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McDonald's No Match for KFC in China as Colonel Rules Fast Food
By William Mellor - Jan 26, 2011
Bloomberg Markets Magazine
On the edge of Tiananmen Square, just across the street from Mao Zedong’s tomb, He Yingying munches on a piece of chicken and gazes at the benign-looking figure beaming down at her.
“We love him,” she says, bursting into an impish smile.
The 21-year-old student from Beijing’s Capital University of Economics and Business isn’t referring to Mao, whose iconic official portrait dominates the square. She’s talking about a long-dead, white-bearded Kentucky colonel on the logo of the KFC restaurant where she’s feasting on her favorite fast food, Bloomberg Markets reports in its March issue.
In its home market, the U.S., KFC is struggling, an also- ran to McDonald’s Corp., the world’s biggest restaurant company, and feuding with some of its own franchisees over how to halt declining profits.
In China, KFC has achieved such dominance over McDonald’s and local rivals that Colonel Harland Sanders’s image is a far more common sight in many Chinese cities than that of Mao. That accomplishment is striking in a country where foreign companies often stumbled and ran into roadblocks in the past.
The secret to the success of KFC’s parent company, Louisville, Kentucky-based Yum! Brands Inc., can be traced to its use of local ingredients -- both in its management team and on its menus. In the 24 years it has been operating in China, Yum has hired Chinese managers to build partnerships with local companies in its expansion drive and used their expertise to offer an array of regional dishes that appeal to domestic tastes.
Local Flavors
Today, KFC customers can purchase a bowl of congee, a rice porridge that can feature pork, pickles, mushrooms and preserved egg, as well as buy a bucket of its famous fried chicken. In 2010, Yum expected to make 36 percent of an estimated $2 billion operating profit from 3,700 restaurants in China -- eclipsing for the first time its total earnings from the 19,000 Taco Bell, Pizza Hut, KFC, Long John Silver’s and A&W restaurants it owns in America. Yum announced on Jan. 18 that it will sell its Long John Silver’s and A&W chains in part to focus on China.
In the third quarter, Yum’s China profits soared 23 percent compared with a 2 percent decline in the U.S. Yum said in December it expected its U.S. business to return to profit over the whole of 2010. The company will announce fourth-quarter results on Feb. 2.
In a country that Western companies ranging from Dunkin’ Brands Inc. to EBay Inc. have struggled to penetrate, Yum has been opening one new restaurant every 18 hours. It now has a 40 percent market share among fast-food chains compared with 16 percent for McDonald’s, according to Euromonitor International, a London-based market research firm.
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