McDonald’s, Yum Focus on China: Will Consumers Eat Up the Attention?
Do Chinese consumers still like their fast food despite demand in the U.S. dropping off? Companies like Yum Brands (NYSE:YUM) and McDonald’s (NYSE:MCD) sure hope so. They’re counting on the country to help offset the losses they’re currently suffering in the U.S., and each restaurant chain has a different strategy of appealing to the growing middle class in China.
In the case of Yum Brands, the owner of KFC, The Wall Street Journal reports that the Louisville, Kentucky, company is rolling out new menu items like two new chicken sandwiches, three rice dishes, and a number of new drinks and desserts in China. In a statement, KFC executives also said that the company is enlisting China celebrities to promote its new products, while a marketing campaign for its chicken nuggets is also already underway.
KFC is attempting to make up for an earlier misstep it committed in China when a probe by Shanghai food safety regulators in 2012 found that excessive levels of antibiotics were being used in chicken from two KFC suppliers. According to the Journal, after news of the probe went viral, KFC suffered a significant amount of negative publicity and also witnessed a sales plunge.
Now, KFC is working to pick up where it left off before the reports, and that’s where its new and improved menu comes in. The menu’s additions are part of the biggest menu facelift in KFC’s 27-year history in China, The Wall Street Journal reports, and Sam Su, Yum’s China chief executive, further maintained in his statement that the company plans to update KFC’s menu at least once a year in the future.
And then there’s McDonald’s, the world’s largest fast food chain, which has encountered a significant amount of media attention as of late thanks to the protests against its low wages and its continued sales slip in the United States. Like Yum, McDonald’s sees a significant opening in the Chinese market thanks to the country’s growing middle class, and it is eager to take advantage of that new opportunity.
To do so, Crain’s reports that the Oak Brook, Illinois-based company is directing a significant portion of its new restaurant investment to China. McDonald’s says it will spend up to $3 billion this year on 1,600 new restaurants around the world, and China will get one of the biggest shares. The chain will add 300 locations there; that figure compares to the 250 it added last year. By the end of 2014, McDonald’s is working to have more than 2,000 restaurants in China — the highest number of locations the chain has ever operated in one country, except in the cases of the U.S. and Japan.
So will both McDonald’s and KFC manage to continue to thrive there? Many analysts say yes. As more consumers work, the desire to eat out shoots up, and so too, do the chains’ sales. R.J. Hottovy, an analyst at Morningstar Inc. in Chicago, said to Crain’s that McDonald’s business in China now has the ability to support a bigger network because of its supply chain and licensee base there. He told the publication, “They are coming into a very conducive environment in China.”
McDonald’s is especially hoping that Hottovy is right, because, as aforementioned, the company’s domestic sales are disappointing, and its executives are facing more pushback in the U.S. on account of its current wage practices. Crain’s highlighted the popular belief that if business in China can thrive the way McDonald’s executives hope, the country could boost global year-over-year sales at established restaurants, the conventional gauge of retail health.
That would certainly quiet disgruntled investors who aren’t happy with McDonald’s recent performance, and it would also allow company executives to enjoy success in at least one market while they navigate difficulty in another.