Doughnut Wars Give Shanghai a Sugar Jolt

The Washington Post describes doughnut vendors’ struggle to establish a beachhead in Shanghai, while other Western fast food firms move on to later stages in their China campaigns.

Doughnut shops, once a rarity here, have proliferated across the city, with a huge number of rivals – including American giants Dunkin’ Donuts and Krispy Kreme – now battling for supremacy in the race to give Shanghai’s middle-class consumers their morning coffee and sugar fix.

The opening of so many doughnut shops in so many locations is a testament to Shanghai’s growing affluence and the belief that young Chinese with more disposable income will be hankering for more leisure food. As China has opened its doors to the world, American fast food chains such as KFC, McDonald’s and Starbucks have exploded here, mostly in the wealthier cities and coastal areas, with varying degrees of success ….

Still, the pessimists think the doughnut might have a hard time finding a toehold in China — as evidenced by the largely empty doughnut stores, and the number of leftovers on the shelves at closing time. “It’s one of those food concepts that has singularly failed to set the country alight,” said French, the retail analyst.

French noted the biggest obstacle yet: In Shanghai, he noted, police officers seem to prefer smoking cigarettes to taking a doughnut and coffee break. “They haven’t cracked the cop market,” he said.

Western fast food has enjoyed greater success on other fronts, however. A Caijing article last month compared KFC and McDonalds’ different strategies in China, noting KFC’s menu experimentation along the lines of the dried pork and seaweed and dried Bonito doughnuts mentioned by the Washington Post. Both companies aim to double store numbers in China over the next three years.

KFC is a fried chicken restaurant chain. In America, even though its market shrinks fast, its menu have not drifted away from its core. In order to enhance the competiveness, some of KFC stores bundle with other brands such as A&M and Taco Bell. In a highly competitive and specialized market such as America, KFC has little chance to make drastic changes.

On the contrary, KFC China (so is Pizza Hut China) is rather experimental, especially in its core menu. First, it started add burger and French fries; then, it adds Chinese breakfast and soymilk as a regular offerings; and now it adds Chinese rice dishes.

McDonald’s is the most faithful to its menu, burgers and French fries. History proves that burger and French fries is more universally appealing than other food segments. In order to increase the revenues, McDonald pushes its breakfast menu such as English muffin with sausage and so on. China was not given a special treatment, and its menu is pretty much identical to its American one. It is likely Chinese will soon adopt burger as a regular food simply because of McDonalds. McDonald’s breakfast menu is likely to gain more success in China than in America because China has no chain specialized in breakfast such as Tim Hortons or Dunkin Donuts in North America.

Starbucks last week announced a restructuring of its operations to reflect its growing focus on China. From the Wall Street Journal:

Starbucks Corp. said Monday it will hive off a third regional division, joining a growing list of restaurant companies putting a greater emphasis on China expansion.

The coffee company, which is currently organized as Starbucks U.S. and Starbucks Coffee International, will move to a three-region system: the Americas; China and Asia Pacific; and Europe, the Middle East and Africa. A president in each region will oversee the retail business and work with the joint-venture partners in each market.

Starbucks is preparing for China to become its largest market. Last year, the company set up a coffee farm and processing facilities in China’s southern Yunnan province and announced plans to open 1,000 stores in the country by 2015. As of March, it operated 450 stores in mainland China.

See also: Starbucks Celebrates China’s Morning Coffee Habit, on CDT.


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