China Consumer

Yum increases its slice

American restaurant giant sees huge growth of Pizza Hut chain in China

Literally queuing round the block

“I have lunch at KFC twice a week because there’s always one close by. But when I’m out on a date and want to impress a girl, I take her to Pizza Hut,” says Su Yi, a 28 year-old lawyer in Beijing.

Before you call the man a cheapskate, you should know that Pizza Hut in China bears little resemblance to its US counterpart. The decor is modern, with atmospheric lighting and cushioned booths. The fare on offer is also different. Customers can choose from a 106-item menu that even includes French-style escargot.

“Pizza Hut is the cheapest of the cheapest restaurants in the US, but in China, it is seen as a classy, upscale place for dining,” Shaun Rein, managing director of the China Market Research Group, told the New York Times.

The pizza chain – which is owned by Yum Brands – now does about as much business at lunch as it does at dinner, and afternoon tea is also hugely popular. As a result, outlets in China are also at least twice as profitable as their counterparts in the US, says 21CN Business Herald. That helped Yum China to overtake its rival US division as the biggest driver of operating profit last year.

Until recently, much of the focus on Yum Brands had centred around KFC, China’s largest fast-food chain with more than 3,000 stores. But with more than 500 restaurants in 130 cities, Pizza Hut has also become an important contributor to Yum’s business model. The company does not disclose sales for individual chains, but management revealed that Pizza Hut recorded same-store sales up 14%, the best performer of its brands in China.

Pizza Hut’s strategy is to go after younger, more sophisticated diners in the country’s big cities. “For many customers it is their first experience with Western food,” says Sam Su, who heads Yum’s China division.

And to appeal to local tastes, Pizza Hut offers Western food with Chinese characteristics. To go with your Super Supreme deep-crust, you will find more exotic dishes like teriyaki octopus and quail egg (Rmb15) or Japanese-style vegetable tempura (Rmb35). For steak lovers, the chain offers grilled sirloin for Rmb49.

To enhance its more upmarket image, the company has also dropped the all-you-can-eat salad bar, one of its signature offerings in other parts of the world. That will disappoint many regular visitors as it was one of Pizza Hut’s most popular items in China, says Global Entrepreneur. But the magazine also says it was a loss-making item on the menu, with Rmb32 ($4.80) charged for a single visit to the salad bar. As a result, frugal customers took to building “salad towers” to maximise their bowl (wedging cucumbers round the side was a favoured ploy). Apart from leading to waste, Yum also felt this behaviour failed to fit with its high-end positioning.

Pizza Hut also tries to pull in business with a nod to Western culture. It has lured diners at Christmas with seasonal fare, decorations and employees dressed as Santa. At Easter, Pizza Hut employees don bunny ears and kids paint eggs in the restaurants. Even Halloween receives the Pizza Hut treatment: customers can decorate pumpkins, says the Wall Street Journal.

Pizza Hut has some foreign competition. Papa John’s, the world’s third-largest pizza chain by sales, had opened 155 restaurants across 32 cities as of September 2010, and plans to double that number to 300 over the next three years. With Pizza Hut still the clear industry leader, Papa John’s says it will step up its franchising efforts to grow store numbers. That starkly contrasts with Yum, which has preferred to focus more on building a wholly-owned network of restaurants.

But like Pizza Hut, Papa John’s is hoping that a menu that adapts to local tastes will help too.

How about pizza with pork knuckle and pineapple?


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