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Annual 10%-20% Growth in Chinese Fast Food Market

Modern fast food industry in China started relatively late along with the implementation of China's reform and opening up. In 1987, KFC established China's first fast food restaurant in Beijing, ushering in China's fast food market. In the 1980s and 1990s, other Western fast food enterprises began to enter the Chinese market, and acquired favorable achievements. Chinese fast food began to appear soon.

According to characteristics of the Chinese fast food market, fast food is divided into such two major categories as Western and Chinese fast food. Standardization of Western fast food is easy to be realized since in Western fast food, which is generally roasted and fried, a small quantity of major ingredients, minor ingredients and condiments are adopted. The main varieties of Western fast food are hamburger, chicken nuggets, French fries, etc. which are generally accompanied by soft drinks. Standardization of Chinese fast food is difficult to be realized since in Chinese fast food, there are a large variety of major ingredients, minor ingredients and condiments. The cooking methods are multiple, and the varieties including rice, noodles, dumplings, fried dishes, steamed dishes, etc. are accompanied by Chinese soup or soft drinks.

Currently, the major Western fast food brands in Chinese market are KFC, McDonald's, Burger King, etc.; the major Chinese fast food brands are Kungfu, Yonghe King, Da Niang Dumpling, etc.

In recent ten years, with the quickening pace of social life, China's fast food industry has maintained annual growth rate of 10%-20%. In 2010, the market scale of China's fast food industry exceeded CNY 260 billion.

KFC and McDonald's, the two fast-food giants, are always leaving Chinese fast food enterprises far behind. But it cannot be ignored that it's still the Chinese fast food that occupies nearly 70% market share of the fast food industry in China. According to incomplete statistics, at least over 60% of Chinese fast food is rice-based. Chinese fast food enterprises are large in number, but the single enterprises are weak in strength. For instance, by the end of 2010, KFC has possessed over 3,000 restaurants in China, while Kungfu, a leading enterprise of Chinese fast food has possessed less than 400 restaurants in China.

Standardization has always been the biggest obstacle to chain development of Chinese fast food industry. Compared with KFC, McDonald's and other Western fast food, it is fairly difficult for Chinese fast food industry to achieve standardization, especially in taste, weight, and specification, which is also one of the major reasons for the relatively slow chain development of Chinese fast food industry.

China's fast food market has been heating up. Such world-renowned Western fast food as McDonald's, KFC, Burger King, and such Chinese restaurant chain enterprises as Kungfu, Yonghe King, Da Niang Dumpling flourish on a large scale. However, the fast-food giants seem to have no intention to slow down the pace of expansion.

At the end of 2010, McDonald's announced that in the next 3 years, it would increase 1,000 new restaurants in China.

By the end of 2010, Burger King has opened over 30 restaurants in China. In September, 2010, 3G Capital in Brazil purchased Burger King, the second-largest fast food chain stores in the U.S.A. with USD 3.30 billion. The industry insiders believe that this acquisition will promote the Burger King's pace of expansion in China.

In the field of Chinese restaurant chain, Kungfu possessed nearly 380 regular stores nationwide in 2010, growing into the NO.1 of Chinese fast food industry. Kungfu plans to own 800-1,000 storefronts in the next 5 years. In addition, Yonghe King possesses 200 chain stores in China's major cities which are planned to be further expanded to 700 restaurants in the next 5 years nationwide.

China's fast food market enjoys huge market opportunities, in which exists a lot of mistaken ideas in terms of investment and concept.

In China, the development of the fast food industry is constrained by consumption level and consumption capacity. Economic development is uneven throughout China, the coastal cities are more economically developed than inland, central and western regions, and large cities are more economically developed than small and medium-sized cities. Even in a city, incomes of different groups differ largely. A portion of fast food in Chinese market is usually sold at CNY5-CNY30. The fast food industry in China faces such problems as imperfect relevant laws, inadequate distribution systems, food safety, etc. Investors need to consider various angles of policies, site selection, incomes of local consumers, cultural factors, etc. before investing in China's fast food industry.

China's pace of urbanization is accelerating, a large number of rural populations are pouring into the cities, and the consumption capacity of original urban population is gradually increasing. Due to a large population and the continuing and rapid development of China's economy, China will gradually become the world's largest fast food market.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.