Yum Brands Inc, Chinese Restaurant
November 15th, 2006
Summary: Article
Yum Brands Inc, of Louisville, KY, which owns KFC and Pizza Hut has developed a new restaurant named East Dawning. East Dawning is a bright, clean fast-food restaurant with an eye on efficiency and an atmosphere similar to American-style fast food chains. According to surveys commissioned by Yum Brands, locals disliked the atmosphere at existing Chinese fast-food places which are described as cramped, dirty, and hot.
Yum Brands has experience operating in China with KFC which opened its first location in China in 1987. Approximately 16% of Yum’s profits come from the Chinese market where they operate 2,000 KFC and Pizza Hut restaurants – 3 times as many as McDonald’s. During this time, KFC has learned a lot – tweaking flavors to appeal to local tastes. They have spiced up their chicken (which was already popular in China) and added traditional dishes such as a soupy rice called congee.
In 2004, Yum opened the first version of East Dawning as a test. This test proved to be a failure as it was too slow. The food cooled down before it could be served and traditional dumplings could not be prepared fast enough. Yum closed the location within a year. Version 2 of East Dawning opened up about a year ago with a focus on being “more Chinese” serving traditional Chinese drinks instead of soda and offering about 50 different menu items to accommodate different regional tastes of their customers.
Detractors say that East Dawning will fail since Yum Brands is underestimating the complexity of Chinese food. Yum wants to have standard menus at all East Dawning locations, but critics claim that is an overly simplistic approach. Further, some Shanghai residents say they are not willing to pay East Dawning’s prices. A typical meal includes an entrée, soup and a vegetable costs approximately $2.30 which is comparable to a meal at KFC.
East Dawning also faces local competition such as Yonghe King.
Yum hopes to begin television advertising and has aspirations to expand in China. They also look to the future to replicate the East Dawning concept in other Asian countries.
Commentary:
It looks to me like Yum Brands is trying to beat the Chinese at their own game – preparing Chinese food. It seems to me that this will be an uphill battle. The article doesn’t comment on what a similar meal would cost at a local competitor such as Yonghe King, but if the price difference is significant, I don’t see how East Dawning will be widely accepted. Also, the article does not comment on the quality of the food as compared to the local fare. Again, if the food isn’t significantly better, I think East Dawning will not appeal to the masses.
I hope to track down either an East Dawning or a Yonghe King (or both) to do a side by side taste test. Any and all classmates are invited to assist.
I also question Yum’s strategy to enter the market in the big cities. I think about a city like San Francisco – not many fast food restaurants as compared to local restaurants. Now compare to a small town – the ratio of fast food to local restaurants is reversed. Would East Dawning do better in smaller markets where there is less competition? Of course, perhaps if Shanghai residents don’t want to pay $2.30, a more rural citizen may not be able to pay $2.30.
One remaining item to note from this article. Yum represents that they would like to expand to other countries, yet they only have four restaurants currently. This is compared to the 10 East Dawning locations they hoped to have opened by the end of 2005. Yum claims they are having trouble finding locations. My gut tells me that they could find locations if they were ready to open more locations. I think perhaps East Dawning is not going to be the success Yum Brands is hoping for.
Questions to contemplate and comment on:
1. What would your reaction be if a Chinese company setup shop in the USA and attempted to compete with us head to head on something that you identify as 100% American. Let’s be complete traditionalists…a Chinese firm creates a pie shop that focuses on Apple Pie. The Chinese Apple Pie has a flaky crust and the most flavorful apples you could imagine. This company starts to take market share away from Marie Callendars, Baker’s Square, AND Mom! How do you feel about this?
2. Another product that could be considered 100% American would be the automobile. Has Japan effectively come to our country, setup shop here, and beat us at our own game of building and selling cars? Every major Japanese car company has a multitude of automobile manufacturing plants spread across the USA. Is this any different than what Yum Brands is trying to do with East Dawning?
3. Now consider the sale of IBM’s Thinkpad division to Lenovo. IBM, a stalwart of American ingenuity, no longer owns the Thinkpad name or reputation they built over the past couple decades. IBM voluntarily sold to Lenovo, a Chinese company. Is this bad for the USA or is it allowing the whole world to operate as one market?
Submitted by Erik Slayter
Entry Filed under: China
5 Comments Add your own
1. Chris Carr | November 16th, 2006 at 5:06 pm
Good post and interesting article.
It would be interesting to go back in time and read press clippings when McDonald’s first started to set up shops to sell hamburgers to Americans (the American equivalent of good Chinese food, at least when they are grilled on our BBQs at home). Perhaps they said the same thing about what McDonald’s was trying to do; perhaps not. I agree, though, that this sounds like a tough fight to win in China.
2. Jared Samarin | November 19th, 2006 at 8:54 pm
1. I find that there is little wrong with the possibility of a Chinese company coming to America and attempting to duplicate and compete with the American apple pie. This is an open marketplace and to me this represents the same situation as Californians purchasing Chilean grapes. There is little loyalty to home product in this country and there is really nothing wrong with that. What is important to realize is that if consumers cared about the philosophical disconnect between a Chinese company producing a traditionally American product they could simply not purchase the product. It is too often that we forget that consumers have a lot of power. Markets grow in response to demand. If demand is non-existent or low enough to make production non-profitable there will not be a proliferation of new product, and the marketplace will shrink, or at least remain static.
2. I believe that with Toyota passing the grandfather of automobile manufacturing, Ford, in American sales last year sends a message. The Japanese automotive makers understand the American market and they have produced a product that meets the needs of the nation and the consumer. Fuel efficient, stylish vehicles are what the consumer has requested and it is what Toyota, Honda, Nissan, and Subaru have delivered. For myself these don’t appeal to me and I won’t own one in the near future if ever. This is my choice as a consumer, and in that I don’t think that the automobile market can be described as a zero sum game where the Americans are losing at our own game. American companies have lost in a different game than we are used to playing. The American automotive mantra has always been more power. In this game we are still winning. However, in the category of fuel efficient, compact, light weight commuters, domestics are losing.
3. There is a loss in GDP here, there is also the appearance of a weakened American presence in the laptop market. This is not bad for the US though, this offers a new product, a possibly less expensive more technologically advanced Thinkpad. I believe IBM realized that the Thinkpad was a losing venture for them in a market that has seen increased share going to Dell, Apple, and HP. I would then say that this could be good for a great American company in that they now can reallocate resources to more fruitful ventures.
3. Christopher Arena | November 26th, 2006 at 10:53 pm
The idea of Chinese fast food modeled after McDonald’s or Taco Bell is intriguing in the least. Yum is attempting to do for Chinese food, what Taco Bell did for Mexican food. The business plan is simple: produce cheep, filling, and artificially flavored food really quickly. If Yum is able to accomplish this, then East Dawning could be a great success everywhere, except in China. It’s hard to imagine a Taco Bell in the middle of Mexico City. Fortunately, the fact that East Dawning might not be an instant success in China isn’t devastating. There are still 6 billion other people on this planet that might enjoy Chinese fast food. I would bet that a majority of the problems that Yum is facing are related to the actual manufacture of the food. Chinese food is a very complex cuisine that is difficult to master. Attempting to reduce it down to cheep, quickly producible segments could be an act of futility.
In response to the first question posed about a Chinese firm establishing a apple pie shop in the United States: I would expect that while the restaurant might be meet with some initial opposition, if they were to make a quality product that was reasonably priced, then in true American capitalist fashion, they could succeed. Americans are very prideful people, but a majority of them don’t have the luxury of avoiding a quality, low priced product solely because the owners of the firm are Chinese. The lower middle class makes a majority of their purchase decisions based on price. Ownership of the establishment is low on the list of concerns for a majority of American citizens.
4. Joe Callinan | November 29th, 2006 at 2:24 pm
I think Yum brands Inc. is in the right track. They have a successful track record in the United States, with both KFC and Pizza Hut, and are rightfully looking to expand in China, the country with the largest population. I think it is fair to say that they know how to conduct business in China, considering they have opened over 2,000 restaurants there since 1987. The fact that their first East Dawning was unsuccessful was mainly due to the specific choice of food they were trying to sell, not their business model. However, the second East Dawning has taken a different approach. They are going to make food that can be prepared quickly and will not cool down too quickly. In addition, they have addressed the atmosphere problems that exist in the current Chinese fast food restaurants.
I don’t think that Yum Brands is trying to “beat” the Chinese at making Chinese food. No fast food restaurant has ever made food of the same caliber as a sit down restaurant. Think of McDonalds, do their 1/16 pound micro waved hamburgers compare to a barbequed fresh ground beef hamburger? No. But, do their burgers compete with local burger joints? Yes. The reason for this is fast food restaurants compete on speed and convenience, not quality. If I was a local restaurant I would recognize that fact that East Dawning is going to be a competitor.
I also disagree with the suggestion that Yum Brands should focus on the smaller cities. It is known that the smaller towns in China are often impoverished and have little disposable income. The video “China Rises” is a good example of the poverty of the small rural towns in China. By focusing their strategy on the big cities and marketing on television, they are directing their efforts towards those whom have money to spend.
5. Lindsay Yoshitomi | December 1st, 2006 at 11:34 am
With Yum Brands’ experience in the fast food world of KFC and Pizza Hut, they certainly have command of speed and efficiency. It seems, however, with East Dawning the root of their problem is developing a menu that can be tailored to the fast food arena. Fast food means preparing food fast, so the idea of 50 different items on a menu to accommodate regional tastes is already counter-productive. Yum needs to recognize that it is KFC and Pizza Hut’s simple menus that work. When you want fried chicken or pizza fast, you go to KFC or Pizza Hut. If you want an array of Chinese dishes, you go to a restaurant, not a fast food location. If East Dawning is going to work, their menu is going to have to be more selective. A scaled down menu could also lower the cost of meals which adds to the appeal of fast foods.
If Yum takes heed to the detractors who predict failure, perhaps they could introduce Chinese dishes on the KFC and Pizza Hut menus. McDonalds in Hawaii offers a limited local menu along with the nationwide traditional menu at their locations to satisfy the locals. The local dishes are just as popular as the traditional meals which is proof that ethnic fast food may be an untapped market. In fact, one of the local-flavored items at McDonalds in Hawaii is saimin, a Chinese noodle dish.
Fast food is 100% American and if a Chinese company attempted to compete with our fast food market, I say, why not? I have always thought it would be a great idea to have Japanese fast food in the form of a drive-thru sushi bar. If something like East Dawning managed to get off the ground and open here with a delectable menu, I would add it to my list of favorite fast foods. I like the idea of the local menu at the Hawaii McDonalds, so a fast food establishment that had a menu of wholly Chinese dishes would be a nice change. Free enterprise is a great thing, so if an ethnically owned fast food chain tapped into our market and worked, I think patrons would welcome it.
On the other hand, what if a Chinese company focused on an American idea like apple pie and was better at it? That’s a lot like building a better mouse trap. It could happen as it has in the automobile industry. The question would then be, do we deny an industry of better products because it is foreign made? We Americans always want better and because of that mentality, it often leads to the demise of something, or in this case, possibly a company. Personally, I have never bought a pie at Marie Callendars or Bakers Square, so if one of them went under, I would not feel that bad. It might seem un-American to accept a Chinese company that can beat us at our own game, but that’s progress. It is also customer demand. We’ve seen the same thing happen with the car industry.
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