IT MAY SOUND ASTONISHING that a fast-food chain
selling fried chicken could conquer a country with a
diverse culinary culture rooted in thousands of years
of tradition, but the Chinese division of Yum! Brands
did just that. Yum! Brands was created in 1997 as a
result of PepsiCo spinning off its fast-food operations
worldwide, a group that included KFC, Pizza Hut, and
Taco Bell. Not only did Yum! China become the biggest
restaurant chain in the country, accounting for 4
out of 10 fast-food restaurants; it also now provides
half of Yum!’s total revenue and 42 percent of its profits
( Exhibit MC15.1 ). No wonder David Novak, CEO
of Yum! Brands, considers China to be “the best restaurant
growth opportunity of the 21st century.” 1
When Yum! Brands (then a subsidiary of PepsiCo)
opened its first KFC restaurant in Beijing in 1987,
there was no other Western-style fast-food chain in
China. Being greeted by smiling staff and then dining
in an air-conditioned, clean, and brightly lit environment
was a novelty to local Chinese, as was a bite of
KFC’s crispy chicken. Compared to other American
fast foods, KFC also has a natural advantage: Chicken
is the second most common meat staple in China, just
after pork. Based on an understanding and appreciation
of the Chinese taste for tradition and variety, KFC
introduced dishes that mimicked local cuisines, such
as Chinese porridge and dough fritters for breakfast.
Its menu in China included more items than on menus
in the U.S., and was updated more frequently. In addition,
the level of spiciness of the food was adjusted
according to regional preferences within China. As
a result, a KFC restaurant in China has a much bigger
kitchen and employs twice as many people as its
U.S. counterpart (although Chinese labor costs are
much lower, see Exhibit MC15.2 ). Given all its efforts
in pleasing Chinese diners, KFC no longer positions
itself in China as a cheap place for take-outs. Instead,
it is seen as a more upscale quick-service restaurant
for gatherings of family and friends.