Chinese consumers may have more spending power, but they also have less time to cook: a perfect recipe for the growth of fast food in China, where western and Asian chains are battling over the increasing appetite for restaurant meals.
In urban China, high property prices, long commutes, gruelling working hours, a later marriage age and smaller families all add up to more fast food.
The country’s food service industry has recorded double-digit annual growth since 2003 but is still only half the size of the US market, says AlixPartners, a consulting firm in China. The industry, estimated at about Rmb2,000bn ($303bn) in 2009, is forecast to grow to about Rmb3,000bn by 2014, according to industry estimates.
Multinational fast food chains, such as KFC and McDonald’s, arrived early and have come to dominate the market for western quick service meals.
Yum Brands, the US group that owns the KFC chain, opens more than one new restaurant in China every day. And it predicts it earned more operating profit in 2010 in China than in the US, for the first time.
Yum expects soon to have a 3:1 market share lead over its nearest fast food rival, but McDonald’s is investing heavily to catch up. The US burger group took two decades to get to 1,000 restaurants in China, but expects to take only four years to get to 2,000.
McDonald’s even offers home delivery in China. And now that China boasts the world’s largest auto market, it plans to equip half of its new mainland restaurants with drive-through windows.
But the battle for “stomach share” in China is about more than fried chicken and Big Macs. Thanks in part to an influx of venture capital and private equity funds in recent years, Asian fast food chains are increasingly competitive.
“Global brands are running into fierce local chains that are good at branding, and have raised the money to go national,” says Shaun Rein, of China Market Research in Shanghai.
Lim Meng Ann, China head of Actis, a private equity fund that invested $50m in Xiabu Xiabu, a Chinese hotpot chain, at the height of the global financial crisis in 2008, says that “given a choice, Chinese people would always prefer Chinese food”. He adds that Xiabu’s revenues have grown by “well over 50 per cent” per year.
No one is predicting that the Chinese will forswear burgers and fries anytime soon, not to mention KFC’s more indigenous offerings, including a dish sometimes referred to as rice porridge with pork and 1,000-year old eggs for breakfast – a dish so popular it often sells out before 8am.
"Last year I was very busy and I ate McDonald’s five times in one week."
But diners recently riding on Shanghai’s “Lunch Bus” – a free shuttle that takes white-collar workers from the city’s financial district to a local fast food emporium – made clear that, given the time and the choice, they prefer Asian.
Yan Bo, 25, a vegetable oil trader at a local bank, says he is “too Chinese” to lunch at McDonald’s.
“Last year I was very busy and I ate McDonald’s five times in one week,” he says ruefully. “But I only do that if I have no time at all. It’s too unhealthy.”
Lunch bus riders named Ajisen, a Japanese noodle chain that offers 98 menu choices, and Banana Leaf, a Thai curry chain, among their favourites. Little Sheep, a Mongolian hotpot chain part owned by Yum Brands, and Country Style Cooking Restaurants, a Sichuan chain that recently raised $82m in a New York IPO, and the ubiquitous Kungfu, are other Asian chain high-fliers.
“I don’t think it is necessarily a battle between western and Chinese quick service restaurants,” says Mr Lim of Actis.
Chain restaurants in general have very low market share, says Christian Paul of AlixPartners, but he predicts that will change. “Chinese consumers ... like a brand to give them comfort,” and that is just as true of food as of handbags, he says.
Xia Lianyue, vice-chairman of the China Fast Food Association, says rising urban salaries and long commutes are driving the emergence of an all-new “simple meal” market averaging Rmb50-Rmb100 per meal, a cut above fast food at Rmb30 per person. That will be the battleground for food companies in China: the battle for the stomach of China has just begun.
- Additional reporting by Shirley Chen in Shanghai