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Can Western QSR Brands – And Others – Gain More Power In China?

Can Western QSR Brands Gain More Power In China?

Two famous North American-based quick-service restaurant (QSR) brands are preparing to duke it out in China for chicken-meal supremacy, the most recent sign of how Western brands are trying to increase their footholds in that massive country.

The scoop? Popeyes has “signed a lease in Shanghai for its first store in China, which is slated to open next year,” according to a Reuters report. “The company outlined plans in July to build 1,500 restaurants in China in the coming decade, becoming the last of Toronto-based Restaurant Brands International Inc’s main brands to enter the country.”

Popeyes’ Path

The China move puts Popeyes on a path to potentially take on Yum Brands’ KFC, which has some 6,300 stores in that country, according to Reuters. “Yum has said it is acutely aware there is more opportunity to expand in China, noting that while it was in 1,300 Chinese cities, there are still 700-800 cities without a KFC store,” the report added.

The news comes as more Western brands – including those based in the U.S. – are seen as increasingly bullish on the retail landscape in China, even amid trade wars and the worry of recession.

Indeed, American retailers are heading east: They’re opening the doors to brick-and-mortar stores in China, while listing on China’s dueling marketplaces, Tencent and JD.comWalmart, for example, brought a small-format supermarket to the city of Shenzhen as the popularity of “small retail” grows in China.

And, like many retailers in China, Walmart’s small-store rollout comes with a digital payments option. Shoppers can pay for items using a program within Tencent’s WeChat while shopping.

Walmart is hardly alone in its brick-and-mortar and eCommerce efforts. Brands including Lbrands – which counts Victoria’s Secret in its portfolio – and Ralph Lauren, as well as Starbucks, are bullish on China.

Similar to apparel retailers, Starbucks sees China as a market for its coffee shops. Why is Starbucks so confident in its ability to expand there? Though some American companies might have difficulty breaking into the market, Starbucks has a major advantage: The quick-service coffee chain already has 3,200 company-operated stores in 141 cities across mainland China. As a result, Starbucks can use its existing presence to help caffeinate the country’s still-young coffee culture.

Luxury Moves

Luxury retail is another area of increased focus for brands when it comes to China. Luxury brands are selling more and more on Chinese eCommerce sites like JD.com and Alibaba, while still keeping their distance from Amazon, according to a report in The Wall Street Journal. French multinational luxury goods conglomerate LVMH’s finance chief made his views on Amazon clear in 2016 when he said, “the existing business of Amazon doesn’t fit with luxury, full stop.” The idea of being listed along with batteries and windshield wiper fluid is not one that attracts luxury brands, the Journal reported.

Even online luxury outlets are partnering with Chinese giants, as Farfetch merged its business in China with JD.com’s luxury platform earlier this year, and the parent company of YOOX NET A PORTER inked an agreement with Alibaba in 2018.

The move is partly due to China’s shopping habits, as many Chinese consumers prefer third-party sites that offer a multitude of brands. This approach can be challenging for luxury brands, which prefer to sell through their own platforms. Shoppers in China also like to use apps, and Alibaba and JD.com are on the cutting edge with their technology. There is also a huge growth opportunity for luxury brands in the country, as only 5 percent of luxury purchases are made online in China.

At the same time, a kind of reverse process is underway, at least in regard to social media. As it grows in popularity in the U.S., social video app TikTok is aiming to distance itself from its Chinese roots, with advisors and employees reportedly coming up with suggestions for rebranding strategies in that direction as the company faces increasing pressure from lawmakers and regulators in the U.S. Some executives say expanding into a Southeast Asia country like Singapore would help.

Whether there is a recession or not, and no matter the outcome of the ongoing trade wars, you can bet that more brands will work to up their game in China.

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