KFC and McDonald’s in Shanghai ∗
As two global fast food brands, KFC and McDonald’s first entered China’s market in 1987 and 1990 respectively, since when they started their business in China. With a great increase in terms of the number of restaurants, turnover, and market share after a decade’s development, KFC and McDonald’s have both made themselves leading and popular brands in China’s fast food industry. It is therefore enormously meaningful to reflect on the success of KFC and McDonald’s in China.
1. Industrial Background
China’s fast food industry had a late beginning when KFC first entered Beijing market and introduced the concept of modern fast food to China in 1987. According to the data from the National Bureau of Statistics, China’s fast food industry was developing at an astonishing rate of over 20% annually in 1990s while China’s GDP increased by only 7.8%. With a high profit rate between 15% and 25%, fast food industry became a driving force and a new prospect in the catering industry. By the year 2000, fast food industry had become the biggest and most attractive profit zone in China’s commodity and labor markets with the annual turnover of over 200 billion Yuan, which accounted for over 2/5 of the overall catering industry. It was predicted that with the rapid development of China’s economy, fast food industry would continue to increase by over 10% annually in the next decade, showing brighter market prospects and bigger market potentials. China’s fast food industry has shaped, after a decade’s development, the industrial structure of traditional versus modern, Chinese versus Western, and high end versus low end (See Table1-1).
Table1-1 The Structure of China’s Fast Food Industry∗
Cuisine Chinese 78.9%, western 21.1%
Ownership Sino-foreign joint venture 36%, private 21%, foreign wholly-owned 16%, state-owned 16%, collective 11%
Business model Chain restaurant 58%, single restaurant 42%
Complete handwork 21%, mainly on handwork 57.9%, mainly on
assembly line 15.8%, complete assembly line 5.3%
South China 28%, Northeast China 27%, North China 18%,
Middle China 18%, Northwest China 9%
∗ Prof. Lu xiongwen prepared the case with assistance from Yu Wenjie and Wang Cheng, graduate students of School of Management, Fudan University. The data in the case without sources identified are all from the survey and field study of KFC and McDonald’s in Shanghai, conducted by Wang Cheng, Xue Wenqian, Wang Yingwen, Cen Ning from Department of Marketing, School of Management, Fudan University. This case is used for class discussion rather than to illustrate either effective or ineffective of an administrative situation. Copyright © 2004 is by the author. No part of this case may be reproduced, stored in a retrieval system, used in a spread-sheet, or transmitted in any form or by any means without the permission of the author. ∗ Source: “Report on China’s Fast Food Industry”, Beijing Huatongren Market Information Co., Ltd. KFC and McDonald’s in Shanghai
As an international metropolis with over 16 million people, Shanghai has seen its fast food industry developing by leaps and bounds. By the end of 2001, there were 2,978 restaurants and 26,274 employees in the fast food industry in the city. In the year 2002, Shanghai KFC ranked the first among China’s 500 catering companies with the annual turnover of 804 million Yuan (See Table1-2).
Table 1-2 Top 10 of China’s 500 Catering Companies in 2002 Rank Company name Rank Company name
1 Shanghai KFC Co., Ltd. 6 Guangdong Sanyuan McDonald’s Co., Ltd. 2 Beijing McDonald’s Co., Ltd. 7 Tianjin KFC Co., Ltd.
3 Beijing KFC Co., Ltd. 8 Xi’an Catering Service (Group) Co., Ltd. 4 Hangzhou KFC Co., Ltd. 9 Shanghai Pizza Hut Co., Ltd.
5 Shenzhen McDonald’s Co., Ltd. 10 Shenzhen KFC Co., Ltd.
The rapid development led to the fierce competition in Shanghai fast food market....