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Thursday, May 31, 2012

Imitators Show There is Room to Grow in China for McDonald's and KFC

In an earlier post, I discussed McDonald's localized offerings in China and shared an example of how it was providing a positive impression of the U.S. to some Chinese. Kenneth Chan, McDonald's China CEO, in a recent interview on Fortune pointed out that not only is McDonald's localizing its products and services for China as a whole but also for specific segments of Chinese consumers:
We are reinventing ourselves to adapt to the changing constituency. By the end of 2013, about 80% of our restaurants will undergo reimaging. The design will vary by areas. In business districts with many young professionals, we have kiosks for coffee and pastries. In areas with young families, we reserve places for kids to play or host parties. We also offer customer-friendly amenities like free Wi-Fi and McCafes. We want to stay relevant to the younger population and make them stay longer.
He also discussed his plans for growth:
Opening new restaurants is another top priority. In addition to opening our own restaurants, we have stepped up our franchise programs. After all, McDonald's is a franchise company. At present, 80% of McDonald's worldwide are owned by franchisees; in China, only 36 restaurants were franchised by 2011. We are working hard on this.

In addition to the conventional franchise model in mature markets like the U.S., we also implement what we call a "developmental licensee" model. In certain provinces where we don't have the capacity to reach out for many years, we are looking for licensee partners who have strong financial backgrounds and strong business experience. China had seven conventional licensees and two developmental licensees as of 2011. It's still a very low percentage and over a very short time that will change. The pace of franchising in China depends largely on finding the right partners.
Chan's comments suggest that there remain challenges for McDonald's to grow in China, even if they know of additional markets where their restaurants would be welcomed by Chinese consumers. There are many reasons to believe additional demand exists in China for McDonald's and KFC, who has a larger presence and is also localizing in China. In fact, I believe I have seen relevant evidence during my explorations of China's different regions.

For example, I saw the following restaurant at a pit stop between Guangzhou and Wuzhou, Guangxi:

McDonald's lookalike store in China with an upside down McDonald's logo

Wichael Alone's mascot in China

I am not sure what to call this restaurant since there are both "Wichael Alone" and "Michael Alone" signs. Regardless, I think it is fair to say that McDonald's served as an inspiration.

More often, I have seen stores that are very similar to KFC -- whether in Southeast China in Shanwei, Guangdong province:

CBC restaurant in Shanwei, China

Northeast China in Dunhua, Jilin province:

CBC restaurant in Dunhua, Jilin

Or Southwest China in Chongzuo, Guangxi:

KMC in Chongzuo, China

The KMC is my current favorite. Like the CBCs and other KFC-lookalikes its menu appeared to be nearly identical to a KFC menu. But the KMC went the extra distance to bring a KFC-like experience:

words saying it's finger lickin' good Inside of KMC restaurant in Chongzuo

As I pondered KFC's "it's finger lickin' good" slogan on the wall of the restaurant I sipped at a Pepsi. I then began to wonder if the Pepsi was real. The Pepsi sat untouched after that.

Although I cannot say whether such restaurants run afoul of any laws, I find it notable that wherever I see a (what appears to be) genuine KFC or McDonald's I rarely see an obvious imitator nearby. For example, at the time of my visits I did not see a KFC anywhere in Shanwei, Dunhua, or Chongzuo. Given that pattern, I suspect it is only a matter of time before KFC or McDonald's enter such markets and push out any imitators who have kindly shown that a demand exists. Even if legal action is not an option, there is good reason to believe that Chinese consumers will want an authentic experience, especially since there does not appear to be a significant difference in price (if any). Apparently, KFC agrees that authenticity will matter:

sign inside KFC saying RELAXED, FRIENDLY, AUTHENTIC
Sign inside a real Chinese KFC in Yinchuan, Ningxia

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