KFC sells its China business in a low-key way, while McDonald’s sells it in a high-key way.
Unlike McDonald’s high-profile packaging of China stores for sale, KFC, another iconic American fast food chain giant, unexpectedly sold its China business in a low-key manner. The night before yesterday, Yum! Brands, the parent companies of KFC and Pizza Hut and listed on the new york Stock Exchange, announced that Yum! China would be separated from Yum! Brands and listed on the NYSE as an independent company. At the same time, after the spin-off, Yum! China will receive a total investment of US$ 460 million from Chunhua Capital and Ant Financial. This means that Yum! Brands has sold part of its operations in KFC and Pizza Hut in China to two purchasers from China.
Yum!’ s business in China has fallen into a trough?
In fact, Yum! Brands has already paved the way for China business. Last October, it announced that it planned to split Yum! Brands and Yum! China, and this transaction was carried out on the basis of that split at that time.
KFC is the first American fast food chain brand to enter the mainland market in China. In 1987, it opened its first store in Qianmen, then the most prosperous business district in Beijing. At that time, it was fashionable for both Beijingers and foreign tourists to queue up for a fried chicken or a hamburger at KFC. And KFC’s rule of "throw away the food after it has been sold for 90 minutes" brought from the United States has also attracted the attention of consumers in China. It is likely that KFC’s great success in exploring the China market attracted McDonald’s. Subsequently, McDonald’s also entered the mainland market of China in 1990. For a long time after that, these two brands were the iconic brands of American fast food culture in China.
In 2015, China accounted for half of the global business of Yum! Brands. However, this data can’t hide its downward trend in the China market. Since the incident that Shanghai Fuxi reprocessed expired meat raw materials and changed the shelf life and supplied them to McDonald’s and KFC restaurants in July 2014, KFC’s single-store income began to decline continuously. Yum! China’s same-store sales fell by 16% in the third quarter of 2014, and almost all of them fell by double digits in the following three quarters. Parkson’s financial report for the second quarter of this year, just released in July this year, shows that the same-store sales of KFC in China increased by 2% year-on-year, but it actually climbed slowly from the low base of last year’s lowest valley. During the same period, the same-store sales of Pizza Hut in China shrank by 11%. Therefore, it is widely analyzed that the reason why foreign shareholders strongly demand Yum! Brands to spin off its business in China has something to do with the poor prospect.
The "China Golden Period" of franchising may have passed.
Franchising is an effective way for KFC to expand its business in the world. As early as 1993, it began to carry out franchising in China, and since 2000, it has only adopted the franchising mode of "not starting from scratch" in China. The so-called "not starting from scratch" means that KFC will hand over a mature and profitable restaurant to its franchisees. In this way, franchisees can put all their energy into the operation and management of stores without having to make preliminary preparations such as site selection, opening stores, recruiting and training employees. This greatly reduces the business risks of KFC franchisees. In the words of Su Jingshi, former president of Yum! China Restaurant Group Greater China, "franchisees can succeed only by maintaining." By this means, KFC has achieved rapid expansion in China, and the number of stores has reached nearly 5,000 by the end of last year.
However, KFC has set a high threshold for joining, and the transfer fee for each restaurant is as high as 8 million yuan. After that, the going-concern expenses include the franchise fee accounting for 6% of the sales and the advertising sharing fee accounting for 5% of the sales, and the first agreement is signed for at least ten years. At this point, McDonald’s joining in China is exactly the same, and even the joining fee and cost-sharing ratio are exactly the same. This is obviously not a simple imitation of who, but a careful calculation based on a rigorous business model.
In fact, no matter KFC or McDonald’s, its investment in the global business chain is more than the catering service itself, that is, it operates the store in a benign state by selecting a location. As can be seen from the income structure of the two catering giants, this part of the profits is far greater than their own stores. With KFC and McDonald’s reaching the scale of thousands of stores in China and gradually covering third-and fourth-tier cities, the blank market space in the future is getting smaller and smaller, and the golden period of realizing profits through joining and transferring has passed. Therefore, it may be the best time for them to "pack up and sell" their business in China.
Although the supply of raw materials, as well as the annual brand use and marketing promotion expenses exceeding 10% of sales are still the long-term benefits they can enjoy, it is obviously only a decimal for them. Moreover, with the increasingly fierce competition in the catering market in China, the future sales potential of these foreign fast foods is not clear.
The receiver may want to change the joining mode and continue to expand.
Judging from the current Chinese takers of foreign fast food, whether it is Chunhua Capital or Ant Financial, or BTG, Sanpower and Sinochem, which are interested in bidding for McDonald’s China business, their real intention is probably not to directly participate in the catering industry, but to graft their current business to achieve profits in a new expansion mode.
This can be seen from the caliber of Ant Financial. "Ant Financial will help Yum! China provide mobile payment services for its brands, including Alipay platform." In fact, although the online speculation of Ma Yun "finally achieved revenge for not being hired by KFC that year", in fact, Ma Yun is definitely a supporting role in this investment — — His total investment with Hu Zuliu of Chunhua Capital will only account for a few percent of Parkson China in the future. Even compared with Hu Zuliu, the $50 million invested by Ma Yun is too small, accounting for only a fraction of the total investment of $460 million.
In fact, it can be seen from the fact that no real catering enterprise is willing to take over the business of KFC and McDonald’s in China that these two brands are more tools for the industry, which may also indicate that their future development in China will not be too exciting. Even some people in the industry believe that China KFC and McDonald’s, which have been abandoned by their parent companies, may embark on a development path in China that is divorced from stores in other countries in the world.
I don’t know if it is the first move to merge into Ali. The Beijing Youth Daily reporter learned that KFC will officially enter Tmall on September 6. In the future, consumers can buy electronic coupons for KFC food in Tmall stores and then exchange them for corresponding foods in physical stores.
Text/reporter zhangqin
Financial observation
Kfcs are "old"?
Although in many countries, KFC and McDonald’s are still regarded as the representatives of American fast food industry and even the symbols of American consumer culture, in fact, in the United States, more and more people have begun to diversify their choices, especially the opportunities for the younger generation of Americans to enter KFC are decreasing.
In the first half of the year, the only cross-industry economic indicator of customer satisfaction in the United States, the American Customer Satisfaction Index, released the 2016 Restaurant Satisfaction Survey Report. It shows that the average satisfaction score of fast food restaurants in the United States this year is 79, but the scores of KFC and Pizza Hut under Yum! are below the average. McDonald’s ranked at the bottom of many participating fast food chain stores with a score of 69 points, and McDonald’s ranked at the bottom last year.
As for the poor performance of KFC and McDonald’s, some American businessmen believe that although this does not mean that the food quality of KFC and McDonald’s has declined, they are "really old" in the eyes of American consumers and can no longer be the most typical representative of American fast food culture.
In fact, in the China market, KFC and McDonald’s are also facing the same problem. With a new generation of young people becoming the main force of fast food consumption, McDonald’s and KFC are no longer their absolute first choice to experience foreign fast food, and a large number of other brands of fast food subdivide the China market. More crucially, no matter how the varieties cater to the taste of China population, the standard fried chicken, French fries, hamburgers and coke that KFC and McDonald’s take care of have become the global representatives of "junk food". More and more young families in China have kept their children away from such fast food restaurants, at least in first-and second-tier cities.
For KFC and McDonald’s in China, the aura of standardization and trustworthiness that they were most proud of in the past has also been shattered with repeated food safety incidents. No matter Sudan red or fast-growing chicken, and then to the Shanghai Fuxi incident, these foreign fast foods have not been able to stay out of it.
Text/reporter zhangqin