Foreign fast food chains in China experiencing confidence crisis

Foreign fast food chains in China experiencing confidence crisis

Staff Reporter

2013-06-18

Foreign fast food chains are facing a series of challenges that have hit their sales in China, which has become a key market after the companies’ rapid expansion in the country, the financial site of Chinese portal Tencent reported.

Yum Brands, which owns chains including KFC and Pizza Hut and controls 0.2% of the fast food market in China, posted a 13% drop in same-store sales at its over 5,200 outlets across the country in March, and forecast a further fall of 29% in April.Meanwhile, McDonald’s reported a 20% drop in same-store sales in China during the first three months of this year, Tencent added.

Although news of the H7N9 bird flu surfacing in China during late March was viewed as a factor behind the sales decline, the Tencent report said a slew of food safety scandals involving human errors have actually been the key issue.

Incidents, such as McDonald’s alleged use of a beef patty after it fell on the floor and basketball player Yi Jianlian’s claim that he found human hair in his KFC meal, have impacted Chinese consumers’ confidence in foreign fast food chains.

Foreign companies generally enjoy a higher level of credibility in China, as local consumers associate a more professional image with them, Tencent said, but food safety scares that surfaced abroad in recent years showed that it was not an issue unique only to China.

For instance, it was recently reported that more germs were found in ice cubes of over 60% of chain food stores in the United Kingdom than those in a toilet, Tencent said.

The foreign chains have also been hit by a slower global economy, with its ripple effects also being experienced by China, leading to a decline in consumer spending owing to little growth in incomes, the Tencent report added.

This does not, however, spell the end for foreign fast food chains in China, since economic growth in second and third-tier Chinese cities is expected to drive growth in the fast food and take-out market in the country to 1.8 trillion Chinese yuan (US$293.7 billion), Tencent said.

Such prospects also stemm from the country’s efforts to transform its economy from an export-driven one to one supported by domestic consumption, according to Tencent.

The days of rapid expansion for foreign fast food chains in China have ended and these brands will have to enhance their management of food safety to ensure that they can still generate profits in the next economic cycle, Tencent said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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