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US-based fast food company Kentucky Fried Chicken (KFC) has always been attaching great importance to China. This country has also contributed a lot to the development of this international fast food giant. Now, KFC met a problem in China, an unserious but haunting one.
In the past ten years, the KFC restaurant located in the B-1 level of Grand Gateway, Xuhui District, Shanghai was always a money collector for KFC. The huge amount of customers from the subway laid a solid foundation for its wonderful performance. However, with the reconstruction of Grand Gateway, the KFC restaurant there was forced to move to the fifth floor of the building in the first half of 2009, giving its place for the popular clothing brand ZARA.
In November, the new KFC restaurant on the fifth floor of Grand Gateway was opened to the public.
“In East China, KFC has closed several restaurants in the prosperous districts. These restaurants used to be great contributors for KFC. When the commercial buildings which have KFC restaurants are under reconstruction, the KFC restaurants usually take the lead in being ‘invited’ to move from where they were,” said a former middle-level manager of KFC.
Predicament of “Moving” in Shanghai
As one of the first leasers in Grand Gateway, KFC enjoyed the favorable conditions of lower rents. But when the 10-year leasing contract came to the end, the below level of Grand Gateway has become a treasured place for the businessmen. According to the insider from the business recruitment department of Grand Gateway, the businessmen now have to pay 75 yuan (USD 10.9) for one-square-meter floor every day. “Such a high rent is far from affordable for KFC,” said the aforementioned manager. The case in Grand Gateway is only a precedent. The same thing may happen more frequently in the future.
Apart from the stress from the rent, the upgraded orientation of Grand Gateway is another main reason forcing KFC restaurant to the fifth floor. According to the insider from Grand Gateway, the low- and middle-price beverage and food brands have been excluded from the business recruitment plan for the B-1 level of this highest-level commercial building of Shanghai. The insider also said that every year there are 400 to 500 brands waiting for the permission of entering into Grand Gateway. The number is sufficient for opening another Grand Gateway.
Not only in Grand Gateway, KFC also closed its restaurant in Guangdong Road, People Square, Shanghai, because of the reconstruction of field and the increase of rents.
On November 11, the Shanghai Branch of KFC gave out its explanation to the above-mentioned closure, which was said to be the termination of the property leasing contract. There are other KFC restaurants in these two areas which the customers can go to.
Hard to Hold Initiative
“The main reason of KFC’s being forced to move out of the busy commercial fields and to close its restaurants there is that the places where these restaurants are located are leased by KFC. This has made KFC lack the initiatives in choosing the locations of restaurants,” said Zhuang Feng, an expert with rich experience in commercial property selling and leasing. Some other experts even said that when the high-end market can not accommodate KFC, it has to retreat from it again and again.
But KFC’s moving may not be completely due to the objective reasons. Confronted with the increasing property rents, KFC, who’s good at controlling the cost, is smart to make some moves. According to the third quarter financial report of KFC’s parent company Yum Brands published at the beginning of October, the restaurants of Yum Brands, including KFC, has seen a 19% decrease in the operation cost through cutting the cost of raw materials, human resources and property leasing.
According to an insider of KFC, it has opened 240 restaurants in Shanghai and twenty new ones will be established in 2010, which were mainly distributed alongside the railways and subways, airports, train stations, shopping malls, residential communities and several kinds of commercial districts. “Our future development will be continued through regular chain and franchise pattern,” said the aforementioned insider from KFC.
In 2009, KFC changed its previous plan, increasing the number of newly-opened restaurants in China from 300 to 475. In 1989 when KFC firstly entered into the Chinese market, it had only 4 restaurants. By now KFC has opened more than 2,600 restaurants all over China. What a fast development!
Compared with KFC, another international fast food giant McDonald’s seems to be a little conservative in the development in China. In the first quarter of 2009, McDonald’s declared the plan of opening 150 new restaurants in China, fewer than the previous plan. According to McDonald’s, the change conformed to the economic situation.
Purchasing Property
Compared with the operation based on leasing property, McDonald’s purchasing business property during its development in the USA can help to solve the problem. “McDonald’s is not only a seller of hamburgers, but also a large land agent. It has real estate in every commercial street in the USA,” said an expert knowing McDonald’s.
Despite its “real estate tycoon” in the USA, McDonald’s still adopted the property leasing pattern in China. However, it chose to build strategic cooperation with the property developers, through which it earned more spaces and speech rights.
In 2006, McDonald’s built a strategic union with Shanghai-based Shimao Property to develop the commercial real estate in China. According to the strategic cooperation agreement, McDonald’s united with Shimao Property to get into the first- and second-tier cities in China. In this year, McDonald’s also achieved the cooperation with Dalian Wanda Group. In the future, Dalian Wanda Group will put McDonald’s into prior consideration of its program. McDonald’s planned to become a strategic partner with the developer instead of a simple leaser. This can help McDonald’s to gain a longer term of operation rights. Even if it is forced to move, it can get more benefits from it.
In addition, it is said that McDonald’s planned to introduce the development pattern in the USA to purchase the property in China.
In the past ten years, the KFC restaurant located in the B-1 level of Grand Gateway, Xuhui District, Shanghai was always a money collector for KFC. The huge amount of customers from the subway laid a solid foundation for its wonderful performance. However, with the reconstruction of Grand Gateway, the KFC restaurant there was forced to move to the fifth floor of the building in the first half of 2009, giving its place for the popular clothing brand ZARA.
In November, the new KFC restaurant on the fifth floor of Grand Gateway was opened to the public.
“In East China, KFC has closed several restaurants in the prosperous districts. These restaurants used to be great contributors for KFC. When the commercial buildings which have KFC restaurants are under reconstruction, the KFC restaurants usually take the lead in being ‘invited’ to move from where they were,” said a former middle-level manager of KFC.
Predicament of “Moving” in Shanghai
As one of the first leasers in Grand Gateway, KFC enjoyed the favorable conditions of lower rents. But when the 10-year leasing contract came to the end, the below level of Grand Gateway has become a treasured place for the businessmen. According to the insider from the business recruitment department of Grand Gateway, the businessmen now have to pay 75 yuan (USD 10.9) for one-square-meter floor every day. “Such a high rent is far from affordable for KFC,” said the aforementioned manager. The case in Grand Gateway is only a precedent. The same thing may happen more frequently in the future.
Apart from the stress from the rent, the upgraded orientation of Grand Gateway is another main reason forcing KFC restaurant to the fifth floor. According to the insider from Grand Gateway, the low- and middle-price beverage and food brands have been excluded from the business recruitment plan for the B-1 level of this highest-level commercial building of Shanghai. The insider also said that every year there are 400 to 500 brands waiting for the permission of entering into Grand Gateway. The number is sufficient for opening another Grand Gateway.
Not only in Grand Gateway, KFC also closed its restaurant in Guangdong Road, People Square, Shanghai, because of the reconstruction of field and the increase of rents.
On November 11, the Shanghai Branch of KFC gave out its explanation to the above-mentioned closure, which was said to be the termination of the property leasing contract. There are other KFC restaurants in these two areas which the customers can go to.
Hard to Hold Initiative
“The main reason of KFC’s being forced to move out of the busy commercial fields and to close its restaurants there is that the places where these restaurants are located are leased by KFC. This has made KFC lack the initiatives in choosing the locations of restaurants,” said Zhuang Feng, an expert with rich experience in commercial property selling and leasing. Some other experts even said that when the high-end market can not accommodate KFC, it has to retreat from it again and again.
But KFC’s moving may not be completely due to the objective reasons. Confronted with the increasing property rents, KFC, who’s good at controlling the cost, is smart to make some moves. According to the third quarter financial report of KFC’s parent company Yum Brands published at the beginning of October, the restaurants of Yum Brands, including KFC, has seen a 19% decrease in the operation cost through cutting the cost of raw materials, human resources and property leasing.
According to an insider of KFC, it has opened 240 restaurants in Shanghai and twenty new ones will be established in 2010, which were mainly distributed alongside the railways and subways, airports, train stations, shopping malls, residential communities and several kinds of commercial districts. “Our future development will be continued through regular chain and franchise pattern,” said the aforementioned insider from KFC.
In 2009, KFC changed its previous plan, increasing the number of newly-opened restaurants in China from 300 to 475. In 1989 when KFC firstly entered into the Chinese market, it had only 4 restaurants. By now KFC has opened more than 2,600 restaurants all over China. What a fast development!
Compared with KFC, another international fast food giant McDonald’s seems to be a little conservative in the development in China. In the first quarter of 2009, McDonald’s declared the plan of opening 150 new restaurants in China, fewer than the previous plan. According to McDonald’s, the change conformed to the economic situation.
Purchasing Property
Compared with the operation based on leasing property, McDonald’s purchasing business property during its development in the USA can help to solve the problem. “McDonald’s is not only a seller of hamburgers, but also a large land agent. It has real estate in every commercial street in the USA,” said an expert knowing McDonald’s.
Despite its “real estate tycoon” in the USA, McDonald’s still adopted the property leasing pattern in China. However, it chose to build strategic cooperation with the property developers, through which it earned more spaces and speech rights.
In 2006, McDonald’s built a strategic union with Shanghai-based Shimao Property to develop the commercial real estate in China. According to the strategic cooperation agreement, McDonald’s united with Shimao Property to get into the first- and second-tier cities in China. In this year, McDonald’s also achieved the cooperation with Dalian Wanda Group. In the future, Dalian Wanda Group will put McDonald’s into prior consideration of its program. McDonald’s planned to become a strategic partner with the developer instead of a simple leaser. This can help McDonald’s to gain a longer term of operation rights. Even if it is forced to move, it can get more benefits from it.
In addition, it is said that McDonald’s planned to introduce the development pattern in the USA to purchase the property in China.