Market Information
Asia Pacific

Do You Want A Big Mac or Rice?

- Report on the Fast Food Industry in China

Agriculture and Agri-Food Section
Canadian Consulate General in Shanghai

April 2002

Summary

Nothing else than western style fast food could have been a bigger impact to the Chinese people's life style, especially to the kids and the young generation. Since China's fast economic development and its accession to WTO in 2001, "Big Mac" has become a representative name or a "nick name" of western style fast food to challenge "Rice" - the traditional Chinese style food.

Introduction

With two decades of fast economic development in China's, its continued enlargement of city scale, and the growth of people's income and the changing of rhythm of daily life, the fast food industry has become one of the most important parts of the food and beverage industry in China and has contributed a significantly to the GDP of this country. Data from the China National Statistics Bureau shows that the sales volume of fast food counts for two fifths of the total sales volume of food and beverage in China. Conservative estimates of annual sales of fast food were above US$24 billion (RMB200 billion) in 2000.

Market Overview

Undoubtedly, the most active and prominent fast food companies in China are two western style fast food companies ---- KFC and McDonald's. In spite of the competition between the two companies, they have been occupying the largest market share and enjoying great profits in China (Kentucky reached US$241 million in sales in 2000, ranking on top of the China fast food list ). What's more, the appearance of western style fast food stores has definitely changed the eating habits of Chinese people, especially in the younger generation. According to a survey made by CMMS (China Market and Media Study) in 20 major cities including Beijing and Shanghai, 62.1% and 63% of citizens visited fast food restaurant in 1999 and 2000 respectively. 27.8% citizens claimed that they go to KFC frequently and the figure for McDonald's is 18.2%. In many cities of China, wherever there is a KFC, you can see a McDonald's in a close location.

Kentucky, a member of Tricon Global Restaurants Inc., was the first foreign fast food company to open up shop in China. It is still the #1 in China's fast food industry. Its first store, the KFC Qian Men Restaurant, established in Beijing on November 12, 1987, has proved the project a great success. Many Chinese people still clearly remember the long lines in front of the KFC Qian Men waiting to enjoy the "Kentucky" hamburgers and chicken. It took Kentucky 9 years ( till 1996 ) to set up 100 KFC chain restaurants in China, while it only took 11 months for KFC to increase the number from 400 to 500 restaurants in the country in 1997. Now, KFC has presence in almost all major cities in China, and in some smaller cities too. Recently KFC announced its 600^th store in Lanzhou, capital city of Gansu province in western China.

Another big player in China's fast food market is the McDonald's. The fundamental food in KFC is chicken, but beef is McDonald's benchmark food. Like KFC, McDonald's has been enjoying fast development in China as well. At the same time McDonald's announced that it would close 250 stores all over the world, they guaranteed to open 100 stores a year in China by year 2003. In addition, McDonald's also told the media that will begin implementing its franchising plan throughout China by year 2003. The first 5 franchise restaurants in China will be built in medium and small size cities.

One Canadian pizza company, Panagopoulos, also made its presence in China and set up its first restaurant in Beijing in September 2000. They serve pizza with Canadian flavours, and they sell snacks, too. Panagopoulos has been developing steadily with a total of three restaurants so far in Beijing. Their strategic plan is to expand to a bigger fast food market in China and to set up its first restaurant in Shanghai within this year.

Market Development

Development of fast food industry in China is not the same between the more sophisticated regions as such Beijing, Shanghai and coast line cities and relatively less-developed regions in the central and the west. The more sophisticated regions, with a better economy, attract much more fast food investors than the less-developed regions. Take the KFC for example, of its 600 stores, 70%+ are located in eastern and coast line cities such as Shanghai, Beijing, Tianjin, Guangzhou, Shenzhen, etc. Up till today, KFC alone has 59 restaurants in Shanghai and number for McDonald's is 40.

Needless to say, Shanghai, as the economic and financial centre of China, is the most important city for fast food. Shanghai history has provided it with ample opportunity to adapt itself to the western world; before 1949 it exhibited semi-colonial characteristics. The many western life styles and cuisine cultures still have strong influence on today's Shanghai. In 2001, Shanghai's per capita GDP reached US$5 000/annum, an increase of 10.2% from the previous year, and the people's average income increased by 9.9%. Even in the rural counties or countryside, people enjoyed 5.1% income growth. All these contribute to making Shanghai the world's gateway to China.

Besides KFC and McDonald's, other international famous fast food companies such as the Pizza Hut, Wei Qian Noodle from Japan, Ding Gua Gua from Taiwan, Da Chang and Tropical from Hongkong, have also entered Shanghai to grab market share in this, the most prosperous city in China. Pizza Hut has 72 restaurants in China including 18 in Shanghai. Da Chang, headquartered in Hongkong with a 50-year history and annual sales over HK$10 billion, has invested over US$36 million in Shanghai, for ten Da Chang fast food restaurants in downtown areas. Da Chang plans to open several other fast food chain restaurants named Tropical in Shanghai in the near future.

According to a recent public survey, 80% of the people (15~45 years age) interviewed like fast food. 90% of them like fast food on a regular basis, and 10% of them claimed that they like fast food "very much", or "love" fast food. The survey also provided the following particular reasons for the increasing popularity of fast food:

• People have 52 weekends (each two days) and three long holidays (each seven days) a year. They need fast food to accommodate their travel plans and shopping activities;
• White-collars working in offices stop bring lunch, and change to enjoy KFC chicken, hamburger, pizza or other fast food in the restaurants;
• Parents give more money to kids and students to buy lunch at noon time. Fast food is naturally their first choice;
• Eating out still remains as Shanghai people's common habit of life. They do not perceive fast food is a luxury, but they enjoy having family, especially if they have smaller kids, in the environment of the western style fast food restaurants.

Current Business Trend and Issues

Western style fast food has been very successful in the China market in terms its high speed of development and its warm acceptance by the Chinese consumers. In recent two or three years, however, it was challenged by Chinese nutrition experts for its "lack of a healthy nutrition balance". This criticism was supported by the education sector because they found more and more overweight kids and students in schools and classrooms. The criticizers strongly advocated for nutrition-balanced food or "healthy food on your daily menu". They warned people not to forget China's long history of gourmet culture, and its great diversity of food nutrition. To respond to the challenge, KFC has put forward several Chinese style foods, like fresh soup with vegetable, eggs and carrot. KFC's also strives to maintain their fast food's authentic flavour. They preserve the chicken by adding all kinds of seasoning or ingredients that the Chinese mothers would use at home, then fry the chicken to serve. These modifications have made KFC products popular with Chinese consumers, particularly mothers.

Another interesting issue is localization of western style fast foods. As can be expected, KFC has taken the lead here. KFC changed the style and decoration, for the very first time in its history, of its Qian Men restaurant in Beijing to a totally traditional Chinese style, with typical Chinese decorations like kites and paper-cut outs. KFC employs all local staff, and its senior management will be localised soon too. In addition, all of the food ingredients and materials in KFC are locally sourced. Since its first restaurant opened in China in 1987, KFC has sold 240,000 tons of chicken products, which equals to 624 million chickens. Like KFC, McDonald's staff component too are 100% local.

Conclusion

China's fast food industry is currently growing 20% annually, and its profit margins reach 10~20%. This makes the industry one of China's most promising sectors and most attractive in the labour market. Western style fast food, with its special flavour, unique cultural characteristics, good management and its high-quality services, has maintained its very strong position in Chinese people's daily life. The younger generation will be the major consumer group, and the demands for "Big Macs" will increased throughout the next decade. We hope that Canadian exporters will take advantage of this development, and will pursue possible business opportunities for their specific products and services. In case of any questions, please feel free to contact the following:

Shirlie Wu
E-mail: shirlie.wu@dfait-maeci.gc.ca 

Henry Deng
E-mail: henry.deng@dfait-maeci.gc.ca
Agriculture and Agri-Food Section
Canadian Consulate General in Shanghai
Tel: (86-21) 6279-8400
Fax: (86-21) 6279 8401