WASHINGTON — American fast-food chains are defying the trend of companies shifting manufacturing away from China by expanding their presence in the country. Despite concerns about security controls, protectionism, and strained relations between Beijing and Washington, brands like KFC, McDonald’s, and Starbucks are investing heavily in China’s market of 1.4 billion people.
KFC China’s parent company recently celebrated the opening of its 10,000th restaurant in China and plans to have stores within reach of half of China’s population by 2026. Meanwhile, McDonald’s is set to open 3,500 new stores in China over the next four years, and Starbucks has invested $220 million in a manufacturing and distribution facility in eastern China, its largest project outside the United States.
These investments in fast-food and other consumer goods come at a time when the Chinese government is trying to promote the modernization of its economy, particularly in high-tech sectors. However, as Phil Levy, chief economist at supply chain management firm Flexport, points out, fast-food chains like McDonald’s and Starbucks do not fall into the high-tech category.
The overall foreign investment in China has been declining this year, with tensions between China and its Western trading partners prompting many multinational companies to seek opportunities elsewhere. The uncertainty surrounding China’s business environment has led to a deterioration in sentiment among American companies operating in the country. According to a survey by the U.S.-China Business Council, 43% of its members reported that China’s business environment had worsened in the past year, while 83% expressed less optimism about China compared to three years ago.
Despite China’s economic challenges, the fast-food industry remains optimistic about its prospects in the country. McDonald’s CEO Chris Kempczinski emphasized the tremendous growth potential of China’s market, which led the company to increase its ownership stake in its licensed stores in China, Macau, and Hong Kong. In addition to McDonald’s, other fast-food chains like KFC and Popeyes Louisiana Kitchen are also planning aggressive expansion strategies in China.
While China’s market is seen as vital for foreign companies, the country’s struggling economy poses challenges. Rising unemployment, falling housing prices, and a declining stock market have made many Chinese consumers more cautious when it comes to spending. Nonetheless, the fast-food industry believes that expanding in China presents a profit-increasing opportunity, especially as other industries navigate the complex U.S.-China relationship.
The decisions of fast-food chains to invest in China are relatively straightforward compared to those facing industries like high-tech manufacturing. McDonald’s and other brands can easily open or close franchises, allowing them to adapt to changing market conditions.
China’s vast market is particularly important for companies like McDonald’s, which highlighted that 70 million of the 150 million customers active in its loyalty program are based in China. KFC China has also experienced significant growth, with its new outlets averaging over 22% growth in the past five years. The chain Popeyes Louisiana Kitchen recently relaunched in China and plans to open 1,700 stores over the next decade.
As tensions between China and the United States continue to simmer, the relationship appears to be stabilizing to some extent. However, the Biden administration has made it clear that it intends to maintain strict regulations and block high-tech investments in China to safeguard national security and address concerns related to China’s military expansion, treatment of ethnic minorities, and intellectual property theft.
Despite the complexities of the U.S.-China relationship, the fast-food industry remains optimistic about its future in China’s vast and potentially lucrative market. With a focus on simplicity and meeting consumer demand, fast-food chains are pursuing growth opportunities in a country that is actively courting foreign investment.
In conclusion, while many industries are diversifying their manufacturing away from China, American fast-food chains are finding success and expansion opportunities in the country, defying the trend. The fast-food industry’s focus on simplicity and meeting consumer demand allows them to tap into China’s market of 1.4 billion people and navigate the complex U.S.-China relationship. This move highlights the enduring appeal of fast food in a challenging economic climate, providing a bright spot for China’s economy amidst uncertainties.
