By Benedict Lynn and Nishant Maddineni
In part two of this series of articles examining the fast food industry throughout the Asia-Pacific region, Asia Briefing takes a look at some potentially lucrative but more risky markets. Last week in part one, we focused on countries where the fast food business is booming.
China
China’s strong economic growth since the 1980s has coincided with the growth of its fast food market, which now stands at close to US$200 billion and rising. In 2012, the largest market share went to Yum! Brands at 6.5 percent, with KFC and Pizza Hut seeing the most success out of its licensed brands in China. The second largest market share is for McDonald’s at 2.3 percent. However, most of the rest of the top franchises in China are run by local Chinese companies.
Yum! is the best example of a successful foreign fast food franchise in China. In 2010, Yum! expected to make 36 percent of its estimated US$2 billion operating profit from its 3,700 restaurants in China; a larger share than all its American franchises. Since then it has expanded even more. In 2014, it had 6400 restaurants in almost 1000 Chinese cities which collectively generated more than 40% of its overall operating profits.
Despite these strong figures, China’s government has been cracking down on foreign multinationals for the benefit of domestic competitors. State media focused intensively on a recent food safety scandal involving KFC and McDonald’s meat supplier Shanghai Husi Food Co in July. This rocked consumer confidence in the region, where foreign brands are perceived to meet higher standards of safety and quality.
Export Procedures in Australia and New Zealand
Yum! Brands’ market share fell to 5.1 percent in 2013 from 6.4 percent in 2012, while domestic brand Ting Hsin’s market share went up to 1.8 percent in 2013 from 1.6 percent in 2012. Other Chinese chains are also trying to get into the market such as hotpot chain Xiabu Xiabu, where customers cook meat and vegetables themselves in a broth. Dicos complements its nuggets and crispy wings with rice cake burgers and soybean milk, pulling customers away from their foreign rivals with local tastes and lower prices.
The growth of domestic brands so far hasn’t led to a serious decline in the revenue for Western brands like Yum! and McDonald’s. However, food safety scandals arrive at a time when the quality and popularity of domestic chains is on the rise.
Investors in China must be aware that breakneck growth has strained the ability of companies to monitor the half a million food processors in the country. Many of these are small, remote and unsophisticated so it can be difficult for companies to regulate the entire supply chain.
Myanmar
Myanmar has only recently opened its doors for business and many of its companies and individuals remain on US blacklists. As such, investor confidence from the West remains low, but this is rapidly changing and several US sanctions have been lifted.
Currently, the market is led by Asian companies not affected by Washington’s sanctions, such as South Korean chain Lotteria, which first set up shop in 2013 and plans to have 24 further branches established by the end of 2016. Also from South Korea is the popular BBQ Chicken, which aims to open 10 more stores by next year.
Taking advantage of this unsaturated market is the omnipresent Yum! Brands, who have announced that they will partner up with Singapore-listed company Yoma Strategic Holdings to open a branch of their KFC chain in Yangon next year.
The Burmese are familiar with the taste of fried chicken, making KFC a safer bet than a pizza franchise; cheese is rarely consumed in Myanmar.
Visa Procedures for Myanmar, the Philippines and Indonesia
Market potential in Myanmar is strong. Of the newly outward looking republic’s 53.2 million population, 23.3 million are within the 15-39 target age group for fast food, and the rapidly-opening nation’s consumer class is forecasted to expand sevenfold over the next 15 years.
A largely agricultural republic, only 33 percent of Myanmar’s population is urbanized and only 17 percent eat out every day. Nevertheless, these figures can only go up as foreign investment comes flooding in and household incomes continue to rise. Television will play a key role in marketing.
Despite all these incentives, Myanmar still poses a host of problems to potential investors. Corruption is rife, infrastructure is badly underdeveloped, and finding a partner with the necessary operational experience will prove difficult; particularly to American firms whose choices are limited further by US blacklists. Poverty is still prevalent, and many will not have the means to buy premium-priced western fare for some time.
Investors are therefore right to be cautious – the risk is high. However, so too is the potential for success, and Myanmar’s nascent fast food market will not remain unsaturated for long.
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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
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