How Chinese consumers’ changing demands are keeping KFC’s owner on its toes

Yum China CEO Joey Wat emphasizes the need for innovation and adaptability in the competitive Chinese fast-food market. With plans to expand from 17,000 to 30,000 outlets by 2030, Yum China aims to attract consumers through flexible store formats and affordable products. Wat acknowledges the strength of local brands and stresses that understanding local consumer dynamics is crucial for long-term success. As the market faces challenges, including economic deflation, the company is focused on meeting changing consumer demands to maintain its competitive edge against domestic rivals.

For Yum China CEO Joey Wat, success in the mainland’s vast but fierce market does not hinge only on being a local or international fast-food brand. “I personally have huge respect for many local brands,” she said in November. “Chinese players are innovating a lot under the leadership of their founders. We fully understand that this is a cutthroat market.” Wat admitted to being a fan of some mainland restaurant chains whose founders remained pivotal in strategic planning and daily operations. However, Wat said she was comfortable with the term “learner” as the fast-food giant further promoted its chicken burgers and pizzas. Yum China, operator of KFC and Pizza Hut restaurants on the mainland and Hong Kong, was hived off from US parent Yum! Brands in 2016 to focus exclusively on the Chinese market. Yum Brands does not own any stake in Yum China. KFC’s food was viewed as luxury cuisine by Chinese consumers when the brand entered the mainland in 1987. A KFC meal then could cost one-third of a daily wage-earner’s pay. Yum China is also the operator of Taco Bell, Little Sheep, Lavazza and Huang Ji Huang on the mainland. To gain an upper hand over local rivals like Mixue Group and Yang’s Dumplings, Yum China has been spearheading an effort to tap lower-tier cities in a bid to sustain growth in the world’s largest consumer market. Domestic brands, known for their value-for-money proposition and lightning-quick response to consumers’ fast-changing tastes, often have an edge over international giants like KFC and McDonald’s. However, they also face the harsh reality of surviving a brutal market environment, especially when the economy is stuck in a deflationary spiral. “Owners and operators that have a better understanding of the dynamic local consumer market will be the winners in the long term,” said Chen Xiao, CEO of Shanghai Yacheng Culture, a provider of marketing and branding services to multinational companies. Yum was banking on its flexible store format and cheaper products to attract more Chinese consumers, according to Wat, who added that there were plans to increase the number of outlets to 30,000 by 2030, up from about 17,000 in 2025. Watt said Yum China had to innovate swiftly to offer consumers the best products at the best prices. “If you cannot achieve these, you will definitely see bigger challenges, whether you are a domestic or an international brand,” she said.