How the trade war can turn sour for American brands - Shaun Rein

Shaun Rein

McDonald's, Starbucks, KFC and Burger King are some of the American consumer brands in China who can get burned as the trade war heats up further, says business analyst Shaun Rein, author of The War for China's Wallet: Profiting from the New World Order, to the South China Morning Post.  

The South China Morning Post.

China is a prime market for US empires like Starbucks, KFC and McDonald’s, while Burger King recently announced plans to expand its presence there. 

“There is a huge risk in general for American brands, but especially for iconic ones like Starbucks,” said Shaun Rein, managing director at China Market Research Group. “With increased competition, combined with nationalism, and the trade war as a back drop, it is very possible Chinese consumers will boycott McDonald's and Starbucks and instead go to Chinese brands.” 

KFC makes up China’s largest network of restaurants, with 8,200 outlets and is the largest fast-food brand. It had a 5.2 per cent share of the market, worth US$6.63 billion, last year. Illinois-founded McDonald’s was in second place with a 2.4 per cent market share worth US$3.14 billion, and Florida-based Burger King was fourth, with 0.6 per cent, according to market research provider Euromonitor International... 

In April, messages emerged on Chinese social media urging people to boycott American firms. Little impact has been seen so far, said Rein, but “if this trade war gets worse I could very easily see the government targeting Western brands.” 

“So far in this trade battle the Chinese government have been very measured. They have criticised Trump but not American companies,” he said. “However, we have started to see in the last two weeks more Chinese getting angry at America because they view this is as no longer a trade war but a containment strategy – that Trump is using it as an excuse to contain China’s long-term economic rise, rather than iron out trade issues.

“These companies could come in for a rough time.” 

Florida-based hamburger restaurant Burger King has big plans. Daniel Schwartz, CEO of parent company Restaurant Brands International, recently said they plan to focus their global expansion on China. They intend to open more than 150 branches of the Canadian coffee chain Tim Hortons, for the first time. 

“It is unlikely timing for them, but the reality is that you have to plan five to 10 years down the line. The hope is that the trade war will pass over the next six to 12 months and you need to go where the growth is,” said Rein.

More at the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts on the ongoing trade war between China and the US? Do check out this list.

Franchising is key for Yum! in China - Jeffrey Towson

Jeffrey Towson

Yum! China has been spun-off and needs a solid strategy to grow in China. Franchising is such a key strategy, writes Beida business professor Jeffrey Towson on his weblog. " This is exactly what 3G Capital has done since acquiring Burger King."

Jeffrey Towson:

Most of the China outlets are owned. Franchising new outlets would accelerate growth. While Yum’s +7,000 China outlets is a lot, it is not overwhelming for China. You could have a lot more. Franchising would get you there faster. 

But franchising decreases operational control. That has big implications in general. And this is a particular concern in a country rife with food safety issues. 

Another idea is to just franchise the existing outlets. That would really move the needle financially. It would free up a lot of capital, get the employees off the payroll and spike the return on equity. 

Note: This is exactly what 3G Capital has done since acquiring Burger King. They shifted the existing units to franchises and have more than doubled their earnings in a few years. However, I believe the China Burger King franchise is still under a master franchise agreement with Cartesian Capital in New York. So this is mostly a non-China story. Anyways, I wouldn’t be surprised if the activists bring up ... franchising repeatedly.

More at Jeffrey Towson's weblog.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need hi at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more recent stories by Jeffrey Towson? Do check out this list.  

Learning from Burger King's missteps - Helen Wang

Helen Wang

Burger King had a hard time setting up shop in China, but seems finally to be able to get the country. China consultant Helen Wang explains on her weblog a few of the mistakes the US chain made, and what we can learn from it. One lesson: work from China, not Singapore.

Helen Wang:

When it first entered China in 2005, Burger King hired former McDonald’s president of greater China Peter Tan as senior vice president and president of Asia Pacific. This was a good choice as Tan has extensive experience growing McDonald’s to over 1,000 restaurants. However, there was one problem: Tan was based in Singapore. Headquartering the China operation in Singapore was a mistake that could be detrimental to Burger King’s China strategy. 

As the time of this writing, Tan is no longer with Burger King. His position has been replaced by Elías Díaz Sesé, who is responsible for all operating decisions and the overall growth strategy for the Asia Pacific region. China is an extremely complex market with diverse conditions. One thing companies must absolutely avoid is to run the China operation from outside of China. You can’t even run the China operation in Hong Kong or Macau. The management team must be on the ground to understand local customers and the fast-changing business landscape. When Sam Su was hired by Yum! Brands as the president of its Asia Pacific operation, he voluntarily demoted himself to be the president of China. Su understood that the China market needs special focused attention. The result was exponential growth of Yum! in China.

More at Helen Wang's weblog.

Helen Wang is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference Do get in touch or fill in our speakers' request form.

Getting things right in China can be tough. The China Weekly Hangout looked over a set of foreign firms that failed in China with Andrew Hupert, Richard Brubaker and Fons Tuinstra on January 30, 2013.

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• Defining the Chinese dream - Helen Wang

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• How Burger King Can Recover in China (forbes.com)