Why fast foreign food wins in China - Shaun Rein

Image via WikipediaChinese consumers know that oil and sugar provide not a healthy diet, but they know that Western fast food brands in China at least keep a close eye on their production processes, unlike the Chinese competition. That is why they win, explains Shaun Rein in CNBC.

Shaun Rein:

My firm interviewed thousands more Chinese consumers in eight cities about their dining habits, we found that Emily's response was not unusual. Many Chinese consumers consider western fast food brands like Yum Brands, McDonald's and even Dunkin Donuts healthy.
They all know a healthy food diet should not have too much oil and sugar, but they also trust foreign brands won't cut corners in the production process. They fear tainted ingredients more than fat.

Far too many Chinese view western fast food companies as healthy alternatives to local restaurants, rather than a once in a while greedy indulgence. China's food supply-chain is clearly a mess, and it is a serious problem that needs to be fixed immediately.

In a survey of 5000 consumers in fifteen cities, my firm found that food and product safety was the biggest concern for Chinese consumers, ahead of paying for medical bills or children's education.
Those concerns continue to be top of mind because of regular allegations that food companies and restaurants are using poor quality ingredients. Last week, for example, shares of Chinese noodle chain Ajisen [0538.HK 12.54 -0.92 (-6.83%) ] plummeted nearly ten percent when word got out they allegedly use instant broth flavoring rather than stock made from boiling bones as they claimed in advertisements. Before the news broke, consumers told my firm they trusted Ajisen to provide healthy food.

Misrepresentation of product safety can be costly because the Chinese have become unforgiving when it comes to health. A mere allegation is enough for businesses to lose customers, see their bottom lines hit and their share prices decimated.

Shaun Rein

More in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Buy Ctrip and Yun! - Shaun Rein

Shaun Rein by Fantake via Flickr

Domestic consumption is growing and Shaun Rein tells at CNBC what companies investors should be looking at in the short term. While both McDonalds and Yum! are doing well, Shaun Rein prefers Yum! since they cater for different consumer markets with different price points, while McDonalds sticks to one price for all.
Travel is going to be important, as cars allow Chinese consumers to travel more domestically, young Chinese with cheaper cars, looking for budget hotels. Ctrip, China's successful travel portal would be an obvious investment.

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Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Hu Jintao, China's most prominent diabetes patient - Paul French

Paul French by Fantake via Flickr

President Hu Jintao is China's most prominent diabetes patient, but with 120 million obese - and counting - he is certainly not alone, tells Paul French, co-author of Fat China, to Jeremy Goldkorn of Danwei TV. Chinese are getting more of everything and lost control of their diet, just like people in the West, only later. "We would have loved to blame McDonald's or KFC for it," says Paul French, "but we cannot."

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Paul French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.


Fat China! Paul French talks about obesity in China from Danwei on Vimeo.

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When your people keep on running away - part II

Welcome at school

Last week I shared with you the trouble of a foreign manager who saw his staff leave, regularly and in relative large numbers. That story triggered off quite some reactions, but none of those made it to this weblog. Some I want to share with you:

A Chinese manager now working for an international company in Europe thought it was funny, since she knows both sides of the coin. "Here in Europe people never leave their company. They hang on five, ten, fifteen years. I do not think that is healthy for both the company and their staff."
A colleague recalled a conversation she had with a manager of McDonald's. "Some people think we are a food company," he said. "Others think we are in real estate. Both are wrong. What we essentially are is a school. We get people who just come from school or have very little experience. We teach them to come on time, working in a team, dress neatly, get familiar with all the business processes. And when they know all this, after three, four months, they leave again for another company where they can use these skills. And we start training a new group of people."
A Shanghai-based lawyer thought the story lacked any sense of reality. "When people leave, it is always about money," he says. "You listen too much to those HR-people doing exit-interviews. Of course people lie then, they never say they leave because of the money, but that is always the reason."

McDonalds says no wrongdoings found

An investigation by the labor authorities in Guangdong province has not shown any wrongdoings on the side of the company, McDonalds says in a statement, according to Bloomberg.

"Our interpretation of those laws has been correct,'' McDonald's China unit said in an e-mailed statement, citing an official finding by the Guangdong Labor Authority.

Together with KFC and Pizza Hut, McDonalds has been part of a months long uncover operation by a Guangdong paper. A formal complaint at the Labor Bureau forced both the labor authorities and the Chinese trade union ACFTU into action.

The article did not mention any results for the investigationsin KFC and Pizza Hut.

Update: Also Yum, the owner of KFC and Pizza Hut have been clear, All Roads lead to China has read in the Wall Street Journal. The score:

1.5 points to the Union who closed McDonald’s and were able to to highlight the need in the public eye to find ways to protect workers in the foreign food service industry
1 point to the students whose plight was the center of a media frenzy for a week
0 to Yum who stuck to their guns and neither conceded they paid too little nor let the union leverage the situation in
-1 to McDonald’s who are now moving their union discussions up a level as a result of the controversy

Undercover journalists revealed food chain trouble

from the newspaper

Months of undercover investigations by journalists have been at the basis of the current labor problem of Pizza Hut, McDonalds and KFC, a report in the New Express reveals, here in a translation by ESWN, called "McWages in China".
The detailed report is for sure going to cause the companies involved more trouble and might signal a strategy more companies will have to face. Only after the journalists filed official complaints the labor authorities reluctantly decide to investigate the reports.

This woman is 43-years-old. She claimed to have been laid off from her previous job and her husband had died from cancer. She worked at KFC and earned 4.7 RMB per hour. At first, KFC told her to sign a full-time contract. Then they wanted her to sign a part-time contact. This woman worked at least seven hours per day. She had never taken Lunar New Year off in eight years. However, she is coming up to ten years of employment and KFC does not intend to renew the contract with her.
According to the law, any employee who works for ten years cannot be dismissed.
This woman was in tears: "KFC claims to have helped so many impoverished students and hardship cases in China. I am a single mother and I need this job to feed my family. On the last week at the end of my eighth year contract, I received a rating of 100 for my work. Now they are saying that I am too old and they won't renew my contract."

The strategy of the companies when they smelled trouble looks dubious at best: the reissued new backdated contracts. That does not sound like a company who is complying with the law.

KFC, McDonalds, Pizzahut to cooperate with authorities

Both McDonalds and KFC has said on Thursday they were cooperating with the authorities in a probe into labor law infringements that has been expanding over the whole country, writes AP.

"No one cares more about our workers than we do," McDonald's China said in a statement seen Thursday. "The fact is, government officials make decisions on local labor laws. That's why we continue to work with local officials to get further clarity on their recently amended labor laws," it said.

The companies said they were looking for clarification of the law.

"McDonald's China always adheres strictly to the relevant national and local regulations, and we are consulting with the proper authorities to get the facts," it said, noting that the results of the investigation had not yet been disclosed.
A spokeswoman for Yum in China said the company was also seeking clarification but did not have any new statements.

Crisis, but no crisis management at food chains

More than a week old is the current PR-mess for KFC, McDonalds and Pizzahut, but for the time being the companies think they can get away by ignoring the crisis. I think they are wrong, but we will see.
What helps a bit is that - against my expectations - the issue is not really taken up in a massive way on the internet. I guess that most KFC-employees cannot afford internet access.

What is next for KFC, McDonalds and Pizzahut?

The temperature has been rising for the foreign food chains that have come under scrutiny for the - according to an investigation - breaking of the labor law.
China Hearsay has a "seen it, done it" approach of the case and paints the standard procedure for this kind of cases. I have to argue against it, since this does not look like a standard operation, this is real politics and the managers in charge of this crisis have reason enough to feel the beginning of a panic.
First, for Chinese standards this looks like a pretty well organized action. It was very clear after the trade union started to organize Wal-Mart and Foxconn against the will of the companies, they could not just go back to their offices and continue drinking tea. This looks like the plan for the moment and if I would be working at KFC, Pizzahut or McDonalds I would take this very seriously. This does not go away by itself.
Second, it is part of a policy shift on several levels. Until a few years ago, almost anything you did to encourage economic growth was ok and nobody really bothered about the negative side-effects. The different governmental institutions (and for the time being the trade union ACFTU is still one of them) are building a case, both for their bosses upstairs, but also for the Chinese citizens.
So, what is to be done? Raising the salaries over the minimum wages, paying the wrongly not paid wages and deeply, deeply apologize for mistakes being made. And set up a trade union of course. Again: this is not going over by itself.
Next, this is going to be a successful action on the part of the government and the trade unions. There is no ways this can be writing up by the state media without being a resounding success. That will cost some money, but will have consequences for other foreign companies too who will be next. In the long run, ok the very long run, it will also have consequences for the Chinese companies, since the Chinese workers know they will get support when they ask for their legal rights.

Trade Union confirms labor law violations

An investigation has shown that KFC, McDonalds and Pizzahut in Guangdong have indeed violated the labor regulation by not paying their workers the minimum wage, according to a senior ACFTU-leader today in the China Daily.

The fast-food giants must correct their wrongdoings and pay the workers retroactively, said Li Shouzhen, a senior official with the All-China Federation of Trade Unions (ACFTU).
"A joint investigation by the Guangdong provincial trade union and the labor authorities confirmed media reports about the companies' unlawful practice," Li told a news briefing in Beijing. "The federation will uncompromisingly fight any practice that violates workers' rights," he added.

It is another signal the heat will be turned up for the foreign food chains involved.

Pizza-hut, KFC, McDonalds on hitlist trade union

The ACFTU, China's only allowed trade union, has warned foreign foodchains not to underpay their employees, reports the China Daily. A trade union official was over the weekend interviewed by CCTV after media reports from Guangdong signalled that employees of KFC and McDonalds possibly did not receive the legal minimum wage.

Other media reports indicated similar problems in Taiyuan, Zhengzhou and Fuzhou

The foodchains have denied they are not following the labor law and local regulations.

Update: CNN quotes Beijing News, saying the problem may exist in at least ten cities, including Beijing and Shanghai.

KFC-employees cannot afford KFC

Both KFC and McDonalds are under fire after the labor officials in Guangdong discovered how little they pay their employees, writes the China Daily. The action comes shortly after premier Wen Jiabao told the NPC upholding the minimum wages would be high on his political agenda.
KFC and McDonalds employees get about 4.3 Rmb per hour (0.4 USD).