Customers in China craving a Big Mac at McDonald’s today might have to do a double take at the menu to make sure they’re at the right place.
Head-scratching items like Shaanxi specialty roujiamo (肉夹馍), chili oil sundae, and century egg congees are now on the menu, alongside its signature double cheeseburger, chicken McNuggets and apple pie.
The same goes for the menu at KFCs in China — unfamiliar options next to the Colonel’s fried chicken drumsticks include Sichuan style beef wraps, traditional Wuhan hot dry noodles (热干面) and luosifen (螺蛳粉), a pungent Guangxi dish of rice vermicelli soaked in a spicy broth.
While these food items may seem too peculiar to appear on the menus of these major US chains, they could signify a broader adjustment in strategy from these food giants, said analysts who spoke with Pandaily.
“These are diversification strategies, trying to seize other markets such as the breakfast market,” Ashley Galina Dudarenok, long-time author on Chinese marketing strategies and founder of social media agency Alarice and marketing training company ChoZan, told Pandaily.
The total consumption of breakfast food by Chinese consumers is expected to increase from 1.3 trillion yuan ($201 billion) in 2015 to 1.9 trillion yuan in 2021, according to marketing intelligence agency Mintel. By 2021, sales of breakfast food are expected to exceed 840 billion yuan.
In early 2008, KFC added youtiao, or fried dough sticks, its first Chinese street food snack to its menu. Soon after, other breakfast items, including tofu, congee, rice balls, egg rolls and tea leaf eggs were included. In fact, KFC’s congee is the chain’s number one seller at breakfast in China, according to Harvard Business Review.
McDonald’s followed closely, attempting to also capture the breakfast market. In addition to youtiao, soy milk, and congee, it also offers steamed bun burgers.
“These strategies have been relatively successful,” Dudarenok said, but increased competition in the breakfast market has prompted McDonald’s and KFC to go hyper-localized, a targeted form of marketing that focuses on reaching local, motivated buyers — hence roujiamo and hot dry noodles.
While McDonald’s has been accused of butchering the Shaanxi street-food staple due to inconsistencies between what was advertised and the actual product — with angry net users flooding Weibo with photos of two dry buns with a less-than-generous filling, KFC’s 7 yuan hot dry noodles have really resonated with people, Dudarenok said.
“KFC’s take on the Wuhan delicacy has really expanded consumer expectations. As breakfast food providers, KFC and McDonald’s are not only chasing hot trends, but also launching new products regularly, attracting consumers to keep coming back to try new things,” she added.
Mike Golden, president of Shanghai-based marketing consultancy Brandigo, which helps international brands expand in China, said McDonald’s roujiamo, also known as the Chinese burger, is not necessarily a failed attempt, but a part of their overall product mix and PR strategy.
“Sometimes they work, sometimes they don’t,” Golden told Pandaily. “Also, even when these ‘missteps’ have occurred, they still generate a tremendous amount of chatter online, creating buzz around the brand and sparking new conversations for brands that most people are already very familiar with.”
“These tactics have the potential to trigger interesting and healthy interactions between brands and their customers. Although we see McDonald’s and KFC as American brands, they have been run locally for decades,” he said.
“This kind of social marketing will definitely help brands gain greater exposure,” Dudarenok said, but noted that McDonald’s needs to quickly improve its roujiamo or else the bad PR would risk affecting consumer confidence and hurting the brand image.
As for McDonald’s chili oil sundae, which was also only sold in selected cities, including Shanghai, Shenzhen and Guangzhou, and part of a special promotion prior to Chinese New Year, Dudarenok said the funky dessert can help develop the brand’s social voice.
“These kinds of limited products are generally consumed by curious consumers who are the first ones to post photos and spread the word on social media,” she said.
Staying on Top of the Competition
KFC’s success story in China could not be separated from its first-mover advantage and localization strategy when it opened its first outlet in Tiananmen Square in 1987, kickstarting the country’s fast-food restaurant industry.
Today, as foreign brands slowly learn of large scale variability in food habits across different provinces, hyper-localization strategies are particularly important in China’s fast-food industry, where catering demands have become increasingly diversified and entry barriers are becoming increasingly low.
“A Shanghai breakfast looks very different from a Beijing breakfast,” Golden said. “Brands need a deep understanding of their target audience — and that includes geographic differences.”
“US fast-food chains looking for growth in China need to find the perfect balance between the global brand and local taste, and keep food quality and service standards high. This all comes down to testing, knowledge and agility,” he said, warning those attempting to go head-to-head with established local brands such as Zhengongfu (真功夫) will almost always fail.
In addition, to prompt communication with customers and constantly staying on top of the latest trends and ever-changing consumer preferences, Dudarenok said brands would also need to optimize operations for existing locations.
“To maintain a competitive advantage, they need to increase the proportion of deliveries, improve operational efficiency, and optimize cost structures with digital empowerment,” she said. It’ll also help if these large brands take advantage of its scale as well as explore cooperation with hot new Chinese food and coffee brands.
However, all the above strategies come second to localized marketing at the emotional level, Dudarenok said.
“Marketing strategies have to consider and include traditional festivals, products and Chinese culture. Brands need to achieve a true understanding of local culture, not just put up a random selection of Chinese elements. This means establishing a real connection with consumers,” she said, adding that any perceived inappropriate behavior by companies could trigger backlash and consumer resistance.
When it comes to successful localization in China, Dudarenok believes Pizza Hut is the brand that has checked all the boxes.
“In addition to making improvements in their recipes, Pizza Hut is also actively collaborating with lots of Chinese brands, creating emotional resonance that’s guiding consumption. Their localized flavors improve the user’s dining experience, at the same time increasing the brand’s repurchase rate and sales,” she said.
Case in point: Last July, Pizza Hut celebrated its 30th year in China by collaborating with Cai Linji (蔡林记), a Wuhan-based China time-honored brand, and influential magazine Sanlian Life Week (三联生活周刊) to create a special anniversary dish — hot dry noodles with roasted crayfish.
Although the brand had 2,200 outlets in more than 500 cities across the country, the special offering was only available in Wuhan, the dish’s home city.
“This innovative product perfectly combines Chinese and Western styles and flavors,” Dudarenok said. “After 30 years of cultivating the Chinese market, Pizza Hut has gained a lot of experience in how to please consumers here, particularly through research and development and marketing of Chinese-style localized dishes.”
Other successful ventures from Pizza Hut include special mooncake gift boxes with a Palace Museum theme and a cross-industry collab with mega-hit drama series Story of Yanxi Palace, as well as an initiative with Tencent’s Honor of Kings to launch a new character outfit in the smash-hit video game.
As China’s food industry sees an uneven and non-linear pace of recovery from the coronavirus pandemic, Yum China, which owns both Pizza Hut and KFC, reported better-than-expected earnings for the fourth quarter in 2020, with revenue rising 11% year-on-year to $2.26 billion.
“Our confidence in the long-term potential of China is unshaken,” Yum China CEO Joey Wat said during the earnings call on Feb. 3. “We will also step up investment in digitization and infrastructure to create an even stronger foundation to accelerate expansion.”
New Kids on the Block
As for newcomers to China’s fast-food scene such as White Castle, Shake Shack, Popeyes and Tim Hortons, analysts warned that these brands would have to tread carefully or else they could risk getting squeezed out by McDonald’s and KFC’s large offerings and low prices.
“These brands need to follow the path of brands that aren’t mainstream or famous in China yet except among some online fans. They can’t win by opening a large number of stores to scale,” Dudarenok said.
They would do well to take advantage of diverse needs and niche markets in China’s first- and second-tier cities, she added, where more people would be familiar with the brands.
At the same time, millennials and Gen Zs in China are now actively on the hunt for “Instagrammable” (Ins 凤) restaurants that can offer new tastes and trendy design concepts, presenting a huge opportunity for nice brands.
For example, instead of trying to replicate KFC’s success in economies of scale, Shake Shack paid more attention to food quality and nutrition as well as having a unique store design, launching healthier versions of its burgers and created a new uncontested market space in “fast-casual dining.”
“These recent China entry casual dining brands will never come close to the number of restaurants that McDonald’s or KFC has, and will be mostly concentrated in first-tier cities,” Golden agreed, adding that developing outlets in second- and third-tier cities requires sophisticated logistics, technical and government support that take years to develop.
“They may take some market share, especially when entering China with a lot of social media buzz, but it will really be up to them to see if they can build sustained popularity, which is definitely easier said than done,” he said.
Whether it’s KFC or Popeyes, McDonald’s or Shake Shack, American fast-food brands have to go beyond just localizing menus if they are in for the long haul. To stay competitive in the ever-evolving Chinese market, these brands will need to step up their digital capabilities and start offering more personalized, sophisticated, and hyper-convenient experiences to satisfy the nation’s discerning customers and their fast-changing tastes.