Warren Liu, author of KFC in China: Recipe for Success spoke at the FCC in Hong Kong today. Liu, who has worked in China for both YUM! Brands (KFC’s parent) and Burger King, actually spent nearly as much time talking about where McDonald’s has supposedly gone wrong as he did explaining what KFC has done right.
This was particularly interesting as I was sitting next to a McDonald’s representative. The representative expressed surprise that a former KFC employee should speak so extensively – and, in the view of the McDonald’s guy, inaccurately – about his main competition.
What is beyond dispute is the importance of China to YUM! Brands as a whole. KFC’s China business generated US$2 billion in revenue last year, 20% of YUM! Brands’ global total. This rises to 24% in terms of net operating profit. If KFC China continues growing at its current rate, it will account for more than 50% of YUM! Brands’ global earnings within a decade, Liu said.
KFC entered China in 1987, three years before McDonald’s. Liu said that KFC’s China business was bigger than that of McDonald’s by a ratio of more than 2.5:1. What he didn’t detail was the criteria upon which these calculations were made. The McDonald’s representative guessed the ratio applied to total number of restaurants – and quickly added that, while McDonald’s has fewer outlets than KFC, these outlets are on average larger and more profit-making than those of KFC.
It all comes down to differing business models. As the McDonald’s representative put it, KFC will open a hole in a wall and then play the odds – some of these holes turn profitable and some don’t. McDonald’s, however, puts more emphasis on the dining experience, building fewer but bigger outlets that come with more facilities. Its restaurants are designed to become profit makers in the short term.
I’ve heard similar theories in the past, but have always found it difficult to spot these trends in practice – probably because I’ve only ever looked at these chains through the eyes of a consumer. Fast food is just fast food: Sometimes I want chicken and sometimes I don’t.