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May 5, 2016

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Cyberspace and chicken nuggets converge

EDITOR’S note:

INTERNET Plus, a concept highlighted in the government work report delivered by Premier Li Keqiang at the annual session of the National People’s Congress in Beijing in March, is pushing the boundaries of China’s traditional industries. Nowadays, enterprises across the country are embracing changes by incorporating advancements in the Internet and related technologies into their business models. In a series by Shanghai Daily, we explore how this concept is reshaping our world.

FACING changing demographics, the fast-food industry in China is trying to reinvent itself to attract a new generation of customers. To do that, it is offering a “diet” young people love most — digital devices.

Yum Brands Inc's KFC chain is among the earliest ones in China to incorporate digital technologies. In conjunction with Chinese search giant Baidu, it unveiled its first “concept” store featuring voice-ordering services.

Customers can order what they want through a smart device powered by Baidu’s voice recognition technology at its self-ordering kiosks. They can also pay the ordering on their mobile phone through Alipay, WeChat and Apple Pay.

KFC said it's seeking to offer the kind of experience that younger generation of consumers wants in terms of convenience and technology.

The KFC concept store, opened in late April, also features a new interior decor featuring elements of a classical Chinese garden.

McDonald’s and other fast food chains are also taking on the Internet trend. McDonald’s opened its first concept store in Beijing’s downtown Wangfujing Street in January. Similar outlets are planned to be opened in Shanghai and Shenzhen soon. At the same time, McDonald’s is to introduce a service that allows consumers to order through WeChat without leaving their tables. Digital payment will also be accepted.

Phyllis Cheung, chief executive officer of McDonald’s China, said in an interview in Beijing earlier this year that the company hopes to equip all of its restaurants in China with mobile ordering and other digital capabilities within two or three years. A proprietary smartphone application for food ordering is expected to be launched by the end of this year.

The new trend is not surprising. In a country with an aging population, Western fast-food chains that have little hope of selling chicken nuggets to pensioners are making greater efforts to woo a younger generation that is obsessed with smartphones. The chains have had to face reality. The novelty of Western fast food, so popularly embraced when it first appeared in China, has worn off.

Still, eating on the hop among those caught in the urban treadmill and among a younger generation not prone to cooking at home provides a lucrative market.

Yum and McDonald's have managed to grab a sizable chunk of the domestic fast-food market. According to research firm Euromonitor International, Yum held 23.9 percent at the end of last year, followed by McDonald's at 13.8 percent. Chinese chains, such as Ting Hsin Group, Hualaishi Catering Co and Kungfu Catering Co, held single-digit market shares.

"Asia still offers by far the largest long-term growth opportunity in global food service, but Western chains are encountering more strong local players instead of just competing against each other," Elizabeth Friend, strategy analyst for consumer food service at Euromonitor, wrote in a research note.

UK-based research firm Mintel estimates the market value of the fast-food industry will top 1 trillion yuan (US$154 billion) by 2020, with more than 950,000 outlets nationwide. The market is starting to recover after a series of food-safety scandals curbed growth between 2012 and 2014.

“New decors adopted by both KFC and McDonald’s indicate that these overseas fast food chains will continue to localize their operations, after altering their menus to adapt to Chinese consumers tastes several years earlier,” said Xiao Mingchao, an independent marketing analyst.

New decors and the introduction of digital service offer a fresh perspective for customers as domestic fast food chains become more competitive, he added.

‘‘Digitalization in the food service industry, especially in fast-food chains, is still in its early phase,’’ Xiao said.

Several domestic hotpot eateries have already launched loyalty programs, such as special menu items and birthday gifts to turn consumers into long-term devotees.

‘‘Consumers are not only seeking delicious food at fast food chains, but they are also seeking dining experiences distinguished from other outlets,” said Terra Xu, senior analyst at Mintel.

“Mobile technologies provide an efficient channel for fast-food companies to get customer feedback, and smart food-ordering devices offer fun for consumers. This will be a big trend for both local and multinational players.”

All these factors contribute to a brand image with multiple dimensions, she noted.


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