By Benedict Lynn and Nishant Maddineni
The Asia-Pacific is evolving, and with it so are the tastes and spending habits of its peoples. Economies are growing rapidly and an entirely new demographic has emerged throughout the region: the middle class, who demand a higher quality of product and have the means to buy it.
In recent years, this burgeoning consumer group with its busier lifestyle, higher income, and demand for a greater variety and standard of food safety has been driving the spread of what was once a quintessentially western phenomenon: the fast food industry.
The American giants are keen to break into this densely populated market, which is one of the most active in the world when it comes to international franchise expansion. Enabled by ever-increasing globalization and regional integration, many have been seeing great success.
However, the region is still a very diverse mix of nations, all at varying degrees of economic development and each with its own unique political, legal, religious and logistical hurdles that must be overcome.
In part one of this series of articles focused on the fast food industry throughout the Asia-Pacific, we examine some key nations where business is booming. Next week we take a look at countries that have proven to be more problematic for establishing a franchise.
India
Densely populated India’s young, upwardly mobile middle-class has made it a desirable destination for international food chains looking to expand globally. The market has also been boosted by a growing workforce with more women and increased exposure to international cuisine through media and travel.
India now accounts for some 12% of the total Asia-Pacific market – the largest in Asia after Japan and China – and was worth about US$12.5 billion in 2013. While some foreign retailers such as Walmart have encountered political opposition for being seen as a threat to local businesses, international food chains are in general not seen as replacing local eateries and do not face problems.
McDonald’s leads Indian fast food with a value share of 2% in 2013. It has gained popularity by carefully catering to local tastes; one of the most popular items on the menu is the vegetarian McAloo Tikki, a burger made from potatoes and peas. Some 340 outlets are operated throughout the nation.
Penetrating New Markets – Fast Food in the Asia-Pacific: Part 2
Most fast food restaurants in India do not serve beef or pork to avoid offending Hindu and Muslim sentiments. Chicken is the main and sometimes only type of meat offered.
Other significant players are Yum! Brands’ KFC and Pizza Hut, which operate some 250 outlets. Baskin-Robbins controls most of the dessert market with 425 stores in 95 cities.
Unlike much of the Asia-Pacific, where western fast food is often seen as an exotic luxury and even a status symbol, Indian consumers are not prepared to pay premium prices for it. Because of this many chains are using a sub-dollar pricing strategy to convince a new segment of consumers that regular visits are affordable. KFC has been very successful in this and provides a hot chicken meal starting from 25 rupees (about 40 cents) and Domino’s offers its special low price pizza at 44 rupees (about 71 cents). Low pricing has been paired with aggressive print and television marketing to show people over a wide socioeconomic range eating in the outlets.
Decreased discretionary household expenditure due to a recent slowdown in the service and industry sectors has resulted in a lull in fast food sales. However, many are taking advantage of the slowdown to invest in cheap real estate and break into a market that has lower penetration than many other countries in the region. Dunkin Donuts is planning to expand from 10 to 30 outlets by the end of 2014. Yum! Brands and others are looking to add 400 stores in Tier II and III cities in the next two years.
International franchises have been facing some homegrown competition. Mumbai-based Jumbo King offers local fare such as vada pavs (a potato-based patty in a bun) and lassi. It has expanded rapidly and now operates over 45 outlets throughout the country, demonstrating that Indian consumers enjoy their local dishes as much as the flashy international food.
Singapore
The Singaporean fast food market is fiercely competitive and quickly running out of prime real estate. The locals are always looking for a bargain, so constant promotions and low prices are key to success; as is savvy use of social media marketing techniques. The hyper-connected city state has internet and mobile penetration rates of 73 and 148 percent respectively, as well as some 3 million active Facebook users.
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McDonalds has been most successful at exploiting this, regularly introducing new promotions on its Facebook page. In 2013, the American burger chain held the lion’s share of the market at 41 percent.
With its widespread use of the English language, transparent legal regime and modern banking system, Singapore has long served as a popular entry point for western businesses into Southeast Asia. The market is therefore dominated by the major American players such as Burger King and Yum! Brands’ KFC and Pizza Hut; big, familiar brands that are favored by the island’s international population.
Thailand
Thailand has undergone rapid urbanization and the fast food industry has experienced dramatic growth. Young, urban Thais are rejecting more traditional fare in favor of “exotic” and trendy western food that many can now afford to buy.
KFC is particularly popular, with 492 stores operating in the country. McDonalds operates 138 outlets and Pizza Hut 79. Thais tend to enjoy sweet tastes, and pizza chains in Thailand often add more of the sugary tomato sauce than their western counterparts do.
The most growth last year was seen by 7-Eleven convenience stores, which enabled operator CP All, part of Thai food giant Charoen Pokphand Group, to maintain its lead in fast food. There are now some 7000 outlets operating in the country. The huge popularity of 7-Eleven is down to aggressive marketing in an already very competitive market.
New and more varied products were introduced along with attractive promotions. Much of this is done on television, but with a mobile penetration rate of 165 percent throughout the 67 million strong population, social media mobile applications are increasingly exploited.
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