Pizza Hut and Kentucky Fried Chicken (KFC), the U.S. fast food restaurant chains under Yum! Brands, have enjoyed phenomenal success in China. In the past five years, Yum! China has on average opened more than one new restaurant a day. Now, it has over 3,700 KFCs and more than 760 Pizza Huts across China.
According to analysts, Yum! China’s business, driven by a rapidly growing middle class, will be twice as large as its U.S. business within five years. Already, China accounts for more than 40 percent of Yum! Brands’ global revenue. As Yum! Brands CEO David Novak said, China is the best restaurant growth opportunity of the 21st century.
How did the Kentucky-based restaurant conglomerate succeed in a country that has thousands of years of its own culinary history? One word that summarizes Yum! China’s success is: rebranding.
When they first entered China in the late 1980s, Yum! China management made a conscious decision that it did not want to be seen as a foreign presence in China, but as part of the fabric of the local community. As Sam Su, CEO of Yum! Brands China Division, pointed out, they wanted to take the best ideas from the U.S. fast-food model and adapt them to serve the needs of Chinese consumers.
They re-branded fast food in China as “delicious and safe, high quality and fast, nutritious and balanced, healthy living, and rooted in China.”
For example, Pizza Hut’s Chinese name, “Bi Sheng Ke,” means “Must Succeed Customer” in Chinese. It gives no hint that the restaurant is about pizza. The name resonates well with Chinese, as it implies success and good fortune.
Pizza Hut is positioned totally differently in China than in the U.S. It offers “a five-star dining experience at a three-star price.” Its interior is contemporary and stylish, like those upscale fusion restaurants in California. Its menu is almost unrecognizable to people from the U.S. Appetizers include chicken wings, fried squid, and onion rings. Pizzas are designed for local taste, such as a seafood pizza topped with prawns and crab sticks. Entrées are elaborate, ranging from salmon rolls to lamb shanks to escargot in garlic oil. You will also find clam chowder, tiramisu, and French-style crepes on its 30 page menu.
I may not visit a Pizza Hut often in the U.S. But whenever in China, I find myself drawn to Pizza Hut restaurants for both its ambience and food. I can see why many young and newly-affluent Chinese middle class find it an attractive dining experience.
KFC China has done the same. Its first restaurant at Tiananmen Square in Beijing was an instant success, serving an average of 9,000 customers a day! The restaurant was brightly lit, air-conditioned, and spectacularly clean.
KFC China’s menu has evolved and become highly localized as well. It eliminated “super-size” items altogether, and added oven-roasted chicken, sandwiches, wraps, and different proteins such as fish, shrimp, and beef. Since 2002, KFC China has been opening for breakfast. They introduced Chinese favorite breakfast congee, which is now the number one seller at breakfast.
KFC China is also positioned to appeal to Chinese families. It introduced special children’s meals. Many restaurants have a play area, and hostesses organize activities, such as teaching English songs and dances to entertain children while their parents dine. The restaurants have become a popular venue for birthday parties. I know this from first-hand experience as my niece considered going to a KFC as a big treat.
Supply Chain and Government Relations
It’s worthwhile to point out that a critical factor for Yum! China’s success is that it developed its own distribution and logistics network. China is a very fragmented market. In the 1990s, there were no third-party service providers. Having their own distribution and logistics network allows them to source products from local suppliers while maintaining strict quality control.
At a time when Chinese consumers are increasingly concerned about food safety issues, Yum! China is able to stay one-step ahead of the game, using risk-based management processes their suppliers. As a result, they are recognized by the government as being a leader in food safety.
In 2010, Yum! China’s distribution network consisted of 11 full-service logistics centers with inventory management, customer service, transport, and warehouse management, and six satellite centers (warehouse and transport only). Yum! China’s distribution system is second only to the Chinese Army’s.
Another critical factor is that Yum! China knows how to work with the Chinese government, which is extremely important for companies that want to succeed in China. Yum! China has gained the government’s trust, and has been actively participating in government policy making in food safety. When China’s new food safety laws were being written, Yum! China pushed hard to make sure the government took into consideration the needs of the food service industry as well as packaged goods manufacturers.
Through rebranding, Yum! Brands has completely re-invented itself in China.
In the U. S., fast-food restaurants, such as KFC and Pizza Hut, are a place where people can get food quickly. The food is usually tasty, but mostly unhealthy and low-priced. But in China, the same restaurants are viewed as upscale, trendy, and modern. People love to go to KFC and Pizza Hut. Some even have weddings there.
Each year, Yum! China introduces 85 to 100 new items on their menu, compared to one or two in the U.S. The robust growth in the China market also helped reinvigorate Yum! Brands’ under-performing U.S. business. Recently, Kentucky Fried Chicken has begun to offer breakfast in the U. S., and to redefine fast food as casual dining. For companies like Yum! Brands, succeeding in China has not only provided an alternative growth engine, but also generated a new life blood for their home business.
(A version of this article was originally appeared on Forbes).