8,000+ outlets in 1600+ cities.
Yes, that's KFC (China) for you. Not surprisingly, these 8,000+ outlets contribute 27% of KFC's (Global) revenues.
But, how did this happen?
Let's find out.
KFC's First Outlet in China & The Overnight Success
In 1987, KFC opened its first outlet in Beijing. On the first day, it sold more than 2,200+ chicken buckets. The crowd became unmanageable & the queue was as long as 100 meters. Finally, cops were called to restore order.
An overnight success? Yes, may be because the outlet was located at the heart of Beijing - near the Tiananmen Square? Or, was it more than just an attractive location? Were those 2,200+ buckets a sign of times to come?
In restaurant business, location is a make-or-break factor. But, with KFC's overnight success, it was more than just the location.
And, the craze wasn't just a one-day event. For the first three months, 1,300+ chicken buckets were sold in a day (average) - making 20,000 to 40,000 yuan a day! Yes, that was way back in 1987. Unbelievable, right?
This overnight success of its first outlet gave wings to KFC's ambitions in China. And, then there was no looking back.
So, what was the secret recipe that made KFC click in China?
Let's find out.
The "Cool" American Lifestyle
Back in 1987, Chinese people considered KFC as a gateway to the American lifestyle. And, food, you know, is one of the most important ingredients of any lifestyle or culture.
So, in China, when people saw KFC, they saw "luxury", "something different", "western food", "cool culture", "status symbol" etc. The rising middle class, the working class, the college-going students, those enthusiastic kids, they all wanted to experience KFC.
In short, the fried chickens were one of the easy ways to experience the western food.
In marketing, there's a saying - Sell the outcome, not the product. KFC's marketing strategy nails this. When KFC first launched in China, people weren't lining up for fried chickens (the product). Instead, they wanted the "feel" of an American culture/food (the outcome).
Coca-Cola is another company that sells the outcome & not the product itself. Can you decode the outcome & the product? Yes, that's your homework. :)
The First-Mover Advantage?
KFC was the first American fast food chain to enter China. Since then, it has been expanding rapidly.
In fact, the company claims 11% market share of the Chinese fast food market. Yes, there's also McDonald's but with a lesser share (5%).
Fast food is a tough business. With intense competition - or copy cats, you need to act fast. New products, new outlets, aggressive ads - these're all required to stay ahead of the race.
And, KFC knows how to stay ahead of the great Chinese fast food race. As per the latest reports, the company is targeting 15,000+ outlets across China! Now, that's called expansion. How would you beat that?
Being first is an advantage, but we need to take advantage of that advantage. Or else, it'd be like helping our competitors. Remember, how Yahoo was one of the first search engines? But, it couldn't catch up with new entrants like Google.
The Hygiene Factor
Chinese street foods are synonymous with unhygienic, low-quality food & haphazard service.
Whereas, fast food joints like KFC are known for their:
- Hygienic & high quality food
- Décor & ambience
- Friendly customer service
- Well organized dinning area
- Systematic ordering process
When KFC first entered China, the aforesaid features were completely new to the people of China. In fact, the first Beijing outlet had 500 dining seats & was still managed superbly.
So, apart from food, people wanted to experience what it was like hanging out at a beautiful fast food restaurant. Visiting KFC was more of like a "status symbol".
China Loves Chicken
As we say in marketing - No matter how great your marketing is, you won't be selling unless your product sells itself.
When it comes to Chicken consumption, China ranks third in the world.
Well, then how difficult it would be for KFC to convince China to consume its delicious fried chickens? Not much, I guess.
All KFC products have Chicken as its main ingredients. With chicken as its base, KFC products sell for itself.
KFC's Hyper-Localized Menu
To be successful in China, you need to adapt. You need to give exactly what the locals there crave for. Simply copying & pasting an American business model won't work.
This is the reason why Amazon failed in China. It didn't adapt its strategy to meet the demands of Chinese consumers. When you've established local players like Alibaba, why would someone shop from Amazon?
KFC, on the other hand, exactly knows how to win the Chinese market. It has adapted its menu to include local Chinese cuisines like:
- Egg Tarts
- Shrimp Sandwich
- Soy Sauce Wings
- Chicken Rice Bowl
Having a local menu also helps KFC to compete with new & emerging local Chinese fast food brands.
Apart from localization, KFC also offers more variety in its Chinese menu than what it offers in its US outlets.
KFC's menu localization formula has worked in India as well where they've 30% vegetarian items on the menu.
To Franchise or Not to Franchise?
In US, KFC owns only about 10% of its outlets (rest are owned by franchisees). Whereas, in China, KFC owns 90% of its outlets.
Clearly, franchising is the most popular operational model for food chains. Lesser capital requirements, more hands-off operation & stable revenue are some of the advantages of franchising. In fact, McDonald's is famous for it's unique franchise model where it buys the real estate (the outlet) & leases the same to its franchisees for a rent. This model ensures McDonald's a steady stream of income.
Then, if the franchising system is so good, why did KFC go the other way in China?
See, the franchising works best when you've a distribution ecosystem to support your franchisees. However, when KFC entered China in 1987, the country lacked the basic infrastructure needed to run a full-fledged food chain. So, what did KFC do - it built it's own supply chain! With its own network, KFC thought the best way forward was to own its outlet.
Owning an outlet also comes with the following advantages:
- Better quality control
- Better customer service
- Better employee training
Today, China has the most robust distribution infrastructure. But, due to aforesaid benefits, KFC has decided to keep owning its outlets. Why fix something that ain't broken?
Standardization Builds Trust
In fast food chains like KFC, every process is standardized. Be it customer service, ordering process, order preparation, seat reservation, take away - each activity has got its own set of procedures.
These standards build trust in the minds of Chinese consumers. They know they'll be served well & the food quality can be trusted. Note that China, in the past, has been rocked by various food scandals. So, when it comes to food, it's not easy to win the Chinese consumers.
Take an example: All KFC outlets in Shenzhen will look alike & their fried chickens will almost taste the same. Yes, that's standardization. Not only KFC, other food chains like Domino's, Pizza Hut, Starbucks also have these standardization embedded in their work culture.
Not only standardization helps to improve trust, it also helps to expand fast. With procedures documented, training new employees becomes easy. No wonder KFC is adding a new outlet everyday in China.
Popularity Among Job Seekers
Fast food chains like KFC are popular among college-going students for their part-time jobs. These jobs allow young people to make quick money in their spare time.
With flexibility comes freedom.
With money, students pay off their loans easily. These part-time jobs also allow students to "kick-start" their career & experience the corporate culture.
In the US as well, students seek part-time jobs at these fast food restaurants.
The Future is Here
KFC knows how to adapt to the needs to its Chinese customers. Going a step ahead, KFC launched K Pro outlets in China. So, what's this all about?
China is slowly but steadily becoming a health-conscious society. People are looking for healthy fast food options. It won't be wrong to say that the future of healthy fast food is bright. Seeing this trend as an opportunity, KFC thought of spinning off a new chain that would only deal with healthy fast food snacks - hence K Pro was born in 2017.
Surprise, surprise, surprise - K Pro doesn't sell fried chickens!. Instead, they sell healthy sandwiches, juice & a variety of fresh sea foods.
Though nowhere near to KFC, K Pro does hold a bright future. With rising awareness, people across the globe want tasty AND healthy fast food.
Let's Admit - The Food is Tasty
Keep all other factors aside. In restaurant industry, nothing works unless the food is tasty. Taste & location are two of the most important factors that decide if a restaurant will see success or not.
KFC was founded in 1952 with a "secret" recipe for fried chickens. The recipe became an instant hit & was exported to other parts of the world. The recipe is still a "secret" & is being used at every KFC outlet in the world. So, China is not an exception here.
Many food experts claim this "secret" recipe behind KFC's massive success across the globe. But, I feel, there's many more crucial factors that have made what KFC is today. There're no dearth of secret recipes out there. But, how many of us have gone & made a KFC out it?
KFC (China) spends 300+ million dollars on advertisements each year. Yes, that's huge.
KFC uses Chinese celebrities & actors to promote its products. Yes, this works.
Also, going a step further, KFC is known for creating campaigns specifically for Chinese events (like the Chinese New Year). Emotionally, in 2018, KFC aired a commercial celebrating Chinese patriotism & economic success. Yes, you heard it right. In 2019, KFC also opened an outlet honouring Lei Feng, a communist hero in China.
So, as you can see, KFC not only localized its menu for China but also its advertisements. Common sense, right? But, why aren't many companies (eyeing Chinese market) doing this? I don't know.
The Brand Power of KFC
Globally, KFC does $ 30+ billion sales a year. No mean feat. This shows that KFC is one of most recognized brands in the world. With brand power, growth becomes easy.
I remember the first time KFC opened an outlet in my hometown. Excitement was filled in the air. People wanted to throng that place on the opening day itself. I was one of them. Why? Because I knew about KFC & has heard about it in news/internet.
In China, KFC is already a household name. People in China already trust the brand "KFC" & if a new outlet opens nearby, everyone welcomes it.
Lessons from the Success of KFC in China
Businesses looking to enter or expand in China can learn the following lessons from KFC:
- You need to localize your products or offerings. There's no other way out. You cannot simply import & sell your "standard" products in China. Study the taste & preferences of the locals & adapt accordingly.
- You need to connect with Chinese consumers authentically. Look how KFC campaigned on China's special days & used patriotism as a theme. They even honoured China's local heroes. Embrace the country & the country will embrace your brand. This is where Amazon failed to click in China. China already had Alibaba (local eCommerce brand) doing well. Amazon simply didn't lure Chinese consumers with a strong offering or connect with a message that would have resonated with the locals there.
- Build trust steadily. Chinese consumers don't do business with a brand they don't trust. Therefore, you don't have a margin for error. You got to work hard to build that much-needed trust. But, once built, you can leverage that trust to grow fast in China.
- China is a fast developing economy. White collar employees, rising middle class, rising income - these all indicate one major change - craving for a new lifestyle. And, this crave offers immense business opportunities for global businesses. Build a product that will meet the needs of an aspirational China & you'll likely find success.
- Move fast & break things. China is a tough market to compete. Most global businesses are looking to tap this huge market. With ever increasing competition, you need to make quick decisions & stay ahead of the race. Even after 35 years, KFC isn't slowing down in China. It's adding a new outlet each day. Even huge competitors like McDonald's & Domino's are lagging behind KFC.