Hello everyone, I'm your financial observer. Today, we're going to talk about a particularly interesting phenomenon: those "foreign brands" that we've grown up with, like Pizza Hut, Starbucks, and Burger King, seem to have suddenly "changed their faces."
In the past, they held a dominant position and made money simply because of their brand reputation. But now? They're starting to hand over the reins to us Chinese people. This isn't just a simple case of "selling out"; it's a deep strategic reorganization aimed at surviving and thriving even more.
To make it easier for everyone to understand, I've broken down this news into five key points and explained the behind-the-scenes reasons in plain language.
1. Why are foreign brands in such a hurry? Because the era of easy profits is over
In the past, when foreign food businesses entered China, they relied on brand momentum and standardization. Back then, being able to get a cup of Starbucks or a McDonald's at the corner was a symbol of status and quality assurance. The headquarters in New York or Paris would send over the recipes and standards, and Chinese franchisees would follow them, resulting in a steady stream of profits.
But that logic no longer works. Why? Because local brands have become too strong and competitive.
- Take coffee for example: Luckin Coffee has 36,000 stores, far surpassing Starbucks' 8,000 in China. Even Luckin's budget-friendly brand, "Lucky Coffee," has opened tens of thousands of stores in just a few years.
- Fast food: Wallace has 18,000 stores, and Tasting (a Chinese-style burger chain) will also exceed 10,000 stores by 2025. The key factor is price—Wallace and Tasting offer meals for around 17-18 yuan per person, while McDonald's and KFC still charge 27-30 yuan.
It's like having only one expensive, high-quality coat that everyone wanted to wear, but now there are plenty of affordable, stylish, and even heated domestic coats available. Customers naturally won't buy the expensive, less convenient foreign coat.
The main problem for foreign brands is that their headquarters are too far away, and decision-making is too slow. Chinese consumers might want a "crab burger" one day and "Yangzhi Ganlu" the next, but by the time the overseas headquarters approve the new products, the trend has already passed. Additionally, they don't fully understand the consumption habits in lower-tier cities and counties. So, they need to shift from a brand-driven approach to an efficiency-driven one.
2. Three different ways of "handing over control": some sell out, some partner up, some just rent the brand
Facing these challenges, different foreign brands have chosen different strategies for survival. Although they all transfer operational control to local capital, the depth of the cooperation varies:
First category: Complete separation of ownership (example: Pizza Hut)
Burger King China (the parent company of Burger King and KFC) spent $1.2 billion in cash to buy the rights to operate Pizza Hut in China.
- Before: Burger King China was a "sub-tenant," managing the stores on behalf of Yum! Brands and paying a franchise fee.
- Now: Burger King China is the "owner." They can decide how to change products and open new stores without having to rely on the overseas headquarters or pay the high franchise fees. This is the most complete form of localization, with the most autonomy.
Second category: Finding a "trusted manager" for joint operations (examples: Starbucks, Burger King)
This is the most common approach.
- Starbucks: Sold 60% of its shares to Boyu Investment, a powerful local firm, while keeping 40% for itself.
- Burger King: Sold 83% of its shares to CPE Yuanfeng, another local investor, with 17% retained.
- Logic: The brand remains their property (intellectual property is not sold), but they hand over day-to-day management, expansion, and supply chain operations to local experts. The overseas headquarters only receive a brand license fee and dividends. This is a "light-asset" model with lower risk and the potential to share in growth.
Third category: Renting the brand name and licensing operations (example: Häagen-Dazs)
Häagen-Dazs has taken a more minimalist approach, licensing its physical stores and gift business to an investment group called "Ningji."
- Logic: The parent company, General Mills, only retains the brand trademark and doesn't manage the day-to-day operations. It's like renting out your house to a management company that handles customer service and maintenance—you just collect rent. This is the least involved approach, but it also means less control over the details.
3. Why are local capitals willing to take over? Because they have the expertise
Many might wonder: How can local capitals (like Boyu and CPE Yuanfeng) be successful? Money alone isn't enough; they also have proven operational skills gained through years in the Chinese market.
- Boyu Capital (owner of Starbucks): Has invested in companies like Haitian Food (strong supply chain), Kuaishou (digital marketing), and SKP (luxury retail). They know how to reduce costs and use digital marketing effectively.
- CPE Yuanfeng (owner of Burger King): Has invested in MixC (a popular fast-food chain) and Pop Mart. These companies excel in lower-tier cities and digital services. For local capitals, these foreign brands represent valuable assets with high brand recognition and consumer trust. By taking over, they can lower costs, improve efficiency, and attract younger consumers with innovative products.
In short, foreign brands provide the brand name, while local capitals bring operational expertise, supply chain capabilities, and market knowledge. Together, they can survive in this highly competitive market.
4. What are the risks? Preventing the brand from losing its essence
Although local teams are more flexible and quick to make decisions, they can also go too far.
- Risk: To pursue scale and lower prices, they might oversimplify products, making the brand seem cheap or mediocre.
- Example: If Starbucks lowers coffee quality to compete with Luckin, it loses its unique character. Consumers chose Starbucks for its unique experience and quality; without these, the brand value is compromised.
Therefore, balance is crucial. They need to meet local needs (like introducing new products) without sacrificing the brand's core values. The challenge for all parties involved is to innovate while maintaining the brand's integrity.
5. A lesson for Chinese food businesses going global
This article highlights an important point: When foreign brands enter China, they need local partners; when Chinese food businesses go global, they should do the same.
Chinese food businesses are becoming very popular abroad, with the international market expected to reach $449.9 billion by 2027. However, many Chinese entrepreneurs make the mistake of simply replicating their domestic models abroad.
- Wrong approach: Blindly opening franchises without considering local laws, customs, and tastes. This often leads to failure or even legal issues.
- Correct approach (learning from foreign brands):
1. Find the right local partners: Like Kwek Chai in Singapore and Din Tai Fong in the US, which worked with local teams with relevant experience.
2. Comply with local regulations: Franchising requires strict legal compliance.
3. Respect local culture: Don't bring over domestic menus directly. For example, don't serve pork in Middle Eastern countries or ignore vegetarian preferences in India.
In conclusion: Localization is key whether you're entering or expanding overseas. Those who understand the local market, laws, culture, and consumers will have the best chance of success.
This collective shift by foreign brands is essentially an optimization of global food industry capital. For consumers, it means more affordable, high-quality products. For the industry, it marks a shift towards efficiency and localization as the new competitive drivers. For entrepreneurs and investors, it shows that collaboration is more important than going it alone. Finding the right local partners is essential for success.
So, the next time you see a change in ownership of a foreign brand, don't be surprised. It's just a rational decision made to adapt to China's complex and dynamic food market.