G r owt h O ppor t uni t i es i n C hi na for C hai n

G r owt h O ppor t uni t i es i n C hi na for C hai n

R est aur ant s and t hei r Suppl i er s
R est aur ant s and t hei r Suppl i er s
Presented by
Steven H. Ganster
Managing Director, Technomic Asia
April 2006
Technomi c Asi a--Chi na Of f i ce
Room 502, Ji n Tai Bui l di ng
58 Mao Mi ng Road (Sout h),
Shanghai 200020, Chi na
Tel : + 86-21-6473-2588
Fax: + 86-21-6390-6659
sganst er@t echnomi casi a.com
www.t echnomi casi a.com
Technomi c I nc.
Sui t e 1200
300 S. Ri versi de Pl aza
Chi cago, I L 60606 USA
Tel : + 1 312 876-0004
Fax: + 1 312 876-1158
rpaul @t echnomi c.com
www.t echnomi c.com
page 2
Agenda
Why China?
K ey Country Characteristicseconomic development, business environment, demographics
I mportant Regional Dif f erences
Chinese Diet
Chinas Restaurant Marketcomparisons to U.S.
Eating Out Habits
Popular local and f oreign chains
Brief ing on Technomics China Restaurant multi-client program
Contact I nf ormation
Q & A
page 3
Why China?
China remains the most dynamic economy in the world
Population: # 1 in the world at 1.3 billion
Urbanization: there are more than 170 cities with over 1 million population
Trade: 3rd in the world in total trade -> $1 trillion annually
Growth: Since 1993, GDP has increased more than 600%
Web users: # 2 behind the US in internet subscribers
B-School Grads: 86 in 1991 up to 10,000 in 2004
MN C participation: Of the global top 500 multinational companies, about 450 have invested in China,
with some setting up regional headquarters in China;
Cell phones: More than 300 million subscribers
Autos: I n the last f our years, annual car production has increased f rom 230,000 to almost 3 million
Economic Impact:: Chinas economy has grown ~ 9 percent a year f or more than 25 years
o The f astest growth rate f or a major economy in recorded history.
o Moved 300 million people out of poverty and quadrupled the average Chinese person's income.
page 4
Chinas Economic Development
From a business standpoint, China is a newcomer to the world market and is still in an
early and dynamic state of evolution.
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Inward Direct Investment (US$Mn) Nominal GDP (US$Bn)
The Gold
Rush Period
page 5
+
High economic growth
Signif icant f oreign investment
WTO participant
Low labor rates
Burgeoning middle class
Olympics in 2008
World Expo in 2010
Major exporter/ importer
-
Dif f icult to make money
Overcapacity/ price wars
Corruption
Poor inf rastructure
Protectionism/ nationalism
I ntellectual property inf ringement
Weak legal system
Looming banking crisis
Unpredictable risks (e.g. SARS)
C hi na C hi na s oppor t uni t y-r i sk scal e s oppor t uni t y-r i sk scal e
Chinas Schizophrenic Profile
page 6
Key Demographics
57%
43%
Rural Urban
20%
69%
11%
0-14 15-59 60+
51%
49%
Male Female
Since 1978 China has adopted a one-child
f amily planning policy i n the coming
years, the proportion of people over 60 will
go up sharply.
Rural residents have been migrating to
urban areas to f ind jobs while more and
more rural areas are being developed into
industrial areasspurring continued
urbanization.
Rural Chinese tend to pref er male babies
who are expected to support the f amily
when grown-up.
page 7
Guang zhou Guang zhou
Shang hai Shang hai
Bei ji ng Bei ji ng
Language: Mandarin dominated
Personality: Extroverted, less
entrepreneurial
Climate: 3 seasons, dry (North Eastern
USA)
Food: Flour-based f ood, like noodles,
dumplings, buns, etc; Limited variety of
cuisines
Language: Thousands of dialects -- some major like Cantonese, Shanghainese, etc.
Personality: I ntroverted, hard-working, entrepreneurial
Climate: Wet, tropical in South (South Eastern USA)
Food: Rice-based; more variety of cuisine: South-western f ood is known f or spicy; Shanghai
f ood tends to be sweet; Cantonese f ood highly varied (eat anything).
Wide differences in terms of culture -- N orth and South divide by Yangtze River:
Regional Difference
page 8
Chinas Diet (basic profile of urban resident)
Typically 3 meals a day Typically 3 meals a day
Daily visit to farmers Daily visit to farmers market to buy market to buy
fresh vegetables and meat fresh vegetables and meat
Salty food more popular than sweet Salty food more popular than sweet
More chicken/ pork than beef and fish More chicken/ pork than beef and fish
Preference for food with good taste, Preference for food with good taste,
smell and color instead of nutrition smell and color instead of nutrition
More emphasis on dinner and least More emphasis on dinner and least
about breakfast -- employees usually about breakfast -- employees usually
have fast food for lunch have fast food for lunch
Breakfast
Lunch
page 9
Chinas Diet Breakfast
Fried Braided-
Bread (You
Tiao)
A meal costs around 0.25-0.60 U.S. cents
The menu tends to be high in calories (~ 950)
Now some young f amilies begin to include milk and
bread in their menu
Typical Breakfast Menu for Urban Residents
Wet Bread w/
Fillings ( Bao
Z i)
Congee (Z hou)
Combo Meal (
Shaobing Youtiao)
I n South (Canton area), people tend to spend hours
f or breakf ast in nice restaurants with reasonable prices.
I n other markets, young people tend to skip breakf ast.
White-collar employees buy breakf ast f rom dirty street
stands as well, though some pref er to eat at home.
page 10
Chinas Restaurant Market
83%
17%
Full Service Quick Service
Chinas restaurant market* reached an estimated US$110 billion in 2005 and is expected to
maintain double digit growth through the end of the decade.
Key drivers
- General economic growth
- Increasing disposable income
- Continued urbanization
- Changing consumer habits
Quick service restaurants showing
20% per year growth as both local
and foreign chains expand
* B asi cal l y ful l and l i mi t ed ser vi ce r est aur ant s
page 11
Chinas vs. U.S. Restaurant Markets
~ 7% 15-20% Growth Vector
$314 $110 Total Revenues (US$bn)
13,673
$24.4 bn
# 1
600
$454mm (E)
# 3
McDonalds
Outlets
Revenue
Rank
5,525
$5 bn
# 7
1,200
$1.2bn (E)
# 1
KFC
Outlets
Revenue
Rank
184,000
(top 500 only)
~ 7,000 N umber of Chain Restaurant Outlets
$594,000 $33,000 Average Revenue per Outlet
529,000
~ 3.5 million
(> 4 mm in 2005)
Total Restaurant Outlets
USA China (2004 data)
N ot e: F ul l and l i mi t ed ser vi ce out l et s--appl es-t o-appl es compar i sons ar e r ough est i mat es
page 12
Overview of Chinas Chain Restaurants
Developed Regions in China
The average growth rate of
chain restaurant industry in
recent years is ~ 20%
About 70% of the chain
restaurants are located in the
developed regions on the East
Coast
L argest chains are f oreign K FC and McD onalds have 25-30% of all chain out let s
- 75-80% of chain rest aurant s are local -- but t heir average number of out let s is much less
Famous local chain brands include:
- | (Lit t le Sheep/ X iao Fei Yang, # 1 local brand, est ablished in 1999 in I nner Mogolia, specialized in H ot Pot self -
cooking mut t on f ood, over 700 out let s, annual sales of US$ 541 mm in 2004)
- ; (X i ao Tu D ou/ Lit t le Pot at o, est ablished in 1989 in Shenyang, Li aoning, specialized in noodles as well as sea
f ood rest aurant s, t ot aling over 170 out let s, wit h annual sales of US$ 230 mm in 2004)
- _ (Ma L an La Mian, Chinese f ast f ood rest aurant , est ablished in 1995 in Beijing, specialized in noodles, over 440
out let s, wit h annual sales of US$ 60 mm in 2004)
- j,(, (D a N iang Shui Jiao est ablished in 1996 in Changzhou, specialized in dumplings, over 200 out let s, wit h
annual sales of US$ 33 mm in 2004)
page 13
Typical Quick Serve Restaurants
page 14
Typical Quick Serve Restaurants
page 15
Eating Out Habits
80% of eating out occasions are f or
dinner--budget typically
< 3 US dollars per person f or low-
end restaurant
3-5 US dollars per person f or mid-
end restaurant
5 - 12 US dollars per person f or
high-end restaurant
12 US dollars or above f or
superior/ 5 star.
T ypi cal mi d end ur ban qui ck ser vi ce
r est aur ant s
About 70-80% of people eat out for work lunch -- typical price around 1 US dollar.
N ot e: Based on T echnomi c sur vey of 100 mi d-hi gher i ncome r esi dent s i n Shanghai
page 16
Popular Local Chains
Famous bean curd
soup/ fried bread
Milk tea -- mid-high end
Rice noodle for
lunch-dinner
N oodle lunch
page 17
Eating Out HabitsChain Restaurants
Social gathering and convenience are the top reasons f or people to eat out
Food type/ taste is the dominant restaurant selection criterion (50%)
Cost, convenience and saf ety are highly considered as well
Over 80% learn of the desired restaurants through word-of -mouth.
Over half the respondents expect to eat out more in the f uture due to higher disposable income,
desire to socialize and get out of the house .
Underlying desire f or more enjoyment out of lif e
Consumers tend to be conservative in trying out a new restaurant
Friends recommendation has a lot of weight
And curiosity
N ot e: B ased on T echnomi c sur vey of 1 0 0 mi d-hi gher i ncome r esi dent s i n Shanghai
page 18
Western Chains
For the quick service restaurants, over 50 % go to western chains-- KFC, Mc Donalds and
Pizza Hut were by far the top chains mentioned by consumers.
Positives
Good hygiene
Atmosphere
Convenience
Good taste
N egatives
Simple menu
Expensive
page 19
Western Chains
KFCs congee
page 20
Western Chains
The reason to go to a f ull service restaurant is to try new f ood types and is due to its reliable, clean &
hygienic environment. Many people would love to try but their concern is the expensive price.
Among the western cuisines, French and I talian are well known and very attractive.
Atmosphere was valued most in selecting a western f ull service restaurant.
Full service western restaurant chains are limited to date in China
N ot e: B ased on T echnomi c sur vey of 1 0 0 mi d-hi gher i ncome r esi dent s i n Shanghai
page 21
Entry Considerations
Timingnot too early or too late
Addressable/ target market
Value proposition versus cost
Scale of operation
Localization of supply chain/ management
Protection of brand/ I P
Value of local partnership
Owned versus f ranchise
Geographic coverage/ pace of rollout
page 22
Technomics Multi-Client Program
Overview of the scope and nature of Chinas economic development
Characterization and present structure of Chinas restaurant industry
Position and activity of major chain restaurants
Presence and position of f oreign chain restaurants
Characterization of consumer eating out behavior and interest in Western chain restaurants
I ndustry supply structure (f ood, disposables and equipment)
Regulatory environment and major constraints
K ey success f actors
Overview of entry/ expansion considerations
Proprietary China management workshop (China Readiness Assessment)
The overall objective of this common sponsor program is to present a detailed and strategic
view of Chinas chain restaurant market. The overall goals of the program cover the
following main areas:
page 23
Technomics Multi-Client Program
Review of the sponsoring companys C hi na R eadi ness Pr ofi l e (see www.chinareadycompany.com )
Discussion of potential opportunities in China
I dentif ication of possible strategic responses
Review of next step initiatives f or consideration
The deliverables of this report will provide the foundation on which a China entry or
expansion strategy can be built.
Each sponsor will participate in a workshop to take the next step in processing the market
findings and leading to a tangible response.
Charter sponsors will also be able to contribute to the researchs design and list of issues
(including the consumer research module)
page 24
Technomics Multi-Client Program
The core methodology will be a series of in-depth, face-to-face interviews with major players
in the restaurant value chain. Effective interviews of this type in China are done personally
and in a probing, open-ended manner.
1600 TOTAL
A cross section of consumers in 7
key cities
1500 I n-depth, personal interviews with
consumers
I ncludes interviews with distributors
and product suppliers
50 Probing Channel I nterviews
Focus on major chains, both local
and f oreign, including headquarter/
China management
50 Probing Operator I nterviews
Description
N umber of
Completes Research Target and Type
page 25
Technomics Multi-Client Program
For a complete proposal, please contact:
Ronald Paul
Technomic I nc.
Suite 1200
300 S. Riverside Plaza
Chicago, I L 60602
Tel: 312 876-0004
Fax: 312 876-1158
E-mail: rpaul@technomic.com
THANK YOU!