Foreign brands' adventures in localization for the China market

File photo shows a student walking out of a Kentucky Fried Chicken (KFC) restaurant in Shanghai, east China. (Xinhua/Niu Yixin)

The city of Wuhan has gone viral on Chinese social media once again, but this time it was for something more run-of-the-mill – namely, its food. On January 18, Kentucky Fried Chicken (KFC) rolled out Wuhan's famous dish "Reganmian" (hot and dry noodles) on its breakfast menu, attracting hungry foodies all around the town to catch a bite of this special menu item.

This is the first time that KFC, an American-style fast-food restaurant, has served Chinese noodles with chopsticks for its customers, most of whom had positive reactions towards KFC's latest attempt at localization. Many said the flavor is similar to the authentic "Reganmian" sold at street stalls throughout the city.

People outside Wuhan, especially netizens on social media, are also clamoring for this creative new dish. "Only in Wuhan? Try other cities; people in Wuhan can eat Reganmian every day," one comment wrote under an official post from KFC on Weibo, one of China's most popular social media platforms.

"When will it be available across the whole country?" adds another.

A pivot in localization strategy

"Reganmian" is not the only traditional Chinese food on KFC's menu. In 2008, KFC introduced "Youtiao," or fried dough sticks, which was the first Chinese street snack offering to grace its menu, since becoming a signature dish at the restaurant. After tasting the fruits of an initial victory in its localization strategy, KFC went on to add a series of Chinese delicacies, including rice congee, tea leaf eggs, tofu, and Sichuan-style beef wraps, many of which have become top-selling products at this major US chain. As a hot trend chaser, KFC reinvented its menu last year, offering its customers "Luosifen," or river snail rice noodles, along with bubble tea, two of the most sought-after foods among a younger generation of Chinese consumers.

To seize the full potential of the Chinese market and increase its competitiveness, KFC set off on its adventure in food localization in 2004, when the company set up a marketing strategy to integrate itself into the country's local catering culture.

"Localization is a targeted form of marketing that focuses on reaching local and motivated buyers," said Zhu Danpeng, an analyst and expert on the Chinese food industry. "Companies will adapt their products, content and services to meet the needs of customers in their target market, ensuring that their products maintain their appeal to customers and quickly gaining market share," said Zhu.

KFC's localization strategy has been a success. The introduction of localized products has distinguished KFC from other Western-style companies, such as McDonald's and Burger King, making KFC the most popluar fast-food brand in China, with 7,166 restaurants in operation across the country at the end of 2020. Even amidst the COVID-19 pandemic, a time when the restaurant industry was severely impacted, KFC reported better-than-expected earnings. Its revenues reached 5.8 billion U.S. dollars in 2020, accounting for 70.47 percent of the total revenues accrued by its operator, Yum China Holdings, Inc, as reported in the company's unaudited financial results for the fourth quarter and fiscal year-end.

Over the past few years, "localization" has become one of the buzzwords for foreign brands aiming to capture a greater share of the China market. McDonald's, which stands toe-to-toe as KFC's top competitor, has continued to throw down the localization gauntlet with KFC. In order to flatter Chinese customers, McDonald’s changed its Chinese name to "Jingongmen," which translated into English means Golden Arches, and recently it rolled out a head-scratching dish called "Roujiamo" (Chinese-style meat burger), a classic food item in northwest China's Shaanxi Province, attracting much heated discussion online. Luxury brands such as LV, Givenchy, Gucci, and Dior have also been keen on launching limited product offerings embracing local elements during traditional Chinese holidays, such as the Double Seventh Festival, widely known as the Chinese version of Valentine's Day. Multinational enterprises have resorted to engaging in marketing campaigns for conventional local holidays in order to better please their Chinese customers. For instance, it is now routine for foreign brands, such as Apple and Adidas, to release a unique Chinese New Year advertising campaign celebrating the annual festivity.

"The localization tactics can generate a tremendous amount of chatter online, which helps brands to gain greater exposure among Chinese customers," said Li.

KFC's "Reganmian" (Photo from KFC's official Weibo account)

A bullish Chinese market for foreign brands

"Foreign brands' zest towards localization shows the importance of the Chinese market for the foreign investor," said Li Xiaojia, a professor from the School of Public Administration at the University of International Business and Economics. "The huge market and its prosperous economic outlook makes China a huge magnetic force for foreign investment," he added.

As the second-largest consumer market globally, China has been crowned as the go-to world market, with the country's total retail sales for consumer goods reaching 39.2 trillion yuan or 6.05 trillion U.S. dollars last year, and with final consumption accounting for 54.3% of the economy's GDP. "China's consumer market is expected to surpass the U.S. in the next few years," said Qian Keming, Vice Minister of Commerce of the PRC. This tremendous demand is driving foreign companies to pour money into China in the hope of capturing a piece of the lucrative market.

Despite the pandemic's repeated upheavals, the flow of investment from multinational companies has continued to surge in China. Tesla Inc. is increasing its production capacity at its plant in China. Walt Disney Co. is continuing to construct a new theme area expansion for its Shanghai Disneyland park. Other foreign brands such as Walmart, Starbucks, and Adidas have also broadened their investments and operations in China.

According to a report released by the United Nations Conference on Trade and Development on January 24, 2021, China has overtaken the U.S. to become the leading destination for foreign investment, pulling in 163 billion U.S. dollars in new investments from foreign businesses in 2020.

"China's quick and efficient control of the coronavirus bolstered its economy, which has driven many firms to put more weight on the Chinese market, in this way helping to get their business out of the woods," said Li.

A member survey released by the US-China Business Council (USCBC) on August 11, 2020, indicated that among 100 of USCBC's member companies doing business in China, most expected that foreign companies would remain committed to the Chinese market and would view it as a critical growth market for expanding sales of products in the future. According to the survey, 91 percent of the interviewed American companies said their China operations in 2020 were profitable; 83 percent of the companies viewed China as the top, or among the top five, priorities for their companies' global marketing strategy; and, 75 percent of the participants stated that they would maintain or expand their business in China.

"Compared to the sluggish global market, the bullish Chinese economy is expected to reinforce the country's appeal for foreign companies," Li added.