Local tastes tempt China diners away from Golden Arches

Sun Oct 27, 2013 6:27pm EDT
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By Adam Jourdan

SHANGHAI (Reuters) - Bearing rice burgers and lotus roots, an army of Chinese fast food firms is cooking up a challenge to McDonald's Corp and Yum Brands Inc, tempting cost-conscious diners with healthy, homegrown fare and causing a drag on growth for the U.S. chains in the country's $174 billion fast food market.

McDonald's said last week it was thinking of slowing expansion in China as diners are tempted by local rivals. KFC-parent Yum warned this month economic weakness in China would drag on a recovery in sales dented by a food safety scare at the end of last year.

Meanwhile, local firms such as chicken chain Dicos, Country Style Cooking, and Kung Fu Catering have been nibbling away at the dominance of their U.S. rivals.

"I'm a bit sick of Western fast food. There's too much oil, and you hear things like chickens having six legs," said student Tang Mei, 25, as she dined at Taiwanese-owned fast food outlet Dicos. "Health concerns have really made people worried."

McDonald's and Yum are still the largest fast food chains in China but, despite heavy investment, McDonald's has seen its market share by value stagnate at 2.3 percent since 2007, according to data from market research firm Euromonitor.

Yum, which held 6.5 percent last year, is up slightly over the same period, but has seen same-store sales hit after a food scare last year and a local outbreak of avian flu. Yum has 5,600 KFC and Pizza Hut China stores, to McDonald's has 1,800 local outlets.

Brands like Ting Hsin International-owned Dicos, the third largest fast food brand in China, have taken note. The firm, which plans to triple its store count to around 3,700 by 2020, says it aims to "break the traditional Western fast food mould".

While conceived in the image of KFC - its name is a play on "Texas" in Chinese - Dicos now also pushes its Chinese roots. Its website displays an ornate blue ceramic bowl steaming with traditional herbal tea, while rice cake burgers and soybean milk flank the chain's more traditional nuggets and crispy wings.   Continued...

A woman rests outside a McDonald's outlet in Beijing in this February 5, 2009 file photo. REUTERS/Jason Lee/Files