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U.S. Restaurants’ Expansion in China: A Show of Strength and Resilience

A report from the Wall Street Journal earlier this month:   There is heavy anticipation that there’s an increase in profits of U.S. restaurants in the second quarter of this year, as major restaurant chains are making use of their own individual strengths to battle the pressure of rising commodity costs.  This outlook was triggered by the chains’ recent expansion in China, headed by Yum Brand Inc. and McDonald’s Corporation.  Market growth in China is said to have outpaced U.S. numbers, giving rise to optimistic hopes for higher profitability as the expansions are spreading in the region.

Yum Brands is heading the restaurant industry with this China drive, having 4,000 restaurants all over the region which are mostly KFC outlets.  It is the largest Western restaurant brand in China, with far more outlets than their rivals McDonald’s and Starbucks – as of December 2010, there have been 3,200 KFC restaurants and 500 Pizza Huts in 650 Chinese cities. The Asian country is currently Yum’s biggest profit driver in the past cycle, responsible for over 40% of its overall profits.  Based on this strength and on its other international markets as well, the brand is forecasted to increase its profits to at least 12% in the coming quarterly report.

McDonald’s is going after the lead, as it hopes to challenge Yum Brands for their domination in China.  And if they plan to do that, they will have to launch one outlet a day for around three or four years, according to McDonald’s Asia president Peter Rodwell.  The plan is to increase its number of stores from one thousand three-hundred stores to two thousand by 2013.  It’s currently preparing a recruitment of 50,000 employees this year, including 1,000 university graduates as management trainees and apron-clad waiters and chefs, as it moves its training center from Hong Kong to Shanghai.  The firm has consistently outpaced all its other competitors during the past years, and this move will once again substantiate their advantage.

Starbucks may have experienced a big slump the past years, but their executives are excited about their recovery as they continue making plans to widen their expansions internationally.  They expect to double its 800 stores in China in the next four years and it has finalized its plans to operate a coffee-bean farm in the region.   They have formed a joint-venture with Ai Ni Group, a coffee and agricultural company in China’s Yunnan province, and has already signed a deal with the Yunnan provincial government to set-up the farm, laying out their strategies in locking up supply, purchase and export of Arabica Yunnan coffee beans , as well as the operation of its dry mills.

With the industry giants directing the show, it will be easy for the other restaurants to follow suit and show their own manner of increasing sales.