Fast-food giants eye Chinese dining
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The Chinese fast-food industry is mushrooming.
Guangzhou-based fast-food operator Kungfu Catering Management, which runs the Zhen Gongfu Chinese-style fast-food chain, plans to expand its restaurant number to between 800 and 1,000 in China over the next three years.
Kungfu Catering, which features a portrait of Chinese kungfu star Bruce Lee as its logo and specializes in steamed Chinese food, currently owns 400 restaurants nationwide.
Company President Cai Dabiao earlier told reporters that the company will accelerate expansion in second-tier cities and will aim to open more restaurants in residential areas, veering from its initial strategy of seeking locations in commercial centers and near transport hubs.
Country Style Cooking Restaurant Chain Co, which is based in southwest China's Chongqing Municipality and specializes in spicy Chinese food, received US$20 million of venture capital in 2007.
In September, it became the first Chinese-style food chain to sell shares on the New York Stock Exchange, raising as much as US$92 million to fund expansion.
The company, which runs 141 restaurants nationwide - mainly in southwest and central China - aims to have 420 outlets by 2013 and said it plans to become the No. 1 market player in Chinese-style fast food.
Other major competitors in that realm are Ajisen Ramen and Daniang Dumpling.
Pei Liang, secretary-general of the China Chain Store and Franchise Association, estimated that Yum's latest takeover proposal for Little Sheep will face few political hurdles, unlike Coca Cola's failed bid for China's Huiyuan Juice Group in 2009, which foundered on monopoly concerns.
"China's catering industry is highly fragmented," Pei said. "Foreign companies still account for a small part."
Taking over Little Sheep may be a means to an end, but the challenges don't end there.
Little Sheep was the largest hot-pot chain, with a market share of the Chinese food service segment estimated at 5 percent, Euromonitor said. Though its revenue continues to climb, Little Sheep's growth has lagged behind the industry average.
Some analysts blame a poor business model for the lag. Others cite the common difficulties for Chinese-style fast-food chains, such as quality standards and trained staff.
"Consumers are usually not very loyal to a particular brand and are willing to try new eating places," Euromonitor's Huang said.
"Little Sheep's rising business mainly has come from store expansion," she said.
"But it's getting harder to keep up fast development in saturated first and second-tier cities. Its business model has focused on direct investment in new store openings, and that requires a lot of start-up capital."
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