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Competition gearing up in China's fast food industry

(China Daily)
Updated: 2008-06-30 15:50

An emerging industry

With the emergence of a fast food industry in the 1990s, the Chinese government included it in the Eighth Five-Year Plan (1991-1995) in 1994. In 1996, the government issued Fast Food Development Guidelines, defining "fast food" as delicious and nutritious food that could be delivered in a short period of time.

The guidelines set an annual growth rate target of five percent for the national fast food industry during the 1996-2000 period, with expectations that this sector could contribute 25 percent of restaurant industry revenues by the year 2000.

Stimulated by this national policy and a growing market for fast food, homegrown chains began to spring up during this decade. Many set their sights high, trying to compete with the foreign fast food giants, but most ended in failure.

Ronghua Chicken, the first Chinese fast food chain, was one of them. The chain was launched in December 1991 by the Shanghai Xinya (Group) Co Ltd two years after KFC opened its first Shanghai store.

Prior to establishing Ronghua, its president, Jiang Wei, visited a local KFC to take stock of how fried chicken products were made. He then developed the Ronghua Chicken and designed a fast food package of chicken, fried rice, borscht and salted vegetables with green soybeans.

From the beginning, the chain competed with KFC, with the slogan: "Wherever there is KFC, there is Ronghua".

With its slogan, a more Chinese menu and lower price, Ronghua made a big splash. In 1992-1993 Ronghua expanded aggressively nationwide and reportedly had sales of 15 million yuan, with daily revenues as high as 119,000 yuan, surpassing KFC and McDonald's in some regions.

But it was short-lived. Ronghua Chicken expanded into Beijing in 1994 but six years later it was forced to shut down all of its stores in the capital because of poor business.

Jiang attributed the failure of Ronghua to "a lack of the kind of well-developed system that KFC possesses which oversees every detail of the business, from making the product, to service, to site, to staff training and management".

Ronghua was not alone in aiming high. Red Chinese Sorghum Mutton Noodle, which competed directly with McDonald's, is another example. In April 1995, a young Henan native, Qiao Ying, opened the first Red Chinese Sorghum store in the provincial capital of Zhengzhou. The 100 square meter store was fixed up to look exactly like a McDonald's.

Business was fairly brisk, with daily sales reaching 10,000 yuan. Within eight months, seven additional stores were opened in the city. In early 1996, Red Chinese Sorghum expanded to Beijing, locating its first store in the Wangfujing district, opposite the world's largest McDonald's store.

Soon thereafter, Red Chinese Sorghum ran short of money as Qiao had been intent on expanding without improving management of the chain. Then Qiao himself was arrested for illegal fundraising.

Nevertheless, there were also success stories, such as the Changzhou-based Lihua Fast Food which was launched in 1993, followed by Malan Noodles, Yonghe King and Daniang Dumpling.

These chains expanded into China's major cities. Malan Noodles was even ranked as China's third most popular fast food chain in 1999, after KFC and McDonald's.

By 2000, there were 1,400 fast food chains in China with a combined network of 500,000 stores and annual sales of 80 billion yuan.

Chinese fast food chains are still overshadowed by their foreign counterparts, even with lower prices and food tailored to a Chinese palate. KFC and McDonald's continue to occupy the biggest share of the market, with KFC leading the way.

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