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Competition gearing up in China's fast food industry

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

The reason may well be the management system of these global fast food chains. An AC Nielsen survey in 1999 showed that KFC was the most favored international brand in China. Since the very beginning, KFC's focus has been on "building a perfect system which governs every step of the way - from purchasing, to making, to delivering the food - and to the quick service," according to Sam Su, president of Yum! Brands Inc. China Division.

"Once the system is established, it is easy to institute it at each new store," he adds. That is the reason KFC opened only 10 stores in the first five years, and then stepped up the pace to 100 stores by June 1996 and 1,500 by 2005.

The foreign fast food chains also have a strict evaluation system for choosing sites, based on where to locate and how much to invest in a specific region.

There is a training system as well. McDonald's trains its staff at its corporate schools, Hamburger University. One is located in Hong Kong. At KFC, each new employee must go through a 200-hour training program and attend courses at a KFC education development center especially tailored for China.

By comparison, homegrown fast food chains either modeled themselves after their foreign counterparts superficially, or were only interested in expansion.

"Chinese-flavored fast food should have sold better, but they could not live up to market expectations. The quality of the food was not consistently good and consumers had to wait too long before the food arrived," Su says.

New competition

Since 2001, the competition has been heating up again. Chinese fast food chains have been growing and accounted for 80 percent of the restaurant industry in 2007.

Many of the Chinese fast food chains have been updating and standardizing their systems. In September 2005, Lihua Fast Food invested 3 million yuan to establish its own factory in Nanjing, introducing an automatic production line which standardizes the taste of its the cooked rice. The company later built factories in Changzhou and Beijing.

Kungfu Catering, one of the largest Chinese fast food chains which opened its 200th store last year, announced last October it will be standardizing the operation of all its stores with the help of South China University of Technology to ensure that each food order is of the same quality and can be delivered in 80 seconds.

"The Chinese fast food industry is maturing, and standardization is the only way to compete with foreign fast food chains," says Li Yaguang, deputy secretary-general of China Cuisine Association.

It is still not easy to gain an edge as foreign competitors continue to expand aggressively.

KFC has more than 2,000 stores dotted around China's 465 cities, according to Su. It is expanding at the rate of one store a day, reaching further into counties. McDonald's also plans to have 1,000 stores in China by the end of 2008.

Chinese fast food chains are resorting to venture capital and the capital market, as inadequate funds are a big stumbling block.

Last March, for the first time, Ajisen Ramen, a Chinese fast food chain, got listed in Hong Kong. Lihua Fast Food and Daniang Dumpling have set a timetable for their initial public offerings. Lihua Fast Food raised $10 million and Kungfu Catering raised 300 million yuan from venture capital funds last year for expansion.

At the same time, foreign fast food chains are now looking to cater more to the local palate. For example, KFC now sells pumpkin porridge and youtiao (deep-fried dough) for breakfast, and egg soup and Beijing chicken rolls. McDonald's is changing from beef to chicken in its under five-yuan menu.

In 2005 Yum! Brands Inc. China Division launched East Dawning, a Chinese fast food chain serving typical regional food. After three years of "gaining experience" with 13 stores in Shanghai, East Dawning will be expanding nationwide in 2008.

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