China Consumer

Playing chicken

Popeyes aims to catch up with KFC in China

Popeyes-w

Fried chicken Louisiana-style

American fried chicken chain Popeyes launched a new chicken sandwich in the summer that sold out within two weeks of its debut. A relaunch in early November again created long lines of customers – a man in Maryland was even stabbed after jumping one of the queues. The Miami-based operator will be hoping that the craze lasts after reporting its best quarterly results in nearly two decades (10% same-store growth for the July-September period). It will be hoping for similar enthusiasm in China where it is planning to add 1,500 outlets in the coming decade.

The expansion is significant – Popeyes currently has 3,100 stores spanning more than 25 countries. Its first China venue will open on Shanghai’s busy Huaihai Road next year, according to a lease signed last month between Canadian parent Restaurant Brands International (RBI), its local operator TAB Food Investments (TFI) and real estate management company Huaihai Group.

There is a lot of catching up to do on fried chicken rival KFC, however. After 32 years of operations in China, with a more recent emphasis on localised menus (see WiC462), the Kentucky-based franchisor backs 6,324 stores across 1,000 towns and cities. Last year it made 27% of its sales there, compared to 17% in its home market in the US. And despite a slowing economy in China and greater competition in the fast food sector, KFC is still expecting to grow its footprint substantially, noting this month that there are still 700-800 cities without a KFC store.

The growth prospects have caught the eye of private equity firms such as Hillhouse Capital and KKR, which have been exploring a buyout of KFC’s New York-listed China vehicle, which was spun off from Yum! Brands in 2016, Reuters reports. (Yum China’s market capitalisation was $16.7 billion as of Thursday, versus Yum! Brands’ $29.8 billion.)

Market commentators say that Popeyes’ move mirrors that of its sister brand Tim Hortons (see WiC444). The Canadian cafe chain started to establish a presence in China two decades after Starbucks, and at a time when local upstart Luckin Coffee was growing at frantic pace (see WiC451). But José Cil, CEO of RBI, which owns both brands, as well as Burger King, does not regard being late to the game as an insurmountable disadvantage. Rather, he feels that the Chinese market is becoming more receptive to Western food culture, allowing later movers to make a more profitable entry. “Present demand in China is dramatically different compared to the past,” Cil told Jiemian, a local media outlet.

In fact, Popeyes – whose recipes are from Louisiana – has been to China before, with a maiden foray in 1999 under a direct ownership model. It didn’t win over customers and exited in 2003. It tried again in 2007 but the plan foundered on not finding the right partner as a suitable franchisee.

Cil says things will be different this time, partly because its new partner TFI has a track record of scaling up food businesses in China. “Burger King only ran 52 stores in its first seven years in China. But having worked with TFI since 2012, the brand quickly added 900 stores in six years,” he says, noting that the Chinese market is “key” to RBI’s goal of franchising 40,000 food outlets worldwide over the next eight to 10 years, up from 26,000 today.

Similar to KFC, Popeyes will localise its menu, especially as some of its main competition will come from eateries serving local fare often considered healthier by Chinese customers. Think Laoxiangji, the Chinese-style fast-food chain now ranked as the country’s fourth largest restaurant chain (see WiC473).

Analysts have also warned that Popeyes is joining a crowded field, where its competitors are well-established at mass-market and premium pricepoints. On the other hand, securing even a small foothold in such a large market should bring meaningful profits.

RBI’s Cil is promising much more, of course. “We will become the top chicken brand player in China which is a critical market to us,” he was quoted as saying of the long-term plan in the South China Morning Post. “We are in competition with everybody, with your grandmother when she cooks at home, with other players in the chicken spaces.”


© 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.