Here, there and everywhere: the retailisation of the Horeca-sector
For once, this is not going to be a story about the ailing pub retail sector in the UK whose alarming numbers of weekly pub closures have dominated the news for two years now. Across the Atlantic, the situation is hardly any better. The U.S. restaurant industry, which constitutes fast food, casual dining and upscale chains, is facing its toughest times in three decades. Due to the ongoing economic turmoil and significant unemployment, consumer demand is expected to drop by 4 percent this year, says Alix Partners, a consultancy in a recent report.
For U.S. restaurant chains, which have moved into China, the outlook is much better. The Chinese restaurant industry has grown by about 11 percent in 2009, after annual growth rates of 13 percent since 2003. China’s foodservice turnover has reached only about half the size of the U.S. restaurant industry with dining out expenditure per capita in China being less than 10 percent the expenditure of Americans.
The number of restaurants in China is vastly higher than in the U.S. (5.1 million outlets vs. 0.9 million outlets) and the industry is significantly more fragmented. Whereas the Top 100 restaurant chains in the U.S. have a 45 percent overall market share, China’s Top 100 only have a 6 percent market share in 2009 (down from 9 percent in 2003), says Alix Partners.
Western-style restaurants remain at a very low level in China, and had a market share of only about 1 percent in 2009. Apart from KFC, McDonald’s and Pizza Hut, no major U.S. restaurant chain has achieved a major presence in China. The three Western-style restaurants are among the top 10 chains in China. KFC, which is part of Yum! Brands (a spin-off from PepsiCo) has more than 2,000 outlets and is the top ranking restaurant chain, followed by McDonald’s with more than 1,000 outlets. Pizza Hut, also part of Yum! Brands, ranks sixth with more than 300 outlets.
Chain restaurants in China have grown at a faster rate than independent restaurants driven by advantages in advertising/brand building, cost and quality control, and operational efficiency. In Hong Kong, chained restaurants already account for 28 percent of total market size by revenue, reports Alix Partners.
Alix Partners conducted a consumer survey which concluded that in China, average spent per meal is expected to increase by 10 percent in 2010.
Chinese consumers are used to eating out, often three times per day. One in two respondents to the Alix survey said that they prefer chain restaurants to independently-owned ones. Moreover, word-of-mouth is still the best form of advertising.
When asked what they considered value for money, Chinese respondents seem far less focused on price and promotions than American diners. To the Chinese, food quality and service ranked highest.
Restaurant chains operating in China will consider all of this good news. So will the brewers. Unlike in the U.S. most chains in China sell alcohol.
Successful restaurant chains in China, like food retailers elsewhere, have developed effective operations, a strong brand, an attractive atmosphere and good food quality, while maintaining a sustainable cost structure and supply chain.
In China, the world’s number one beer market, the retailisation of the Horeca sector is progressing rapidly. So good luck to brewers who think that FMCG strategies and processes are the cure-all.
