China Consumer

Bun fight

American fast food giants now face aggressive local rivals in China

Dicos w

Taking on McDonald’s

You probably recognise it as the company behind the instant noodle giant Master Kong. But Taiwan’s Tingyi also runs Dico’s, one of the largest fast food chains in China. The restaurant group, selling French fries and hamburgers styled on the American model, had 1,517 outlets by the end of last year and is expected to expand its network to 2,000 in the second half of this year.

Better known purveyors of American-style fast food like KFC and McDonald’s now control over 5,700 outlets between them in China. But they are facing competition from local players like Dico’s, which appeal to local tastes with items like Soy Sauce Chicken Burger and the Fresh Shrimp Burger.

Another fast food chain generating buzz is Hua Lai Shi – a name that sounds like ‘Wallace’ in Mandarin – which has more than 3,000 outlets in 96 cities. Founded in 2001, it also offers fries and burgers but at lower prices than the foreign chains. At Hua Lai Shi diners pay Rmb1 for a soda drink (about 16 American cents) and just Rmb2.5 for a burger – about a third of equivalent prices at McDonald’s.

Hua Lai Shi was a concept developed by two brothers from Wenzhou. The idea was to offer “authentic” Western fast food to more cost-conscious consumers in less affluent third-and-fourth-tier cities, where income levels are still low enough for McDonald’s and KFC to be considered out of reach. Hua Lai Shi is now expanding at a speed of one new store every three days, on a par with McDonald’s and Dico’s, according to a report by Ibis World Market Research. However, Ibis also suggested that the popularity of Western-style menus is waning as more consumers now opt for Chinese-style fast food, which is increasingly considered a healthier alternative to burgers.

Another factor is that the novelty of Western fast food is starting to diminish for Chinese customers. In former times, a meal at McDonald’s or KFC conferred new status on many of its diners, demonstrating their income levels and aspirations as consumers.

But as China’s prosperity grows, consumers are turning to different indicators. A tub of chicken drumsticks doesn’t convey quite the same message that it once did, meaning that fast food in general is starting to be seen in a similar way to other countries. As such, local brands are beginning to present a competitive challenge.

For example, Babi Mantou’s selling point is cheap comfort food. The chain, which sells steamed buns, has been expanding too. Babi now has over 1,368 outlets around the country with sales reaching Rmb1 billion last year, according to 21CN Business Herald.

Mantou buns have a variety of fillings and Babi’s founder Liu Huiping started selling them from a street stand in Shanghai in 1998. Office workers and labourers were quick to warm to his menu: mantou were tasty and above all very affordable, selling for about Rmb1. Over the years, the company has added different flavours to the menu like vegetable and mushroom mantou, and even a dessert version with sesame seeds. For those looking for something else, Babi sells other traditional Chinese snacks like dumplings and soymilk.

The success of the first Babi store attracted franchisees (currently about 90% of Babi’s outlets are franchised) so Liu spent Rmb20 million in 2008 building a logistical platform that centralises preparation of the buns, meaning that the only cooking that needs to be done on the premises is to reheat the frozen items.

That makes the cost of franchising a lot lower, not least because most of the stores are small ones and designed for takeaway purchases rather than eat-in dining. Babi’s plan is to expand to 2,500 outlets by 2016 and Liu says his ultimate goal is 20,000 restaurants nationally, says the Shanghai Business Journal.

The goal is make “our traditional Chinese snacks as successful as McDonald’s and KFC,” says Babi’s general manager Ye Qing.

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