KFC plans a makeover to keep up with diners' tastes

KFC, the largest international fast-food chain in China, is revamping its 130 restaurants in the country, along with plans to offer better Wi-Fi and mobile experiences at its outlets, to attract more customers.

The company's new store designs include off-white and gray walls decorated with modern paintings. They also have wooden tables and areas separated by green plants and glass, creating the atmosphere of a social hangout as opposed to a traditional to-go fast-food chain.

Zhao Li, general manager of Beijing KFC, said the new "Dining Room" concept aims to make the space more homely, where consumers can dine, chat and surf online without being interrupted. The chains also are adopting new employee uniforms and a new electronic menu.

The company's US-based parent Yum! Brands indicated that it plans to have 700 new restaurants in China this year, with KFC being the majority. All newly built KFC restaurants and the revamped ones will sport the new designs, company officials said.

Su Jingshi, Yum's China chairman and CEO, said international fast food chains had to change strategies in China as a result of declining preference for foreign brands and recognition among Chinese consumers, new consumers created by the rapid urbanization, as well as new service demands from mobile and online users.

He said KFC is positioned differently in China compared with fast food chains in other international markets.

"We offer fast service. But how long in what way our consumers want to spend time in our restaurants in China is not limited. The new designs will offer more quality service and a comfortable environment for social interaction and business meetings," he said.

By the end of this year, about 2,000 KFC restaurants, out of its 4,600 stores in China, will provide free Wi-Fi services. Customers who have paid with KFC mobile applications can receive their orders as soon as they arrive at the restaurants..

But the antibiotic incident in 2012 and the bird flu in 2013 brought its business to an unprecedented low. In 2013, its same store revenue declined 13 percent year-on-year.

According to data provided by market research firm Euromonitor, Yum! Brands market share reached its peak in 2012 of 6.4 percent and fell to 5 percent last year.

On the contrary, McDonald's market share rose from 2 percent in 2010 to 2.6 percent in 2013. Meanwhile, Dicos' parent company TingHsin International Group's market share increased from 1.2 percent in 2010 to 1.8 percent in 2013.

The heated competition among foreign and domestic fast food brands have pushed KFC to update its image and move up to the medium-level diners. The rising disposable income among consumers have encouraged demand for higher standards in restaurant decorations, said Ben Cavender, an analyst at the Shanghai-based China Market Research.

He said the revamping moves of KFC will help the chain's business slowly get better but will not bring the chain back to its days of strong growth boosted by the rapid opening of new stores.

During the first quarter of this year, Yum! Brands Inc saw a strong recovery in China.

Its China sales increased 17 percent in the first quarter compared with the same period a year ago, with 7 percent unit growth and 9 percent same-store growth. Its restaurant margins increased 6.8 percentage points to 23.4 percent, while operating profit rose by 80 percent.

Yum generates more than half of its overall revenue and operating profit from China.

Illinois-based McDonald's has also started a makeover of its restaurants in cities such as Beijing, Shanghai and Guangzhou, using a local designer. The company is also employing more locals to run its franchises in China.

Foreign fast food chains have faced increasing competition from local chains such as Real Kung Fu, which sells steamed food, and Taiwan-based fried-chicken chain Dicos. Dicos is expected to quickly expand its store numbers to 25,000 by 2040.

The ambitious goal was announced after Dicos allowed its employees to be a part of the franchising. It is also the first time that Dicos has surpassed McDonald's as the second largest Western fast food chain behind Yum's KFC.