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How Burger King Can Recover in China

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Eight years after Burger King first entered the China market in 2005, the world’s second largest burger chain restaurant has only 63 restaurants in the country, falling far short of its own plan of opening 250 to 300 restaurants by 2012.

Many analysts pointed to Burger King’s uphill battle with its competitors. Both Yum! Brands and MacDonald’s entered China much earlier and both have established significant presence in the country. Yum! China has more than 4,000 KFCs and 750 Pizza Huts, in addition to its China-based units East Dawning and Little Sheep. McDonald’s China division has more than 1,500 locations.

However, there is plenty of demand for more than two big American restaurant chains in China’s $29 billion fast food market, thanks to a growing Chinese middle class. Here are a few things Burger King can do to catch up:

Myth that Chinese Don’t Eat Beef

Burger King has failed to play up the advantages of its traditional beef dishes. Instead, it added chicken burgers, believing Chinese prefer chicken to beef. The reason many Chinese consume more pork and chicken is because they are more affordable and readily available. Chinese farmers typically raise pigs and chickens to sell in the market, while cows are used mainly for farming.

The truth is that Chinese consumers consider beef a quality meat because it has less fat. Many associate beef dishes with upscale and luxury dining experiences. For example, ox tail soup is very popular and usually hard to find. Beef tendon dishes are known for beautifying and maintaining youthful skin for women. With overwhelming concerns about food safety, Chinese consumers are willing to pay premium prices for quality beef dishes.

Burger King could re-invent its Chinese menu with smaller burgers, such as a tapas-sized burger, and with more dish varieties to include crab, fish, or even tofu burgers. It could also add beef tendon dishes and ox tail soups. With some sensitivity, Burger King could also introduce cheese burgers as a western dining experience. Although Chinese eat very little dairy products, the ones who have tried it usually like it. This would set Burger King apart from McDonald’s, and attract young and trendy, as well as sophisticated, diners.

Individualistic Youth? But Not So Much

Burger King’s targeted demographics are younger, more individualistic diners in big cities. They believe these restaurant-goers would want to set themselves apart from their family members or colleagues. Its Beijing restaurant features an MP3 music corner that offers the latest music hits from the West, and an art gallery wall to display works by Sino-American artists.

This is where Western companies often get it wrong. Yes, younger Chinese are becoming more individualistic. But they are not becoming as individualistic as their Western counterparts. Chinese culture is more collective. The pressure of fitting-in is extremely high. Many people I talked to dine out at least three times a week – with their friends, colleagues and families. They would not want to set themselves apart from their friends and colleagues.

Understanding Chinese culture and its changing dynamics is a difficult task. It goes deeper than normal market research and requires an open mind and an attitude of learning and appreciation.  Western companies do have an advantage in positioning themselves as aspiration brands for younger Chinese. Sometimes, by simply keeping the locations clean, brightly lit, and air-conditioned, they can set themselves apart from competitors. This is one of the major reasons that many young Chinese have their first dates at Starbucks and hold their weddings at KFCs.

Don’t Run the China Operation from Outside China

When it first entered China in 2005, Burger King hired former McDonald’s president of greater China Peter Tan as senior vice president and president of Asia Pacific. This was a good choice as Tan has extensive experience growing McDonald’s to over 1,000 restaurants. However, there was one problem: Tan was based in Singapore. Headquartering the China operation in Singapore was a mistake that could be detrimental to Burger King’s China strategy. As the time of this writing, Tan is no longer with Burger King. His position has been replaced by Elías Díaz Sesé, who is responsible for all operating decisions and the overall growth strategy for the Asia Pacific region.

China is an extremely complex market with diverse conditions. One thing companies must absolutely avoid is to run the China operation from outside of China. You can’t even run the China operation in Hong Kong or Macau. The management team must be on the ground to understand local customers and the fast-changing business landscape. When Sam Su was hired by Yum! Brands as the president of its Asia Pacific operation, he voluntarily demoted himself to be the president of China. Su understood that the China market needs special focused attention. The result was exponential growth of Yum! in China.

Last year, Burger King announced a joint venture with Cartesian Capital Group and Turkey’s Kurdolu family, which runs Istanbul-based TAB Gida Industry and Trade Co., to expand its brand in China. This move may be the best bet Burger King has as TAB Gida is a long time franchisee and operates more than 450 Burger King restaurants in Turkey. But it sends a mixed signal as to how involved Burger King is in the China market. According to Burger King, the joint venture hired Mr. Xiao Li as the CEO of BK (Shanghai) Foods Company. The joint venture plans to open 1,000 new locations in the next five to seven years.

The Chinese middle class is now approaching half a billion. Four-fifths of Burger King’s new restaurants are opening outside America. The Miami-based US fast-food giant needs to recoup its China strategy, and execute its Go Forward Plan with speed and focus in order to succeed in the world’s most populous country.

Correction: March 5, 2013

This article was corrected to reflect information from Burger King about their current business structure in China.