Enter the dragon

Volume 12 Letter 9

In China you can purchase fast food in thousands of different ways in hundreds of thousands of outlets ranging from street vendors to restaurants in high rent districts. So how does an American fast food restaurateur enter the Chinese market and totally dominate with over 40% market share? Lest you think I’m talking about the world leader in fast food and burgers you should know that the ubiquitous McDonalds have only managed to open 1000 outlets in China. It’s KFC that has successfully entered the Dragon with 4000 restaurants and plans to open 16,000 more!

KFC first pushed into Asia in 1973 opening 11 outlets in Hong Kong which was then still a British colony. The restaurants closed within two years as KFC couldn’t build the traffic needed to sustain a business. KFC then opened outlets in Taiwan with a similar result. Entering China, KFC first found strong local partners and then, unlike many foreign companies that populate their management ranks with expats, KFC hired an all Chinese management team from Taiwan.
As a westerner entering a KFC, the only thing I saw that looked familiar was the logo on the door and the sign with the Colonel’s picture overhead. Once inside …. OK, they sold chicken but that’s where the familiarity ended. KFC’s Chinese menu is anything but western, featuring items totally foreign to any expatriate clientele that may wander in. The Dragon Twister, for example, is a chicken wrap with a Peking duck sauce on a bed of chicken fried rice. Contrast this to McDonalds and other familiar fast food chains which still mostly cater to foreigners offering the familiar menu items like the Big Mac.

The flexibility and localization goes far beyond just food. At a Chinese KFC, as well as offering the standard children’s birthday parties, it’s not uncommon to witness other celebration gatherings. For example, one might easily find a party taking place at the local KFC after a local religious event.

Every KFC store in China has amended their menu to reflect the local tastes of the community in which they operate. Talk about “getting it your way”! While I couldn’t find out how many menu variations there were for KFC itself, I did hear about a successful Chinese fast food noodle company that serves as a nice parallel. This company sells bowls of noodles in a myriad of flavors. Of the 76 flavors this company offers, only 7 sell nationally; the other 69 flavors are all tailored to suit the regional preferences. KFC has done much the same with their menu, tailoring it to the tastes of the local population.

As businesses entering new markets, what can we learn from KFC in China?

  • All business is local: Locals want to buy from locals so even if your business is a multinational you must closely associate with the local culture.
  • Tailor your product to reflect local tastes and values: Adjusting the menu to local tastes has built KFC as a national brand
  • Hire talent that knows the culture: KFC hired Chinese managers – they didn’t import expatriates

Of course it could be just the Colonel’s chicken, but KFC, by tailoring their offering to local tastes, has truly entered the dragon!

Further reading
1. McDonald’s No Match for KFC in China as Colonel Rules Fast Food
Bloomberg Markets Magazine
By William Mellor – Jan 26, 2011
2. All Business is Local, John Quelch and Katherine Jocz
Penguin books 2012

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