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KFC and Pizza Hut in China: Which western brands do to satisfy diners

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With more than 1.3 billion people, the country has been selling such things as McDonald's ( MCD ) and KFC in recent years. The Chinese fast food industry is now worth $ 131 billion a year, according to research firm Euromonitor.

But things get tougher as the world's second largest economy brakes and diners demand more. The response has been glitzier restaurants, larger menus – and a bit of a pretty nice food.

KFC is the largest US success story in China. The fried chicken chain entered the country more than 30 years ago and became the largest player with 6,000 outlets. McDonald's has about half of it.

"Being the first western fast food chain in China, it was an incredibly exciting offer just by being KFC," said Andrew Atkinson, senior marketing manager at China Skinny consulting firm.

China is now the world's largest global market, accounting for more than a quarter of worldwide KFC sales. KFC's operating profit in China increased by 1
1% last year, according to the latest income from the parent company, Yum China ( YUMC ) .

Chicken wings have proven to be extremely popular in China, but analysts say KFC's success has been maintained by catering to Chinese tastes. The menu is full of local foods such as congee (rice porridge), Chinese style egg yolks and bubbly.

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More Chinese than Western

Many people in China now see KFC as "more of a Chinese than Western brand" , Benoit Garbe, a senior partner at the Prophet's consulting firm said in Shanghai. The company has weathered setbacks in China, including a major food safety scandal in 2014 and a setback against US brands in 2016.
Chinese KFC restaurant dedicated to Communist hero Lei Feng

It has also adapted Chinese enthusiasm to order food for delivery or retrieval on smartphone applications.

"They expect a mobile first experience," Garbe said.

KFC's Chinese mobile app has over 160 million users. More than two-thirds of orders in China are paid via smartphones, according to the company. Starbucks ( SBUX ) had to learn quickly about the importance of digital platforms for food and beverages. Unlike fierce competition from the local start-up of Luckin Coffee, which bases its business on online orders through its app, Starbucks joined the internet giant Alibaba ( BABA ) last year for to offer a similar service.

Pizza Hut's image problem

Pizza Hut is also owned by Yum China, but it has struggled to recreate KFC's success.

The pizza chain has 2000 restaurants in China. Last year revenues in the country were reduced by 1% and operating profit fell 38%. Unsuccessful efforts for woo Chinese diners have included offering exotic toppings such as sea snails and distribution of robot waiters.

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It may not be enough Pizza Huts problems reflect aggress iv competition for Chinese consumer's wallets, analysts say. In recent years dining options for the middle class have exploded.

The American brand stands against such as the Sichuan-style pot chain Haidilao and the Japanese dining style Yoshinoya.

"If you enter a mall in China, there will be like 30 restaurants there. It's incredibly competitive," said Jeffrey Towson, business professor at Peking University. It leads to fierce rivalry, with restaurants trying to offer ever-larger menus.

"It is expected in China that your menu will have 100 items and be half an inch thick," Towson said. "You're just in this endless race to improve."

Taco Bell goes upmarket

Taco Bell, meanwhile, hopes it's going to be second time lucky in China. The Tex-Mex fast food chain has initially withdrawn from the country more than a decade ago, but it has taken children's steps back since 2017.

In its first attempt to crack China, Taco Bell was largely cut and glued US offers, analysts say. With Tex-Mex food still unknown to many Chinese consumers, the restaurants fell flat.

This time, Yum-eide takes another roof. Taco Bell's flagship restaurant is located in one of Shanghai's most sparkling districts, surrounded by high-end fashion stores.

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[19659003] In America, Taco Bell competes with rivals such as McDonald's and Wendy's. But analysts say the brand is targeting the premium end of the Chinese market.

"There are no $ 1 tacos to be found. It's an exclusive experience," Atkinson said.

Since returning to China, the brand has opened only four restaurants. All are in Shanghai, China's largest city and financial center.

"We will focus on reaching critical mass and fine-tuning the model before we roll out further," Wat said in December.

The key to the success of Taco Bell can play down what it is commonly known elsewhere. Out go ingredients popular in the US, such as refried beans and gooey cheese. You will find more exotic offers, such as crayfish tacos and Japanese beers.

But for some experts, even that may not be enough for Taco Bell to succeed in China.

"You can't get around the fact that burritos are just not so popular in China," said Towson.

Eddie Baptista and Harry Forbes contributed to this report.


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