Food scares strip McDonald's, KFC of treat status in China

A man walks past a logo of KFC, outside a restaurant in Shanghai, China, July 30. Many Chinese are turning their backs on the U.S. brands KFC-parent Yum Brands Inc and rival McDonald's Corp, further undermining their efforts to revive growth in a key market. REUTERS/Aly Song

SHANGHAI - On birthdays and for special treats, Lu Yuanli would take her son to their local KFC for his favorite meal, fried chicken wings, but the Chinese mother hasn't been back since a safety scare battered KFC-parent Yum Brands Inc <YUM.N> and rival McDonald's Corp <MCD.N> last year.

Lu is one of a growing number of Chinese parents turning their backs on the U.S. firms, further undermining their efforts to revive growth in a market seen as key to offset slowing global sales but where their food has lost is novelty factor and competition from local alternatives is fierce.

"McDonald's and KFC used to be kind of special places to go; now there are lots of Western-style brands in the market and McDonald's and KFC are just part of the crowd," said Yu, who now takes her 7-year-old son to local chain Beijing Origus for a seafood-to-pizza buffet.

China is the biggest market for Yum, and home to the third largest number of restaurants for McDonald's. Sales for both, which had steadily risen over the past decade, took a hit after Chinese regulators launched a probe into a local meat supplier last July for allegedly adding expired meat to its products.

The safety scare was the second to hit the U.S. firms in China in as many years, and analysts said it became the tipping point for many families to stop eating at their restaurants.


This lack of patronage becomes particularly painful as slower economic growth becomes the norm inChina, and as consultants Euromonitor forecast growth in the already crowded fast food market to slow to around 4 percent by 2019, less than a third of the pace a decade earlier.

"The people who moved away were families and kids, these guys aren't coming back," said Ben Cavender, principal at China Market Research (CMR) Group.

He said single professionals were flocking back to KFC and McDonald's at a faster pace than families, but cautioned that these consumers won't be enough to boost sales growth to pre-food scare levels.


CMR survey data suggests Chinese consumers trust in, and desire for, KFC and McDonald's has been falling since hitting a peak in 2010, with the decline accelerating since the 2012 food safety scare.

Euromonitor data shows a similar trend: Yum's share of the market for fast food chains slipped to around 30 percent last year from nearly 40 percent in 2010 while McDonald's remained flat, as competition intensified from the likes of Ting Hsin International's Dicos, Ajisen China Holdings Ltd <0538.HK>, Huai Lai Shi Catering and Kungfu Catering.

Both U.S. firms have admitted China has become a tougher market since the food scare. In July, Yum executives said the recovery of China sales was taking longer than expected, citing the slowing economy and fierce competition.

Yum declined to comment further for this story, while McDonald's China spokeswoman Jessica Leesaid the firm was increasing its market share, without giving specifics.


In a bid to revive their sales momentum in China, Yum and McDonald's are focusing on faster-growing segments of the fast food market such as pizza as well as customers in China's rapidly developing smaller cities.

Yum is also expanding its premium coffee business and earlier this year set up a high-end restaurant, Atto Primo, in Shanghai to gauge customers' tastes.

Trying to reassure consumers after the food scare, KFC opened more than 1,000 of its kitchens to Chinese diners while McDonald's has published a list of its suppliers online.

Not all diners, however, are convinced.

Shanghai executive Wang Zhiyong used to bring his son every week to eat burgers and play with other kids at his local McDonald's, but concerns about the safety and healthiness of the food have kept him away for the past few years.

"Food safety is now a much bigger issue, so I take a lot more care about what we eat," he added.

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