Assignment task:
Kentucky Fried Chicken (KFC) was the first American fast-food restaurant to enter China, opening its outlet in Beijing in 1987. KFC's U.S. archrival, McDonald's, didn't open a restaurant in China until 1990. Despite initial marketing mistakes-like its "finger lickin' good" slogan being mistranslated into Chinese characters that meant "eat your fingers off"-the company grew and thrived. Today, KFC has 8400 restaurants in China, which generate more than $5 billion in sales for its parent company, Yum China, which was created by splitting off from Yum! Brands in 2016.
"Since the firm's spin-off from PepsiCo in 1997, Yum!, based in Louisville, Kentucky, has grown to almost $6 billion in revenues with over 50,000 restaurants in more than 150 countries and territories primarily operating the company's restaurant brands-KFC, Pizza Hut and Taco Bell-global leaders of the chicken, pizza and Mexican-style food categories. The Company's family of brands also includes The Habit Burger Grill, a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. In 2019, Yum! Brands was named to the Dow Jones Sustainability North America Index and in 2020, the company ranked among the top 100 Best Corporate Citizens by 3BL Media."
In 2016, the firm successfully spun off its China business as an independent, publicly traded company. Yum China Holdings Inc. is now a Fortune 500 fast-food restaurant, publicly traded company incorporated in the United States with joint headquarters in Plano, Texas and Shanghai, China. The firm has over $8.5 billion of revenue in over 8,400 restaurants in China, and is the country's largest restaurant company.
KFC is gaining popularity in the large Chinese market.
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China represents the largest market for KFC. The main factor contributing to KFC's success in China is its localization strategy. Let's see how KFC did it.
When KFC first entered the Chinese market, Chinese law stipulated that foreign companies could only operate in China if they had a local partner. KFC selected partners who had connections to government, so that it could benefit from their resources and contacts. KFC learned a lot from its local partners, and once joint ventures were no longer required, KFC chose a leadership team that knew Chinese culture intimately. Rather than sending expatriates to China to lead the expansion, for example, KFC selected people who had "an understanding of China and the Chinese cultural context 'so deep that it is intuitive,' to understand the Chinese people's 'mixed feelings, of love and hate about the West, to understand Chinese history, language, the influence of Confucianism, Buddhism, and Taoism; this is especially important if you are in the consumer goods industry,'" said Warren Liu, former vice president of development at KFC China and author of the book KFC in China: Secret Recipe for Success. This leadership team recommended that KFC follow a strategy of localization-offering local Chinese food options on the menu to appeal to local tastes. For example, instead of serving coleslaw, KFC offers bamboo shoots and lotus roots. Likewise, it sells a sandwich in the style that Peking duck is served, simply substituting fried chicken for the duck. The extent of its localization is evident in the additional items that directly cater to local tastes, which include congee (a Chinese-style breakfast porridge that often contains pork, pickles, mushrooms, and preserved egg), Beijing Chicken Roll with scallions and seafood sauce, and Sichuan-style Spicy Diced Chicken.
KFC's promotional marketing is similarly steeped in Chinese culture. As Yu Cui and Zhang Ting explain, "China is a society with relatively high collectivism, where people have a high sense of identity to the traditional culture and traditional food. Since the family members in China often share the similar value and most Chinese people consider that it is necessary to keep on the wonderful family traditions, such as respecting, loving and supporting the elderly, helping others, friendship between individuals and so on. Thus, many advertisements of KFC in recent years try to reveal the background of common Chinese families."
KFC emphasizes speed and convenience rather than chicken. "Choosing to eat at fast food restaurants like KFC doesn't necessarily indicate a desire for Western flavors," said Sun Min, a local government official who eats at KFC because speed and convenience are his top priorities when choosing a place to eat.
Today, KFC is a beloved brand in China with a huge advantage not only in scale, but also in innovation, quality and people capability. As the #1 foreign brand in China, KFC has 8,400 units in 1,700 cities. This is more than twice the size of their nearest competitor.
Selecting the right place or location for its outlets is also important for convenience, and KFC is opening stores at a pace of nearly one a day in China, to be close to wherever its customers are. KFC also developed its distribution system quickly right from the start, and its parent, Yum! Brands (now Yum China), owns those distribution centers. Owning its own distribution centers lets the firm grow its restaurants efficiently as it expands into 1,700 cities in China.
To diversify in a slowing domestic economy, Yum China is partnering with China's two biggest state oil giants to open franchise fast-food outlets at gas stations in the country. "More than 100 outlets, likely KFC restaurants, will be opened at gas stations owned by Sinopec Corp. and China National Petroleum Corporation (CNPC) over the next three years."
From the outset, Yum has embraced a long-term strategy in China. David Novak, CEO of Yum! Brands (which owns Pizza Hut and Taco Bell, in addition to KFC), once famously said he envisioned eventually having more than 20,000 restaurants in China. "We're in the first inning of a nine-inning ball game in China," Novak told investors in a conference call in February 2010. More than a decade later, his statement rings true, as KFC continues on its upward climb in China.
Question: Do you think that Yum's other restaurants-Pizza Hut and Taco Bell-would be successful in China?