China Consumer

Lots of dough

Chinese buyer pays big bucks for British pizza chain

Pizza3 w

Shiitake mushroom, okra and crayfish are not the kind of ingredients you might expect to find on a Pizza Hut order, but in Hong Kong that’s exactly what’s on the menu. The chain has been trying to cultivate the image of “affordable luxury” to court the city’s fickle diners, says the Financial Times. The company says that while there are “brand standards” like the ever-present Super Supreme on its menu, it has added seasonal options like the Crayfish Delight Pizza to generate buzz. To bring in Hong Kong consumers, Pizza Hut tries to launch a headline-making new variety of pizza every two months, the UK newspaper reports.

In China the pizza chain reported same-store growth of 8% in its 800 outlets in the first quarter of the year. But Pizza Hut, which is owned by Yum Brands, looks like it will face some serious competition from Pizza Express. That’s because Hony Capital, the domestic private equity group backed by Legend Holdings (the parent company of tech giant Lenovo) has announced that it will acquire the British restaurant chain from its parent Gondola Group for $1.54 billion.

Other Chinese bidders said to have been interested included Citic’s private equity arm and Fosun.

In a statement, Hony says it plans to “leverage our local expertise” to accelerate Pizza Express’ growth in Asia. The two companies said the sale is the largest in Europe’s restaurant sector in the last five years.

Many industry observers applauded the deal. “First, pizza is easy to standardise, which means costs and quality can be easily controlled, and the chain can expand quickly. Moreover, Chinese consumers’ spending on Western food has been growing steadily,” one told CBN.

At the moment only a small percentage of the pizza chain’s 500 stores are outside the UK – including 12 restaurants in Hong Kong, nine in Shanghai and its debut outlet in the trendy Sanlitun district of Beijing. But critics say Hony’s lack of expertise in the restaurant business might be an issue. The private equity fund last invested in a local fast-food business years ago but it wasn’t a success and eventually Hony sold it off, says CBN.

Others wondered if the prices at Pizza Express will deter Chinese diners. An average meal there costs about Rmb130 ($20.95) per person in China, compared to the average of Rmb30 that people typically spend at pizzerias, even in first-tier cities like Beijing and Shanghai, says China Business News.

Competition is also getting more heated. Pizza Hut has started offering a breakfast service (mainly scrambled eggs and French toast) to drive daytime traffic. Another chain called Papa John’s, which has over 179 outlets in China, saw its franchisee numbers drop between 2011 and 2013, blaming increased competition and lower margins for the fall in outlets, says Economic Times.

Another challenge is that pizza is not deemed to be high-end fare by most Chinese diners. “Pizza Hut’s positioning is more casual dining and the average spending per head is about half that of Pizza Express. Personally, I am not very optimistic about Pizza Express’ expansion in China,” says Bian Jiang of the China Cuisine Association.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.