Pressure builds from rise of domestic competitors, changing consumer tastes
Fast-food giants are selling their businesses in China as they face pressure from local competitors' expansion and shifting consumption concepts, but domestic investors are willing to invest in these operations because they believe such chains still have good prospects, experts noted.
Yum Brands Inc plans to separate its China unit, which will get total investment of $460 million from Beijing-based private equity firm Primavera Capital Group and online and mobile financial services provider Ant Financial Services Group after its spinoff from Yum, domestic news portal Beijing Youth Daily reported on Sunday.
The transaction is expected to be completed by October 31, with Yum China to start trading independently on the New York Stock Exchange on November 1, according to an announcement on the website of Yum on Friday.
On Friday, Reuters reported that US-based private equity firm Carlyle Group and global private investment firm TPG Capital are working with two Chinese companies in a bid for McDonald's business in the Chinese mainland and Hong Kong with investment estimated at $2 billion to $3 billion. The news service cited people familiar with the matter.
Fast-food giants are selling their businesses in China due to weak performances, Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant, told the Global Times on Sunday.
KFC's second-quarter sales in China increased just 3 percent year-on-year, while Pizza Hut Casual Dining's sales fell 11 percent from the year earlier, according to Yum's results released on July 13.
The rise of traditional Chinese fast-food restaurants and changes in dining preferences have caused Western fast-food restaurants' position to decline in recent years, experts noted.
Traditional Chinese fast food is in line with Chinese customers' eating habits. And the emergence of online takeaway platforms is boosting the fast growth of Chinese fast-food services, Ma explained, noting Chinese fast-food meals are viewed as healthier than their Western peers.
No matter how much effort they put into designing products intended to cater to Chinese tastes, Western items such as hamburgers are considered junk food, said Beijing Youth Daily.
"However, I think domestic companies look favorably upon the prospects of Yum China and aim to optimize their own business structures by investing in the fast-food giant," said Liu Jianying, an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation.
Western fast-food brands' management experience, distribution channels and large client bases are still attractive to many domestic companies that want to enter the fast-food industry, she explained.
KFC's first restaurant opened in the mainland in 1978. As of June 11 this year, it had 5,039 restaurants in China, data from Yum's second-quarter report showed.
McDonald's entered China in 1990. It had more than 2,200 restaurants in China as of 2015, with more than 100,000 employees, data from McDonald's showed.
"We have long admired the Yum China business and are looking forward to collaborating with the board and management to realize the company's full potential," said Hu Zuliu, founder of Primavera, according to Yum's announcement.
"Through this collaboration, we aim to help Yum China provide world-class mobile payment services for tens of millions of customers across its brands," said Jing Xiandong, president of Ant Financial Services Group, in the announcement of Yum. "These services include hassle-free Alipay for customers to help shorten queues at the cashier as well as membership solutions for Yum China designed to help manage customer relations and promotions."
