Fast food price rise understandable
By Liu Jie (China Daily)
Updated: 2005-01-04 10:16

Cheerful songs broadcasting, colorful decorations shining, and smiling faces. Outlets of both KFC (Kentucky Fried Chicken) and McDonald's, the two top foreign fast-food chains in China, were crowded as usual during the New Year holiday.

The joyous atmosphere disguised the intense competition between the two US-based Western fast food giants, who are adopting different strategies in a bid to grab a greater market share on the Chinese mainland.

From December 27, the price of KFC's hamburger rose 0.5 yuan (6 US cents) on average, and the family menu increased from 58 yuan (US$6.98) to 59 yuan (US$7.12).

Sources from Yum! Restaurants China - the owner of KFC and Pizza Hut, the first pizza chain on the mainland market - says that prices at Pizza Hut have also risen by 3 yuan (36 US cents) per item.

A spokesman of Yum! China attributed the slight price hike to the growing costs of water, electricity, raw materials and labour.

Official statistics show that in mid-December, the nation's average purchasing price of wheat, the key raw material for the Western style fast food sector, was 1.42 yuan (17 US cents) per kilogram, an increase of 0.59 percentage points year-on-year.

Water and electricity price hikes, due to the shortage of energy supply, also increased operation costs.

"We are really very cautious. The average price rate rise is only 2 per cent, which will not have much of an effect on consumers' choices but helps guarantee the quality of our products," said the spokesman.

It is the second time that KFC has lifted its prices. The first time was in 1999.

Zhang Ping, a researcher with the Economic Research Institute of the Chinese Academy of Social Sciences, told China Daily that the price rise is understandable, given the continuous consumer price index (CPI) surge last year.

However, Zhang also pointed out that the fast food market is in cut-throat competition, especially between KFC and McDonald's.

"The slim price difference will be amplified to influence the market structure," said Zhang.

Wang, a waitress who declined to give her full name, working in the KFC Sino-Japanese Friendship Restaurant, the 1,000th KFC outlet in China, said customer turnover did not drop last week.

"The price rose a little, but most customers seemed to ignore it," said Wang.

As consumers use coupons, offering 10 to 15 per cent discounts, to buy food, the price adjustment in some cases is minor.

Faced with KFC's move, McDonald's said prices in their outlets will remain the same.

A public relations manager of McDonald's Beijing, who declined to give his name, told China Daily that the fast food giant would still promote its popular strategy - lower price tactics - this year.

On December 12, the world's largest hamburger maker moved its China headquarters from Hong Kong to Shanghai to enhance its Chinese mainland market share.

Though the US company denied the relocation was in response to the runaway success of its rival, KFC, insiders said McDonald's has turned its focus to the Chinese mainland and is to revise its development tactics here.

In mid-2003, McDonald's prices increased by 2 per cent on average.

McDonald's promoted a series of popular food, or low price products, from December.

Some hamburgers, desserts and ice cream are priced at no more than 5 yuan (60 US cents).

Yum! is currently operating 1,200 KFCs and 150 Pizza Huts on the Chinese mainland, and KFC is increasing at annual rate of 200.

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