Fast food looks to China's hinterland towns for future growth

By RJ Whitehead

- Last updated on GMT

Related tags: Fast food

Fast food looks to China's hinterland towns for future growth
According to a new report by market researcher Mintel, China’s fast food and takeaway market is expected to reach RMB1.8tn (US$294bn) by 2017. The increase, it says, will be largely bolstered by rising economic power in lower-tier cities. 

This rise compounds growth in recent years; the value of the fast food market in China doubled between 2007 to 2012 to reach RMB1tn (US$163bn) with 80% growth in outlet numbers since the start of that period.

However, while fast food outlets are expected to continue to see explosive growth in China, things are actually slowing down.

Novelty factor

David Zhang, China research analyst at Mintel, said: “Much of the growth to date has continued to benefit from a perceived ‘novelty factor’ enjoyed by fast food as the segment expands into smaller cities in China.

“Consumers in Tier I cities and a few in Tier II, where fast food has now been available for quite some time, are becoming more attuned to the health issues often associated with fast food and are actively choosing healthier options when dining out​.”

Zhang added that greater transparency will be the key to maintaining market share as Chinese consumers begin demanding more information about ingredient sourcing and food preparation.

Widespread food scandals have meant greater scrutiny on all aspects of the food industry, and fast food outlets are not immune to this, fuelling recent trends for organic and ‘green’ food products in the marketplace​,” the analyst stressed.

Health concerns

It already seems that health is a growing concern for fast food customers too, but still less than half (40%) perceive it as not being “bad for them​”. This suggests a need to expand of healthy product lines and offer further information about the food industry.

Significant fragmentation in the market is also a challenge for industry players. Yum! Brands, Inc., operators of KFC and Pizza Hut, is the largest fast food group in the country, with 5,275 outlets nationwide in 2012 in China.

For foreign fast food brands to compete with Chinese independent operations, they will need to diversify their product offering to include more Chinese-style food offerings​.

In order to compete, foreign brands will need to be innovative to appeal to Chinese consumers, either by further modifying their product ranges to include more Chinese flavours or by including new products specifically to appeal to a Chinese audience​,” Zhang continued.

Robust growth

Though the market faces significant challenges, the fast food industry can still expect robust growth in the near future, especially if fast food outlets are able to market their product offerings for different meal occasions, said the report.

Today, most of China’s fast food customers eat fast food for lunch (71%); but breakfast, weekends, and dinner offer solid future potential, with 54%, 52%, and 50% of respondents respectively having eaten these at fast food venues.

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