Financial Report of Western Franchises in The Chinese Market

Currently all western fast food chains have shown signs of success expanding into the Chinese markets. The rapid expansion has also stimulated growth for the fast food industry. Per capita GDP has been increasing year after year which allows more money to be spent on coffee before work or during lunch. Starbucks has shown that they are quite successful while offering high priced coffees. Starbucks plans to launch 5000 stores by 2021 and with their partnership with Alibaba for their coffee delivery service, they will continue to dominate. There are about 350000 Canadians residing in china, with proper targeting we can identify this market and expand new stores to the area. Elasticity of Fast Food Unfortunately for franchises, fast food is elastic. When we look at the income elasticity of demand, we can conclude that most people who buy fast food are individuals who gain a low income. The primary reason as to why it is low income households who spend more money on fast food than any other household is due to the convenience and low cost of fast food.

Since people have to eat every day, we try to get as much we can as cheap as possible. It can also be said that fast food is cross price elastic, in the sense that franchise are always fighting to gain more/new customers. The fast food places compete by adjusting/ reducing their products prices and by offering more for the same or lower prices than the competition. This creates a cross price elasticity of demand. In the end, the price elasticity of demand is small, due to the smallest change in price create a large change in demand. What franchises need to remember is that they have lot of competitors who offers very similar products at a very similar price also. When there is “choice of product” or also called a substitute, products are elastics and when there isn’t a substitute available, the products become inelastic.

According to researchers, fast food hold the same price elasticity of demand in Canada as it do in China. This mean an increase in price from Tim Horton will most likely lead to a drop in sale if the competition prices remain the same. Franchises Performances Analysis in the West According to statistics, China loves chicken but not so much pizza. This could primarily be why KFC is the leading franchise in the fast food industry in China currently. KFC is even saying that they make more money with their sale in China alone then they do with their sales in all the rest of the world. It is hard to analyze the performance of other franchises within the West, due to most franchises are still affiliated to their mother company. Therefore their productivity records and data aren’t specific to a particular region. This mean that when we see an increase or a decrease in revenue we cannot pin point the exact location/ market that caused this effect. The only company that has completely separated their business is Yum.

Yum Brands, Inc has created a totally different division of Yum for China named, Yum China Holdings Inc. The biggest competitor that Tim Horton will have to face in China is Starbucks. Starbucks has already infiltrated the Chinese market and as of today, they own more than 2,800 restaurant in China. Every financial reports and posts, accessible on the internet all point to the same direction. Every franchise that lunched itself in the Chinese market are facing incredible rise in revenue. This rise in revenue could mainly be due to the fact that China has an abundant population. Which create a valuable potential market or/and it could simple be due to the fact that the Chinese market like North Americans food and beverages.

Nevertheless, Starbucks is currently facing a massive problem in the Chinese market and in the American market. Starbucks opened so much locations quickly, that they have actually started to cannibalize themselves. They’re literally taking revenue/profits from their own stores, since they are located to close one and other. Competitors Idea that Could Facilitate the Market Entry and Establishment of Tim Horton in China When KFC decided to enter the Chinese market they had to make deep research in order to understand the mentality and perspective of the citizens and their culture. They firstly re modeled their restaurants in order to better satisfy the customers. A typical KFC outlet in North American consist of a very small kitchen and a small eating room. N-A KFC’s are mainly focused on drive thru. However in China they had to change the design of their outlet in order to make them bigger, to serve more clients and to make it more appealing for the citizens. Furthermore KFC experienced firsthand how our North American menu isn’t satisfying for the Chines population. They wanted a more developed/ customized menu that would match their want and need. Therefore this made KFC create a whole new menu just for the country. In North America the menu normally consist of 29 items, however in China they count over 50 items. The company realized that it had to modify it menu to suit the regions. Today, KFC sell it products above the industry standards, which lead them to be priced above street vendors and some local restaurant. Economists believe the reason Yum is doing so well in China due to they have employed two very good business practices. One, they have a distribution arm and two they buy locally in order to keep the cost low.