
It noted that these customers buy with the same frequency as their higher-tier counterparts and tend to spend more. In addition, lower operating costs contribute to the opportunity substantially.
However, managing operations across a wider area brings challenges, said Vincent Liu, an analyst at Boston Consulting Group. “It’s easy to hire a person to oversee 100 stores in Shanghai, but not to cover 100 stores in different cities.”
The risk of consumers tiring of the product notwithstanding, the Chinese appetite for beef is growing as incomes rise, according to the Wall Street Journal.
One of the original US fast-food chains, White Castle, is also planning to expand in China, the Journal reported. “We were really intrigued by the opportunities in China, and think that it’s the future,” said Jamie Richardson, a vice president at the company.
Sourced from the Financial Times, Wall Street Journal; additional content by WARC staff