U.S. fast-food franchise corporations are entering the Chinese market one after another, accelerating business expansion. With the domestic market reaching saturation, the move is seen as an effort to find new growth drivers in China.
On the 12th (local time), the South China Morning Post (SCMP) in Hong Kong reported that U.S. hamburger chain Five Guys will open its first Beijing store next month. Five Guys, which opened its first China store in Shanghai in 2021, plans to expand to Beijing and open three additional stores.
SCMP said, "Five Guys has joined the ranks of U.S. foodservice franchises that have recently entered the Chinese market or are accelerating business expansion."
U.S. fast-food brand Texas Chicken will also take its first step into the Chinese market by opening its first China store in Shanghai this summer. In a statement in April, the company said it plans to open at least 600 stores across China over the next few years in partnership with a local corporation operating multiple quick-service restaurant (QSR) brands.
Wendy's, a U.S. hamburger franchise listed on Nasdaq, said in May that it will open up to 1,000 stores in China over the next 10 years. According to its first-quarter earnings report this year, Wendy's signed a new franchise agreement with an experienced local foodservice operator.
Some operators withdrew from the Chinese market in the past and then reentered. Popeyes, a Louisiana-style fried chicken brand, returned to Beijing in April, about 20 years after exiting the Chinese market in 2003. It now operates more than 80 stores in Shanghai.
The reason U.S. franchise corporations are targeting the Chinese market in quick succession is that, unlike the domestic market, they judge China still has ample growth potential. While Wendy's same-store sales in the United States fell 7.8% in the first quarter of this year from a year earlier, sales in overseas markets rose 6% in the same period.
Sandy Lim, a China consumer analyst at international credit rating agency S&P Global Ratings, said, "Some small and midsize U.S. foodservice brands are seeking new opportunities in China to make up for saturation at home," and added, "Competition is very intense, but there is still room for growth in China's vast foodservice market."
The way U.S. corporations enter China is also changing. In the past, overseas brands relied on a company-operated model run directly by headquarters. Because they had to shoulder revenue and losses and market volatility, some withdrew from the Chinese market. Recently, however, more corporations prefer local franchising to reduce these risks.
Fu Yifu, a special researcher at SuXiang Bank in Jiangsu province, China, analyzed that while inflation has continued in the United States, reducing household consumption capacity, the penetration of Western-style fast food in China has been steadily rising. He said, "Chinese consumers no longer choose products just because they are foreign brands," and added, "For U.S. brands to grow, differentiated menus and localization strategies are essential."