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New research from Mintel shows that the breakfast daypart remains highly untapped in the Chinese market, even as foreign quick-service outlets are set to break the 50,000 mark in that country this year.
This is compared to 48,477 QSR units in China at the end of 2011, and 36,037 in 2006. Additionally, 44 percent of Chinese consumers said they plan to spend more on quick-service food in the coming year.
However, as the QSR market gets more crowded in China, Mintel reveals that breakfast is still highly under-penetrated. One in five (21 percent) urban Chinese consumers eat at QSRs in the morning (4 a.m.-11 a.m.) as opposed to 75 percent during lunchtime.
"Despite having the upper hand in quality, safety and service, foreign fast food still has much work to do in flavor, affordability, health and variety in order to compete more effectively against Chinese fast food, which has the largest share of the fast food sector. To increase consumption of foreign fast food, more has to be done to unlock opportunities in the breakfast market where usage is the lowest," said Tan Heng Hong, senior China research analyst at Mintel.
Mintel's research has also found that 86 percent of survey respondents have eaten at Chinese QSRs compared to 68 percent at foreign QSRs in the past year. The research firm suggests that inclusion of local menu items could help bridge this gap, as 76 percent of consumers expressed an interest in local fare.
"Chinese fast food restaurants, which serve Chinese staples including rice and noodles, are more popular as they win on price, variety, nutrition and flavor. Hamburgers, pizza and Japanese noodle or rice dishes served by foreign fast food restaurants are less popular because they are perceived to be more expensive or less healthy, which makes foreign fast food an occasional indulgence, rather than an everyday purchase. It is clear that consumers demand local flavors on their menu and this can be applied to the breakfast daypart, especially with items that integrate well on the menu, like porridge. The challenge for foreign fast food chains is to come up with new innovative products that can meet the demand for a more localized taste," Heng Hong added.
Foreign quick-service food in China has experienced steady growth throughout the past five years, with a compound annual growth rate (CAGR) of 19 percent from 2006-11. It now accounts 11.8 percent of the overall QSR sector.
Mintel forecasts the sector to increase to RMB (renminbi, the official currency of China) 171 billion by 2017, growing by about 95 percent on the expected value for 2012 or a CAGR of 14.3 percent. Furthermore, the number of outlets, chains and independents is expected to increase to 71,964 outlets by 2017, up 39 percent on the expected number for 2012.
Foreign QSRs vs. native QSRs
When it comes to attitudes toward foreign QSR outlets versus Chinese, there is a clear divide over a number of aspects. Foreign chains win out on speed of service with 19 percent of Chinese consumers saying that they perform a lot better, compared to just 1 percent for Chinese outlets.
Foreign outlets also have the advantage in terms of hygiene perception with 18 percent of Chinese consumers saying foreign QSR outlets perform a lot better in this area (compared to 1 percent for Chinese outlets), as well as ambience with 14 percent of Chinese consumers thinking foreign QSRs perform better in this area compared to 1 percent for native brands.
However, Chinese outlets won out for key areas such as variety of choices on the menu (16 percent versus 6 percent); balanced diet and nutritional value (13 percent versus 4 percent) and overall taste (9 percent versus 6 percent).
Mintel's research also shows a gender divide when it comes to foreign quick-service food. More women (71 percent) claim to eat at foreign brand restaurants than men (66 percent). This is attributed to dining out occasions being social and including children, friends, colleagues or other family members. That stated, there is still a sizeable percentage of women who bring their own meal packs (30 percent) compared to men (19 percent) for out-of-home eating, which means more efforts have to be made by brands to appeal to women. In addition, slightly more women (25 percent) than men (19 percent) eat at QSRs when there is a promotion such as meal vouchers or coupons. Women are generally more interested in promotions.
"To increase traffic among women, promotions such as vouchers and coupons can be a useful marketing tool. Women are interested in deals because they enjoy the thrill of not paying full price for an item. The popularity of meal vouchers or coupons is more pronounced in young women in their twenties and thirties. These age groups form the bulk of what is known as the 'coupon generation' where discount shopping has become a way of life, thanks to their access to new technology allowing e-coupons to be downloaded onto mobile devices, printed off websites, bought from group buying sites or collected from discount coupon vending machines," Heng Hong said.
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