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Fast food a $66b industry in China by 2009

(Agencies/China Daily)
Updated: 2008-06-30 15:05

Ramen or hot pot?

As of now, global investors have limited options to play Chinese-branded fast food chains: Ajisen, Mongolian-style mutton specialist Little Sheep, and Hong Kong-focused Cafe de Coral and Fairwood, though those firms only have limited footprints in mainland China.

Cafe de Coral, which had three dozen stores in China as of last September, plans to have 500 by 2011, according to Kim Eng Securities.

And analysts say more listings are in the works, as privately held chains want to tap the markets for capital in order to keep up with newly listed competitors.

Shanghai-based Xiao Nan Guo is said to be seeking a listing in Hong Kong this year, as is higher-end restaurant chain South Beauty, but further details are yet to emerge.

Ajisen (China), which combines fast food and traditional restaurant elements selling Japanese-style dishes, aims to have 1,000 restaurants over the next three to five years, a five-fold rise from the number it had at the end of 2007.

"We are acquainted with the catering culture and the taste of the customers in the PRC," says Alan Zheng, CFO of Ajisen on the company's plans in the People's Republic of China. "As such, we gradually penetrate towards second or third tier cities with strong growth potential."

Betting on fast food firms is tricky, analysts say, as each caters to different tastes, and offers different dining experiences.

Ajisen (China), established in 1995 as the sole franchisee to the Japanese firm founded in 1968, has faster table turnover than Little Sheep, but the hot pot specialist has higher per capita spending, Cazenove says.

Global grease

Despite vast growth potential, Chinese food firms are relative latecomers to the country's brand building drive.

Global fast food firms long ago placed their bets on the so-called middle kingdom, hoping to hook locals on Western food.

Yum Brands, owner of Kentucky Fried Chicken (KFC) and Pizza Hut chains, was the first foreign fast food chain to enter the market with a KFC branch in 1987, and is leading by a wide margin.

Today, Yum operates more than 2,000 KFC stores in the country - more than double McDonald's 900 outlets - and booked roughly 15.8 billion yuan ($2.3 billion) of sales in 2007 for its mainland restaurants, which last year yielded more than a quarter of the firm's $1.36 billion in operating profit.

That compares to Ajisen's roughly $116 million mainland revenue and Little Sheep's $105.4 million.

Yum has also tailored its KFC menu to satisfy local tastes, serving up preserved egg porridge, fried dough, and other domestic foods.

"One of the biggest questions is whether they (restaurants) can localize - every region of China has a different taste," says Shadow Lau, an analyst at Kim Eng. "Taste is the key issue."

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