Why Fast Food Brands in China Must Understand Local Customers’ Terms & Conditions
A quick search for F&B trends in China might pop up a bunch of articles that espouse similar themes – trendy trends, if you will. A rise in meat-free, plant-based, low-sugar, eco-conscious green goodness are the latest ones. While there is a certainly a rise in that relatively niche demographic, if we’re looking at the population or market as a whole then good old fast food continues to grow, despite it being far from a trendy trend, and not a new entrant to the China F&B scene. Trendy trends are fine, but a business looking at the 5% trend and not the 95% sales reality won’t work.
We’ve even seen some ‘China writers’ recently claim that Chinese think about yin and yang and the universe when they decide what to eat. Rather than viewing China like it’s an episode of Kung Fu Panda, in the real world, fast food is still a crowd-pleaser.
China’s fast food story is the same as any market sector. The big boys came in decades ago and boomed – today some are thriving with a firm grip while others have lost touch – with many other smaller brands entering in recent years and finding a totally different market and consumer.
In fact, recent years have seen not only entrance but relatively rapid exit, with some businesses struggling to understand Chinese tastes, having apparently not undergone the extensive research and subsequent China-specific branding that is a must. In any industry, China market research is the critical first step before market entrance is even begun – and this is especially true of F&B more than any other sector. After all, what could possibly be more regionally and culturally relevant than food?
Big boys become giants – with mixed fortunes
When Burger King first opened in 2005 on that little alley by Jing An Temple, there were many more expats in Shanghai than there are now. The opening strategy for restaurants 15 years ago was ‘get the laowai and the international chinese will follow – and they will bring more attention to their compatriots.’ It was a safe strategy for the time-period, yet the problem used to be that when the laowai and international Chinese moved on, the venue thought they could drop standards of both food and service, decrease portions and increase prices. Such places quickly shut up shop. So when Burger King opened, the expats went to try it and were massively underwhelmed. ‘There’s no bacon!’, ‘I couldn’t get it ‘my way’’’, they decried, clearly unaware that the giant had longer term plans than pleasing A. N. Other Expat on the first week of opening, instead looking to grow to 1,000 stores by pleasing local customers over time.
Deep-fried chicken is popular. Who knew?
With more than 5,000 restaurants in 1,100 cities in China, KFC dominates the country’s fast food landscape. KFC’s operating profit in China grew 11% last year.
Simply put, KFC had less to do in terms of persuasion, explanation and localisation. Not needing to hype up burgers or pizza, fried chicken is more of a universal unifier. Where they’ve found success in recent years is in a few areas. One is premiumisation – the breakfast menu offers a purported ‘deluxe version’ of a jian bing, the local breakfast pancake. Another is localisation based on research – the image above from KFC shows their hot pot.
Pizza Hut has 2,000 restaurants in China. However last year, its revenue in the country declined 1% and operating profit slumped 38%. Pizza Hut used to be not only more popular, but a ‘luxurious’, semi-high-end option. A table at Xujiahui’s Metro Plaze was so sought after that it was the ultimate go-to venue for a Friday family dinner, seeing queues around the block, for a number of years. Since then, they were one of the first chains to ‘adapt to local tastes’, with lots of special menus, Chinese ingredients ‘fused’ as much as is possible to be fused, and the product is now more or less unrecognisable as pizza. Which may just be the issue.
Anything can be done too much – even localisation. Over-localisation is where Pizza Hut seemed to have gone, confusing their own Chinese customers in the process. Knowing what to expect is also a key component of the F&B world, perhaps more than any other sector. Trial, new, niche, experimentation – these are all fun things for the curious Chinese consumer population to experience, yet people generally like to eat what they like to eat, unwilling to take their dining-out spend and putting it onto ‘something new’ instead of ‘something I know I will like’.
Premiumisation and baby steps
Carl’s Jr are a good example of patient, robust China fast food strategy. They opened in 2009 with just one store, as did Burger King. While they may not be aiming for 1,000 stores as quickly as BK achieved it, they now have almost 10 in Shanghai, growing in China with long-term foresight rather than trying too much, too soon. The same is true of similar size chains, Taco Bell and White Castle, who, crucially, have also given Chinese customers a different menu (White Castle serve a jian bing burger and a tofu burger) than in the U.S., and a more premium offering.
Premiumisation is the way to go – this doesn’t mean incremental price increases and turning the brand or chain into something it is not – it means giving customers the feel of quality. Premiumisation means offering a quality proposition, no matter the price. Aldi supermarkets are known for being the epitomy of ‘cheap and cheerful’ overseas, yet their new China entrance makes them appear more like a good standard of ‘international supermarket’. If pure price is the deciding factor, China has (more than) enough options. The consumer demographic with a relative ‘very low’ spending power might prefer to go for a good-old bao zi (steamed bun) for 2 RMB rather than go for a 15 RMB breakfast.
However, being ‘premium’ isn’t enough by itself. Marks & Spencer’s and Pret a Manger can tell you all about that. Only picking these examples as ‘what not to do’ rather than simply point fingers, Marks & Spencer’s threw up a few multi-floored retail spaces in areas where their target demographic couldn’t park their cars easily, did a total sum of zero localised marketing, and the store design was identical to a British town’s high street. Pret might have worked but the concept and offering needed to be totally re-designed and re-engineered. Pret works in Hong Kong as the public-transport-going customers are happy to grab and go. Shanghai’s Metro users would, by mass, fall more into the demographic that’s looking for a better value, more affordable snack. They don’t love sandwiches, wraps and cous-cous salads. There is a population in Shanghai that does – but they don’t grab and go, they sit and pose. Wagas (and Baker & Spice, now Lokal plus Funk & Kale), Moka Bros, Element Fresh and the like can attest to a demand for pasta-meets-salad-meets-Asian – in a nice restaurant environment.
As the success stories have shown, the demand and market space for new entrants is vast in China. But don’t think that Chinese consumers either can be fooled or need to be schooled: they expect ‘premium-like’ at any price, low or high. So while there is a demand for a quality offering in Shanghai, it has to be in line with their own terms and conditions, not that of the brand.