Western fast-food chains once dominated the casual dining landscape in China. The opening of a KFC in a Chinese city was considered a significant milestone in the region’s development. Today, China hosts 10,000 KFC outlets, more than double the number in the United States, along with approximately 7,000 Starbucks coffee shops and 6,000 McDonalds outlets. This influx of foreign capital and prestige initially made it challenging for local competitors to establish themselves and compete. However, the dynamics are shifting.

Today, Chinese fast-food chains are increasingly outperforming their Western counterparts. Several local brands have begun to capture significant market share by tailoring their offerings to local tastes and preferences more effectively than foreign brands can do, while also offering more competitive pricing. For example, chains like Tastein and Luckin Coffee have become formidable competitors by offering menus that resonate with Chinese consumers, incorporating traditional Chinese flavors and ingredients into their offerings, and pricing their products as low as one-third the prices demanded by the competing Western chains.

Such responsiveness to market trends in turn has allowed local brands to create a more seamless and convenient customer experience, further boosting their appeal. Another factor driving this notable traction is the Chinese fast-food chains’ penetration of second- and third-tier Chinese cities—areas that traditionally have been overlooked by Western fast-food chains—whence many of these homegrown chains originate. According to a UBS survey, inhabitants of these relatively smaller cities, especially those aged between 30 and 40 years of age, are willing to fork out more money on dining out than their counterparts in tier-one cities.

Discussion Questions:

1. How can Western fast-food chains adapt their strategies to compete better with local Chinese brands in the rapidly evolving Chinese market?
2. What lessons should other aspiring fast-food retail chains in non-Western countries learn from the success of Chinese fast-food chains, in terms of capturing market share?

Sources: The Economist, “Chinese Fast-Food Insurgents Are Beating McDonald’s and KFC,” June 6, 2024.