Casual Dining Restaurant Market

China

Prepared Q4 2011

Proprietary and Confidential

Casual Dining Restaurants Offer Moderately Priced Food With Table Service
Casual Dining Restaurant Market Definition The casual dining market comprises restaurants offering table service and coffee shops, which serve moderatelypriced food in a casual atmosphere; they usually provide table service, and are placed between QSRs and fine dining restaurants

The Chinese consumer food industry is segmented into following restaurant formats:
Quick Service Restaurantsself-service restaurants and customers pay prior to consumption to enjoy quick service and convenience Full Service Restaurantstraditional sit-down restaurants with ordering and full table service provided by waiters Hotpothot pot is placed in the middle of the table with ingredients in the pot, which are cooked on the table with full waiter services Casual Diningoffer low price food with table service and casual ambience; many casual dining restaurants offer full bar and a separate bar staff

Market Definition

Specialty/Fine Diningfull service restaurant with formal ambience and special meal courses menu

Chinese Restaurant Market Quick Service Restaurant KFC Mc Donald JiSheng ZhenGongFu BaiFuKaoBa Hotpot Little Sheep ChongQing Little Swan XiaBu XiaBu Casual Dining Ajisen Full Service Restaurant

Specialty/Fine Dining

Xiangeqing
South Beauty BaBeila LaoNiangJiu

Chamate
JiaHeYipin Pizza Hut Starbucks

Source:

FSG Research and Analysis; My Decker Capital (December 2010); Restaurants and Foodservice Review, Alix Partners (May 2010)

Chinese Casual Dining Restaurants Market is Fragmented with Large Players Accounting for about 6% Market Share
Casual Dining Restaurant Market Overview Breakup for full-service restaurants in China (%, 2009)
100% = 80 companies

As per the market research report, by the end of 2010, the Chinese casual dining market was expected to reach $310 billion
According to China Cuisine Association, sales in the casual dining category grew 43.3% year on year in 2008, due to growing demand for low priced food by Chinese youth

Casual Dining 21%

Specialty/Fine Dining 50%

Hotpot 29%

By 2013, casual dining market is expected to grow and witness heavy investments by western chained restaurants, such as Pizza Hut, and Starbucks
In 2011, Subway (a USbased casual dining chain) planned to open 300 outlets in China by 2015 The countrys rapid urbanization coupled with the Chinese governments plan to encourage foreign investment (in 2010) made this industry attractive for Western fast food players

Average Net Profit Margin in the Chinese Food Service industry (%, 2008)
17.1% 15.8% 12.3% 9.6% 8.0% 6.1% 5.8%

Majority of the western and Chinese chained restaurants had plans to open casual dining restaurant (CDR) in tier 2 and tier 3 cities, such as Ningbo, Kunming, Fuzhou, and Tianjin
This is primarily on account of dominance of well-established CDRs (Pizza Hut and Papa Johns) in tier 1 cities, such as Beijing and Shanghai

Hotpot

Western Cuisine

Full Casual Service Dining Restaurant

General Dining

Hotel Dining

Quick Service Restaurant

We believe looking to cities outside Shanghai and Beijing will be the key to success for CDRs in the coming years. Howard Hsiao, Senior Vice President, getchee Enterprise Solutions (July 2011) Weve been looking at cities outside the traditional markets of Beijing and Shanghai where a well-run restaurant can yield high profits before market saturation occurs. Philip Tomlin, getchee Business Analyst (July 2011)
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As per Alix Partners, in 2009, Chinas restaurant industry was highly fragmented with only 6.0% being contributed by the Chinas top 100 restaurants; however, large casual dining chains are likely to gain Chinese market share with special Chinese menu

Source: FSG Research and Analysis; Restaurants and Foodservice Review, Alix Partners (May 2010); Western Fast Food Players in China Outlook 20102015, Report Buyer (June 2010); China Latin Diaries; The Economic Observer Online; China Chain Store and Franchise Association

Pizza Hut and Paulaner Brahaus Were the Earliest Entrants in the Chinese Market
Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Pizza Hut, an American restaurant chain, primarily offers pizzas, pastas, and rice dishes
It also offers side dishes such as buffalo wings, breadsticks, and garlic bread

Pizza Hut

US

1990

560

5602

Pizza Hut China is a subsidiary of Yum! Brands, a global fast food restaurant company operating/licensing brands such as Taco Bell, KFC, and Wingstreet Paulaner Brahaus is a German chain that serves Bavarian and Munich dishes along with Paulaner beers In China, it started its outlets in cooperation with Kempinski Hotel, a German hotel chain that serves as the sole agent for Paulaner beer in the country It has two restaurants in Shanghai and one each in cities of Beijing, Chengdu (Suchian), Dalian (Liaoning), Nanjing (Jiangsu), Sanya (Hainan), Shenyang (Liaoning), Suzhou (Jiangsu), Wuxi (Jiangsu), Xian (Shaanxi), and Yinchuan (Ningxia)

Paulaner Brahaus

Germany

1992

12

12

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) This represents the number of its dine-in outlets; it has another 130 home delivery outlets FSG Research and Analysis; Company Website; Primary Research

International Chains Typically Operate Through Self-owned Business Model in China

Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Hard Rock Cafe is an international casual dining restaurant that serves a range of burgers, sandwiches, salads, and drinks The restaurant is located in Beijing Starbucks Coffee is the largest coffee chain in the world The company operates in China through a joint venture with Mei Da Coffee (in Beijing), Presidents Group (in Shanghai), and Maxims Catering (in southern China) It does not franchise its outlets but about 380 of its outlets are licensed2 Outback Steakhouse is a casual dining chain that primarily serves beef and steak items in an atmosphere resembling that of an Australian outback In China, both its restaurants are located in Beijing TASTY, owned by Wang Pin (a Taiwanbased restaurant Group), specializes in steaks and other beef-based dishes

Hard Rock Cafe US 1994 1 0 1

Starbucks US 1999 220 0 600

Outback Steakhouse US 2001 2 0 2 TASTY Taiwan 2001 160 0 160

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) Starbucks receives royalties and license fees from licensed outlets that can resell Starbucks coffee, tea, and related products FSG Research and Analysis; Company Website; Primary Research

Western Fast Food Chains Continued to Make Inroads in China During the Mid-2000s
Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Papa Johns, primarily a take-away and delivery pizza chain, also offers table service in some of its restaurants In China, Papa Johns operates through a hybrid business model (a combination of self-owned and franchised outlets) Turbo Restaurant is a Hong Kong-based chain that serves a range of salads, pizzas, pastas, etc. Hooters is a beach-themed restaurant that serves seafood, sandwiches, and spicy chicken wings The company has one restaurant in Beijing, two in Shanghai, and one in Chengdu First two restaurants were opened in Shanghai (2004 and 2006), followed by a restaurant in Beijing (2007) and another one in Chengdu (2008) It operates in the country through Pacific Wings, a company controlled by Hooters USA, that manages the outlets in China

Papa Johns US 2003 18 139 157

Turbo Restaurant Hong Kong Hooters 2003 13 0 13

US 2004 4 0 4

Notes: Source:

1) Based on latest statistics available on secondary/primary domain FSG Research and Analysis; Company Website; Primary Research

Some International Chains Serving Japanese-style Food Also Operate in the Market
Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Sizzler is an American chain that offers salads, steaks, seafood, chicken, ribs, and beverages It entered China through a 50:50 joint venture with Minor International, a Thailand-based hospitality Group According to the terms of the joint venture, Minor International received exclusive rights to license Sizzler brand in China All of its six restaurants are located in Beijing Sakae Sushi is a casual dining chain that serves Japanese-style food Its outlets are concentrated in the cities of Beijing, Shanghai, and Chengdu It operates through a hybrid business model

Sizzler

US

2004

Sakae Sushi

Singapore

2004

NA2

NA

NA

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) NA denotes information Not Available FSG Research and Analysis; Company Website; Primary Research

Pizza Huts Success in China Led to the Entry of Other Pizza Chains in the Market
Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total The Pizza Company, owned and managed by Minor International Group, is one of the leading pizza chains in China It operates through a hybrid business model and has 14 restaurants in Beijing

The Pizza Company Thailand 2005 NA2 NA 14

California Pizza Kitchen

US 2005 2 0 2

California Pizza Kitchen is a casual dining chain that serves pizzas, pastas, salads, appetizers, soups, sandwiches, and desserts
The companys outlet is located in Shanghai Costa Coffee is a coffee house company based in the UK that entered China through a joint venture with the Yueda Group, a Chinese state-owned enterprise In 2008, it entered into a second joint venture in China with the Beijing Hualin Group, a leading Chinese retailer Its outlets are concentrated in Beijing, Jiangsu (cities of Nanjing and Suzhou), Shanghai, and Zhejiang (Hangzhou city)

Costa Coffee

UK

2006

42

42

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) NA denotes information Not Available FSG Research and Analysis; Company Website; Primary Research

The Market Has Continued to Witness the Entry of International Chains till 2010
Key International Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total 85o C Cafe is a cafe and bakery specializing in coffee, cakes, and breads In China, it operates through a hybrid model Tony Romas is a casual dining restaurant chain that specializes in serving ribs It operates in China through Mas Millennium, its sole franchisee in the country
Mas Millennium (Singapore) was incorporated in 1991 to act as a holding company to develop Tony Roma's restaurants in China, Hong Kong, Indonesia, the Philippines, Singapore, Taiwan, and Thailand

85o C Cafe Taiwan 2007 NA2 NA 185

Tony Romas

US

2010

The company has one restaurant each in Shanghai and Chengdu

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) NA denotes information Not Available FSG Research and Analysis; Company Website; Primary Research

Domestic Players, such as Chamate and JiaHeYiPin, Serve Chinese-style Food

Key Domestic Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Chamate is a casual dining restaurant chain that serves Chinese-style food The companys stores are primarily located in Beijing, Guangdong (Shenzhen city), Hubei (Wuhan city), Jiangsu (cities of Changzhou, Jiangyin, Nanjing, Suzhou, Wuxi, and Xuzhou), Liaoning (Shenyang city), Shandong (cities of Jinan and Qingdao), Shanghai, Tianjin, and Zhejiang (cities of Hangzhou, Ningbo, and Yiwu) The company operates through a hybrid business model Grandmas Kitchen is a restaurant chain that offers Western food, such as steaks, along with beer The company primarily targets tourists and Americans staying in the country All its restaurants are located in Beijing JiaHeYiPin serves a range of Chinese-style food such as dim sums and noodles Most of its outlets are located in Beijing

Chamate

Taiwan2

2002

NA3

NA

99

Grandmas Kitchen China 2003 5 0 5

JiaHeYiPin China 2004 75 0 75

Notes:

Source:

1) Based on latest statistics available on secondary/primary domain 2) Though Chamate originated in Taiwan, it is included as a domestic chain as it is owned and controlled by Shanghai Chamate Food (a Chinese company) 3) NA denotes information Not Available FSG Research and Analysis; Company Website; Primary Research

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Liangan Coffee Has 350 Stores Located Across Several Cities in China
Key Domestic Casual Dining Restaurant Chains

Name

Country of Origin

Year of Establishment in China

Number of Outlets in China1 (2011) Additional Information Self-owned Franchised Total Liangan Coffee is a coffee chain that was launched in China by UBC Cafe (a Taiwanbased Group) in 2003 Presently, UBC Cafe does not hold any stake in Liangan Coffee The companys stores are located across China in Beijing, Guangdong (Shenzhen city), Guanxi, Hebei (Shijiazhuang city), Hubei (Wuhan city), Jiangsu (cities of Changshu, Jiangyin, Suzhou, and Xuzhou), Liaoning (cities of Dalian and Shenyang), Shandong (cities of Jinan and Qingdao), Shanghai, Tianjin, and Zhejiang (cities of Hangzhou and Shangyu) It operates through a hybrid business model Shanghai Babela Yizhou Food and Beverage is a casual dining chain that serves pizzas, salads, soups, pastas, and sandwiches It operates through a hybrid business model

Liangan Coffee

China 2003 NA2 NA 350

Shanghai Babela Yizhou Food and Beverage China 2005 30 NA NA

Notes: Source:

1) Based on latest statistics available on secondary/primary domain 2) NA denotes information Not Available FSG Research and Analysis; Company Website; Primary Research

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