Thursday, February 12, 2009

Has Western Fast Food Hit a Wall in China?

It appears that the Chinese population is beginning to realize that western fast food is unhealthy and too expensive.

From The Los Angeles Times:

Reporting from Shanghai -- Down an alley from a KFC, McDonald's and Pizza Hut in Shanghai, Li Hong sat inside a dingy little storefront that serves full-course dinners for a dollar.

Her tray was filled with cabbage, carrots, potatoes, a chicken leg and rice, plus soup. A Western fast-food meal would have cost her three times that much, said the young woman, who works as a sales clerk. "Why should I go there?" she said.

In the U.S., fast-food chains often thrive in tough times. But not so in China, where Western quick-service food isn't the cheapest stuff in town and, in target markets like Shanghai, there's too much competition. Plus, a growing number of consumers see it as unhealthful.

Read On
Reacting to the competitive and deteriorating market, McDonald's has cut prices significantly in China.
McDonald's Corp. (MCD) is slashing menu prices by nearly one-third for some items in China amid the country's sputtering economy.

Among the new offerings is an "Everyday Super Value Meal" that includes combo meals for 16.5 Chinese yuan ($2.41) and some individual items for CNY6 ($0.88).

McDonald's said these new prices and meals will save customers up to 32.6% off previous prices.

The fast-food giant is also offering a loyalty card that gives customers 20% off certain meals at the company's 1,050 China locations.

I can't say that I'm that surprised that Chinese people may move away from eating western fast food as much as they have been.

First, western fast food joints in China aren't cheap. In America, when you eat the crap that fast food places serve up you at least don't have to spend much money. That can't be said for China.

In Xi'an, a bowl of my noodles (臊子面) from my favorite little restaurant costs 6RMB. The sandwich (肉夹馍) that the restaurant also serves costs 3RMB. And then a bottle of Fanta costs 1RMB. So at this place, I can spend 10RMB and be absolutely full on delicious food.

There are literally thousands of restaurants all over Xi'an serving noodles, dumplings, fried rice, and other Chinese staples for between five and ten RMB a plate.

For comparison, the cheapest meal at the KFC down the street from my apartment is 20RMB. And more often than not, spending 20RMB there won't fill me up. McDonald's might be a bit cheaper now, but it is still at least 50% more expensive than the little restaurants that dot Xi'an's streets.

In addition to being more expensive, the food served at fast food restaurants is obviously junk food. I believe that Chinese people eat healthy compared to the people from middle America where I grew up. Nearly every Chinese person I've met is at least conscious about the benefits of eating a balance of fruit and vegetables. They generally don't eat as much of the greasy and fatty food which are staples of American "cuisine."

There are so many more western fast food restaurants in Xi'an now compared to when I came here three years ago. There are three KFCs, two McDonald's, one Pizza Hut, and one Subway all within about a twenty minute walk from my house. McDonald's and Subway are not as ubiquitous as KFC, but I've seen a lot of signs advertising their opening of new restaurants for the coming year.

KFCs, on the other hand, are everywhere in Xi'an. I cannot emphasize how many you will see if you take a bus from one part of the city to another. I can think of at least two places in Xi'an where there are KFCs on each side of the street facing each other. In my opinion, KFC has over-saturated its market here. I don't see how there is room for growth in Xi'an for the company.

I can't imagine that Chinese people's tastes for western fast food will evaporate overnight, but I'll be curious to see how much growth is left in an economic crisis for restaurants that serve food without nutrients and charge twice the amount of a normal Chinese meal.


andy said...

Seriously...all the good food was great in China, why spoil it with crappy western McBurgers and KRC?

Anonymous said...

We live in Toronto, Ontario, Canada and hardly ever eat the typical KFC, McD fast food. It simply is not healthy. In China we never ate Western fast food. Save your money and your health by eating local.

These companies make money from the rural folk who come to the city to look around. If they all eat one meal at KFC, the company will be rich. 1.2B people, 80% rural, that's 960 million meals, at 20RMB each that's 19.2B RMB...You get the picture.

EnglishRangeRoad said...

Since according to purchase price parity (see the Big Mac Index by The Economist) Western fast food in China is still cheaper than anywhere else in the world, global companies don't see the need to reduce prices much. They would have a tough time competing with the cost of labor of the family hole-in-the-wall or sidewalk vendor in your neighborhood.

But Western readers need to know that Yum and McDonald's and others customize the food for the local customers and so in some ways it is not like restaurants in the West. They emphasize the competitive advantage of cleaner and fancier decor and slightly better (snootier) service and uniformity of menu. You have to wait a long time for the waitress at Pizza Hut to give you your "fast" food. You can pretend to be an ABC there.

The local small restaurants would love to move upscale and charge more and make more money, that is what they want, not to work very long hours to produce cheap and healthy food. It is an interesting question whether the local governments could regulate them better than Mayor Bloomberg, to produce healthier food without raising price.

There are some franchise chain restaurants from China Taiwan that produce Chinese-style fast food in places that look like the Western joints, they are a little more expensive than the sidewalk and about the same healthy, let's see what happens to that business model.

In America, there are more Chinese restaurants than McDonald's, Burger King, KFC, combined. They can deliver slightly better food at slightly cheaper prices and slightly better service than the Western fast food franchises. It's not clear if they could move to healthier food like the sidewalk joints you like, maybe, but who knows if Americans would buy it.

Anonymous said...

Let's not kid ourselves that all Chinese food is healthy. China is beginning to have an obesity problem and it's not all down to Western junk food. The rmb1 baozhi i sometimes eat seems to contain plenty of animal fat. My much loved hong shang rou at rmb48 a go could definatly not be accused of being healthy but tastes damn good.

Dylan Sherlock said...

I've posted a reply to this article on my blog. I'm pretty suspicious about the veracity of this trend and I see a fair bit of Western-centric thinking at the heart of it.

Nice blog, btw.

Anonymous said...

10 RMB but how do they make your Chinese food? I for one care about the way my food is prepared and the hygiene. I would prefer Mcdonald's over the food stalls. I refuse to eat food prepared by people who don't wash their hands. Granted, some workers in fast food chains have questionable practices as well, but overall it's a lot cleaner.

10RMB "delicious" food is questionable.

Mark said...

Of course there's plenty of Chinese food that clogs your arteries and probably gives one diabetes. But at the same time, the balance of meat and vegetables one typically gets eating Chinese dishes is more than one gets at a western fast food restaurant.

And for the last Anonymous post... if you care about hygiene that much, I suggest that you never eat out again. I've worked in restaurants in America before, and the $20 a meal place I worked at was just as dirty as the $8 a meal place.

Any place where the silverware, plates, and glasses are shared and the cooking staff is high in turnover and brought in off the street will have its share of sanitary issues.

Phil7 said...
This comment has been removed by the author.
Phil7 said...

In Continetal Europeans in McDonalds started selling salads long ago there as they realised people wont eat their crap anymore.
But many Chinese think we dont eat anything else then fast food in Europe! It should not be called western food, thats misleading. If anything, fast food should be called American Food, thats were its from, from the country of fat people.

Anonymous said...

I never eat McDonalds or KFC in China but you can drag me to the Yoshinoya for a beef rice anytime. I am sure it is more healthy than a Big Mac.