China: key for McDonald’s expansion – Shaun Rein

 

Fast food giant McDonald’s is expanding its footprint in China with one-third of its planned 9,000 new restaurants. China is key for McDonald’s expansion, says Shanghai-based business analyst Shaun Rein in FDIntelligence. “McDonald’s actually has a lot of potential because it’s considered cheap, quick [and] convenient,” says Shaun Rein.

FDIntelligence:

McDonald’s expansion in China comes against a backdrop of a slowing domestic economy and rising geopolitical tensions.

“McDonald’s actually has a lot of potential because it’s considered cheap, quick [and] convenient,” says Shaun Rein, the managing director of China Market Research Group.

While foreign companies must be “cautious about entering China and getting caught up in the geopolitical fight”, Mr Rein adds this does not apply to brands like McDonald’s in “innocuous” sectors.

And yet, McDonald’s was a major symbol of the Western exodus from Russia after its invasion of Ukraine. This begs the question: does the fast food giant worry about the risk of China invading Taiwan?

Mr Rein says that many multinational corporations are reducing their investment into China out of fears over a war over Taiwan. “There would be political pressure to divest Chinese operations in the event of war, but my guess is there would be greater pushback from the business community than there was over Russia.”

More in FDIntelligence. 

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.

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How KFC and McDonald’s conquered China’s consumers – Ashley Dudarenok

 

Ashley Dudarenok

In the early days, KFC and McDonald’s tried to conquer China’s consumers with a standard US menu. Now diversification and localization have become a key feature in the success of both fast-food chains, although the road has not been without bumps,  says marketing expert Ashley Dudarenok to the Panda Daily.

The Panda Daily:

While these food items may seem too peculiar to appear on the menus of these major US chains, they could signify a broader adjustment in strategy from these food giants, said analysts who spoke with Pandaily.

“These are diversification strategies, trying to seize other markets such as the breakfast market,” Ashley Galina Dudarenok, long-time author on Chinese marketing strategies and founder of social media agency Alarice and marketing training company ChoZan, told Pandaily.

The total consumption of breakfast food by Chinese consumers is expected to increase from 1.3 trillion yuan ($201 billion) in 2015 to 1.9 trillion yuan in 2021, according to marketing intelligence agency Mintel. By 2021, sales of breakfast food are expected to exceed 840 billion yuan.

In early 2008, KFC added youtiao, or fried dough sticks, its first Chinese street food snack to its menu. Soon after, other breakfast items, including tofu, congee, rice balls, egg rolls and tea leaf eggs were included. In fact, KFC’s congee is the chain’s number one seller at breakfast in China, according to Harvard Business Review.

McDonald’s followed closely, attempting to also capture the breakfast market. In addition to youtiao, soy milk, and congee, it also offers steamed bun burgers.

“These strategies have been relatively successful,” Dudarenok said, but increased competition in the breakfast market has prompted McDonald’s and KFC to go hyper-localized, a targeted form of marketing that focuses on reaching local, motivated buyers — hence roujiamo and hot dry noodles.

While McDonald’s has been accused of butchering the Shaanxi street-food staple due to inconsistencies between what was advertised and the actual product — with angry net users flooding Weibo with photos of two dry buns with a less-than-generous filling, KFC’s 7 yuan hot dry noodles have really resonated with people, Dudarenok said.

“KFC’s take on the Wuhan delicacy has really expanded consumer expectations. As breakfast food providers, KFC and McDonald’s are not only chasing hot trends, but also launching new products regularly, attracting consumers to keep coming back to try new things,” she added.

More at the Panda Daily.

Ashley Dudarenok is a speaker at the China Speakers Bureau. Do you need her at your (online) meeting or conference? Do get in touch or fill in our speakers’ request form.

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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.

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Why McDonald's teams up with Evergrande - Shaun Rein

Shaun Rein

Fast food chain McDonald's faces decline worldwide, but wants to counter that trend by doubling the number of stores in China. Its alliance with property giant Evergrande makes sense for this strategy, explains business advisor Shaun Rein to the South China Morning Post.

The South China Morning Post:

The fast-food chain is now aiming to have 45 per cent of its 4,500 mainland China stores located in third- and fourth-tier cities, and more than 75 per cent of those will offer a delivery service. 

The ownership by China Evergrande Group of some 700 property projects in 240 mainland – mostly lower-tier – cities, appears consistent with McDonald’s strategy.

“It’s increasingly hard for McDonald’s to find good locations in China. Developers and mall operators don’t want McDonald’s anymore, they now want more Starbucks, as McDonald’s attracts the wrong crowd who look for cheaper stuff,” said Shaun Rein, founder of China Market Research Group and author of the forthcoming book The War for China’s Wallet. 

Different from most other major economies, the McDonald’s Chinese business has long been in the shadow of KFC, which entered the mainland China three years earlier in 1987 and boasts better consumer recognition. 

What’s more, unlike in the US, most McDonald’s stores in China are franchisee-operated so the company doesn’t own a lot of properties on the mainland. This means a strong partnership with a big developer could be a short-cut to achieve its five-year growth plan, Rein said.

More in 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.

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What United can learn from McDonald's - Jeffrey Towson

Jeffrey Towson

United Airlines was the latest to discover the ire of the China consumers, and they were not the first. China consumers are changing the rules of the game many Western companies thought they knew how to play, says Beida business professor Jeffrey Towson on his weblog.

Jeffrey Towson:

I also made the point that the China consumer phenomenon works in both positive and negative directions. If you have a popular in-vitro fertilization center in Los Angeles or lavender farm in Tanzania, you can find yourself literally overwhelmed by Chinese tourists. Right now, there is a small town in the UK called Kidlington that has become over-run with Chinese tourists, for no reason that anyone can figure out. Chinese tour groups just decided they like stopping there to take pictures. Also recently, avocados are becoming popular in China for the first time. According to Produce Report, avocado imports to China jumped 375% between 2014 and 2015. And so on. 

These types of surprise China consumer stories happen virtually every week, in both positive and negative directions. When Chinese consumers change their mind about something in significant numbers it now ripples out into the world. As United Airlines has just discovered. 

The best approach is smart offense and fast defense. 

For multinationals and other companies, the reactions and changing preferences of Chinese consumers create a challenge. You can no longer wait for an issue to happen and then try to respond. You need to proactively engage with Chinese consumers all the time. The best approach I know of is “smart offense” and “fast defense”. And the best example I know of this is McDonalds. 

McDonalds in China (and Japan) has been hit by a couple of food scandals in recent years. This is an expected event given the rampant problems in the food supply system of China. If you are a famous restaurant in China, you are going to have a widely reported food quality issue at some point (whether real or fake). 

McDonalds does a very good job of smart offense in this situation, especially on social media. They pro-actively market themselves as safe food for Chinese consumers virtually every day. They widely publicize the quality of their ingredients on their webpage. And they are known for giving tours of their kitchens to show how clean they are. If you’ve ever been in a typical Chinese restaurant kitchen, you can see how effective that would be. That’s smart offense. 

And when an issue does happen (or is fabricated or charged), they play “fast defense”. Social media can whip accusations into a frenzy within hours. When McDonalds was the subject of a food quality expose (not the 2014 one), they responded on their Weibo account within 1 hour of the report. And they closed the outlet in question within 24 hours. That’s fast defense. And the speed of their response actually reinforced their reputation for caring about customers and food quality. Compare this to how United Airlines has responded this week.

More at Jeffrey Towson's weblog.

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McDonald´s also sells its China operation - Ben Cavender

Ben Cavender

In line with expectations, McDonald´s has sold a controlling stake of its China and Hong Kong operation to private investors, after competitor Yum did the same last year. With the new financial resources, the China operation can improve fast, says Shanghai-based retail analyst Ben Cavender to Bloomberg.

Bloomberg:

Oak Brook, Illinois-based McDonald’s and rival Yum China Holdings Inc., which owns the KFC and Pizza Hut brands in the mainland, are combating rising domestic competition as they fight to retain middle-class Chinese consumers who increasingly demand high-quality and healthier dining options. The fast-food giant is also looking at further deals in markets such as South Korea, Japan and Southeast Asia as it streamlines its sprawling global operations. 

“Citic and Carlyle’s resources will allow McDonald’s to expand rapidly and refurbish old restaurants, which is expensive to do,” said Ben Cavender, a Shanghai-based analyst at China Market Research Group. “Given that McDonald’s lags behind KFC in terms of store count in China, we can expect them to expand aggressively and invest heavily.” 

Yum China Holdings and Starbucks Corp. plan to add about double the number of stores -- as many as 3,000 in China -- over the same period. 

Under the deal, Chinese state-backed conglomerate Citic and Citic Capital Partners will jointly take a 52 percent stake, while Carlyle will hold 28 percent. 

While Citic and Carlyle are paying a “substantial price,” for 20-year franchise rights, the food and beverage chains are “cash machines,” Cavender said. In contrast, Yum China licensed the KFC and Pizza Hut brands from Yum! Brands Inc. for 50 years, with automatic renewals that could make it possibly indefinite.

More in Bloomberg.

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McDonald's shutters stores as diet changes - Ben Cavender

+Benjamin Cavender 

McDonald´s used to be one of the winners in China´s emerging fast food market, but - together with KFC - losing market share and actually closing stores. Scandals and changing diets take their toll, says retail analyst Ben Cavender in the China Daily.

China Daily:.

Analysts said customers in China have been slow to forget recent food scandals, one of which involved a major supplier of meat to fast-food companies including McDonald's and Yum, which was shut down for allegedly violating numerous safety regulations, including mixing in chicken and beef parts that were well beyond their expiration date. 

Yum has launched several initiatives to attract more customers in China including a high-end restaurant Atto Primo in Shanghai, and providing quality coffee in 1,300 restaurants across 10 cities. 

Ben Cavender, principal of the Shanghai-based China Market Research, said he expected both brands to continue to struggle in China and internationally. "This is due to changing consumer tastes and an overall shift toward either more healthy foods or niche brands," said Cavender. 

He said in China specifically both brands continue to feel the effects of the scandal, and a slowing economy, and any company running a huge number of stores might be faced with having to close some. 

"Coffee sales may be boosting KFC a little bit," he said, "but I don't think they have it fully implemented yet and they also have a lot of competition in that space."

More in the China Daily.

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Why McDonald´s is losing in China - Ben Cavender

+Benjamin Cavender 

McDonald´s used to be a winner in China, but has started to face dropping sales. Retail analyst Ben Cavender explains why the US firm is likely to keep on dropping in AsiaOne. Food scandals caused loss of confidence among the consumers, and McDonald´s has been unable to repair the damage.

AsiaOne:

The global sales still represented a sharp drop, however, from what analysts had estimated would be a 0.3 per cent fall in same-restaurant sales, according to those polled by research firm Consensus Metrix. Those had included declines of 0.7 per cent in the US and 3.1 per cent in APMEA, said Reuters. 

Ben Cavender, principal of the Shanghai-based China Market Research, said McDonald's is likely to continue seeing weakening sales in China. 

An undercover local Chinese TV report on July 20 showed workers at Shanghai Husi Food Co Ltd using expired meat and doctoring food production dates. 

Regulators immediately closed the factory, which is part of OSI Group LLC, a US food supplier and McDonald's partner. 

Cavander said the company had been unable to rebuild confidence with consumers since the incident and he expected questions over the quality of its food supply to continue, and as buyers increasingly turn to healthier options.

More in AsiaOne.

Ben Cavender 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 branding experts at the China Speakers Bureau. Do check out this list.    

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