SERVING UP
A WINNER
Establishing a winning proposition in
China’s restaurant landscape
An OC&C Insight Serving Up a Winner01
China’s restaurant market is more vibrant than ever, with growth
outstripping other major markets and showing extraordinary
resilience in a time of lower GDP growth (Figure 1-2). In 2013, a
series of food safety scandals shocked the nation and damaged
consumer confdence; at the same time the government’s
crackdown on corruption drastically cut spending on extravagant
banquets. Yet, the market quickly rebounded the following year,
driven by the rise of the middle class and increasing
consumption.
FIGURE 1:
Growth of Consumer Foodservices RSP, 2010-15
% YoY
Source: Euromonitor
FIGURE 2:
China Annual Nominal GDP Growth, 2010-15
%
Source: World Bank
Chinese consumers are becoming more sophisticated. This leans
in favour of chained restaurants, which are perceived as offering
guaranteed quality. Chained restaurants have out-performed
their independent counterparts in store growth, beneftting from
their reputation of quality, trust-worthiness and consistency. As
cities continue to modernise, smaller traditional establishments
diminish, presenting restaurant chains with an opportunity to
capture even more growth. The full potential of chained
restaurants is far from being reached in China (Figure 3). Looking
forward, restaurant chains are likely to continue gaining share,
leveraging on brand recognition, experience sharing, buying
power, and supply chain capabilities.
6.9%
2015F2014
7.3%
2013
7.7%
2012
7.8%
2011
9.5%
2010
10.6%
-2
-113579APAC ex. China+1.9%
UK0.0%
US+1.3%
China+7.4%
20112012201320142015
CAGR %
2010-15
China is home to almost 1.4 billion people, close to 8 million
foodservice POS and dozens of unique local cuisines. The middle class
is growing explosively and is expected to reach one billion people
by 2030. As disposable incomes rise and a younger generation of
middle class emerge, lifestyles are changing. Chinese consumers
are eating out more frequently than ever before and developing an
appetite for international cuisine. Restaurants are racing to stand
out against a backdrop of increasing competition for a share of the
‘Chinese stomach’. How does one begin to untangle the diverse and
fragmented restaurant landscape to fnd a winning formula OC&C
delves into this topic with an in-depth study, covering consumer
surveys and store audits, in search of the answer.
MACRO LANDSCAPE
FOOD SCANDALS: Food safety scandals, including the melamine milk scandal in 2008 and the discovery of dead farm
animals in the Huangpu River in 2013, have signifcantly undermined the confdence of Chinese consumers. In 2014, a food
safety scandal involving a supplier for Western brands including McDonald’s, Starbucks and Yum, served as a stark reminder
that even foreign food companies, which generally hold a better reputation among Chinese consumers than domestic
competitors, can lose credibility and struggle to regain it. The scandal hit Yum’s KFC just as it was beginning to recover from
the outbreak of avian fu and another food safety scandal the year before, causing renewed damage to sales and share value.
An OC&C Insight Serving Up a Winner02
FIGURE 3:
Growth of China Foodservice RSP, 2010-15
% CAGR
Source: Euromonitor
Share of Chained Foodservice RSP, 2010-15
%
Source: Euromonitor
New restaurant concepts have emerged in the market, such as
restaurant theming, healthy lifestyle menus, use of organic
produce, as well as fusion / innovative cuisine. For example,
restaurants which offer themed food and décor based on a
certain era, cartoon character or other pop culture reference
have attracted a young and enthusiastic clientele. Restaurants
that serve “light meals” and champion quality of produce are also
receiving a warm welcome to China, thanks to growing health and
environmental consciousness.
FIGURE 4:
Most Preferred Food Type
% Respondents Ranking Food Type as Most Preferred (5 of 5)
Source: OC&C Restaurant Proposition Index 2016 Survey
7.2%
China Chained9.2%
China Independent
53.0%
40.6%
8.7%8.0%
China 2010China 2015APAC ex.
China 2015
UK 2015US 2015
27.4%
Inside Miss Zhao restaurant, high-heel themed catering to young female clientele
The middle class, with annual household incomes between
US$9,000 and $34,000 has grown explosively and now account
for 68 percent of all urban households. The increase in
disposable incomes has meant that Chinese consumers now eat
out more frequently. In OC&C’s research covering 21 cities
spanning different regions and tier groups, people on average
dine out almost three times a week. At the same time, Chinese
consumers are now also more open to and eager for
international cuisine. Exposure to international cuisine, through
the media and overseas travel, has driven this trend. Outbound
trips by mainland Chinese have grown at a CAGR of 19% over the
last ten years, as discussed in our 2014 report titled “Journeys to
the West”. Western dishes rank highly among preferred food
types, with certain tastes such as steak and barbeque faring even
better than the orientalavours of Cantonese dim sum and
Japanese ramen, despite their closeness to home.
Increased dining out, coupled with a willingness to try new foods
and a more international outlook, have meant that the
awareness of international brands has soared in recent years.
Nevertheless, exposure and awareness can only do so much – the
rapid arrival and expansion of international chains in the past
few years have increased the competitiveness of the market.
Despite heightened curiosity and receptiveness, getting a
Chinese consumer to visit your restaurant has become ever-more
challenging, and conversion rates for most international chains
have fallen 5-10% as a result.
13%
14%
17%
18%
19%
22%
24%
31%
33%
35%
38%
38%
Dim Sum
Pizza
Pasta
Salad
Seafood
Ramen
Sushi / Sashimi
Burger / Sandwich
Hotpot
Chinese Dishes
BBQ
Steak
Non-Western Cuisine
Western Cuisine
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