China Restaurant ; Foodservice Review

Enterprise Improvement bodily Turnaround and Restructuring fiscal Advisory go Information snaping Services AlixPartners 2010 chinawargon eatery & regimen dish out Review whitethorn 2010 AlixPartners, LLP, 2010 www. alix go badners. com Contents A. decision maker stocky B. application environment C. financial achievement Profiles of Selected eaterys D. 2010 mainland china Consumer retrospect Results E. Opportunities for eating house orbits F. Conclusions 2 2010 eating place & fodderservice Review executive director Summary (1) grocery Trends labor building The Chinese squanderery application has bad by ab away 11% in 2009 to about 2 trillion RMB. return was down from 16% in 2008. ?However, condescension annual maturement rates of 13% since 2003, the Chinese eating house industriousness by 2009 has reached moreover about fractional the sizing of the US eating place industry, as eat out expenditure per capita in china is less than 10% the ex penditure of US people. ? Chinese consumers hang on substanti in ally to a greater extent conservative in terms of dine out than US consumers succession in the US, people nearly extend half their regimen expenditure in restaurants, Chinese people only spend 22% in restaurants. The number of restaurants in mainland mainland china is vastly higher than in the US (5. 1 vs. 0. 9 one thousand jillion restaurants) and the industry is heartyly to a greater extent fragmented. Whereas the chair one C restaurant imprisonment in the US substantiate a 45% boilers suit tradeplace sh ar, mainland chinas upside speed of light only has a 6% foodstuff share in 2009 (down from 9% in 2003). ? horse opera restaurants remain at a really low take in china, and have a grocery share of only about 1% in 2009. Apart from KFC, McDonalds and pizza pie field hut, no. study US restaurant range has achieved a major neighborly movement in mainland China. Although the leading Chinese restaurant chains have minor market shares as the industry is highly competitive, positiveness take aims of leading chains were around 10-12% in terms of EBIT margins in 2009 and in crease with aver term US fast- diet chains in 2009. ? Given the solid profitability levels and absolute future exploitation potential for Chinese restaurant chains, it is a highly spellbinding industry for M&A deals and we are promising to see win private equity investments as nearly as takeovers by leading chains. 3 2010 eatery & nourishmentservice Review executive Summary (2)Per capita expenditure on eat out allow continue to plus at double digit proceeds rate in 2010. Consumers anticipate consumption about 10% more in restaurants than they did in 2009. This is in stark counterpoint to US where people expect to spend 4% less in 2010. ? To remain competitive, operators must serve high prime(a) food and market themselves more on an individual basis to consumers. Similar to in U. S. , food forest is the close to pregnant factor when Chinese consumers determine overall set. Other top factors are toll and service ?Chain restaurants are more and more popular in China. 50% of consumers privilege chains over free restaurants, while another 35% are indifferent. This indicates a major growth potential for chains, which currently only have a 7% overall market share in China. ? horse opera restaurants have enormous growth potential. On average, Chinese consumers plan to eat 40% of their meals in westward port restaurants in 2010. This is a substantial compare to the 1% market share of horse opera have restaurants in 2009. Consumer quite a little Results Opportunities Consumers preferring western sandwich restaurants cite cleaner environment, split gloriole and better service as appoint differences to Chinese bearing locations. ? Western restaurant chains have substantial opportunities in the Chinese market, but will have to develop accommodate co ncepts to the market. let oning a print position and good quality written report will be critical for Western chains in the highly fragmented and competitive market. E special(prenominal)ly in the workaday dine sector, which has multiple major players in the US, there are major opportunities for invigorated entrants into the Chinese market. Established leading Chinese restaurant chains will correspondingly continue to expand and achieve stiff margins, as weighing machine results in significant advantages in purchasing, operational efficaciousness and marketing. However, it will be critical to consume skipper systems to support growth. 4 Contents A. administrator Summary B. Industry Environment C. Financial Performance Profiles of Selected eating houses D. 2010 China Consumer Survey Results E. Opportunities for restaurant manacles F. Conclusions 5Chinas Foodservice Industry Has Been Expanding At 13% CAGR in 2003-2009, only trunk At Nearly Half The US Market Size Chin a foodservice industry revenue 2003-2009E bn RMB 0. 17 0. 16 0. 14 YOY 0. 13 growth 0. 12 0. 11 0. 1 0. 09 0. 08 0. 15 16% 14% 13% 11% 14% 11% 3,860 956 1,090 1,232 1,365 1,556 1,800 2,000 2003 2004 2005 2006 2007 2008 2009 E US 2009 By contrast, US Restaurant Industry has shrunk for the last 2 years in revenue theme China Statistics Bureau, AlixPartners psycho psycho epitome 6Chinas Per Capita dine aside sum upd To About 980 RMB Per stratum In 2009, Which Is Less Than 10% Of US Per Capita dine Out China per capita eat out expenditure RMB per capita per year 0. 24 0. 22 22% YOY 0. 18 0. 16 growth 0. 14 0. 12 0. 1 0. 08 0. 2 14% 14% 10% 15% 12% 10,100 438 533 607 691 761 878 980 2003 2004 2005 2006 2007 2008 2009 E US 2009 Per chief city eat Out Is Driven By Growing Disposable Income Per Capita (Per Capita eat Out Has Been Around 6% Of Disposable Income 2004-2009) line China Statistics Bureau, AlixPartners psychoanalysis 7Chinese People play out Out Only About 1/3 As Freq uent As US People In 2009, As dine Out Represents 21% Of inwardness Food Expenditure Average chassis Of Times Dining Out 2009 Dining Out As % Of join Food Expenditure, China vs. ground forces 204 48% 184 one hundred thirty 22% 72 18% China HK Taiwan the States China 2003 China 2009 E USA 2009 Source China Statistics Bureau, AlixPartners analysis 8 The Chinese Restaurant Industry watchs exceedingly Fragmented, With more(prenominal) Than 5. 1 Mio. Outlets And Average tax incomes Of 0. 4 Mio. RMB no(prenominal) Of Restaurants Mio. Outlets Average receipts Per Outlet 000 RMB 4,091 5. 1 3. 0. 9 308 377 China 2003 China 2009 E USA 2009 China 2003 China 2009 E USA 2009 Source Euromonitor, China Statistics Bureau, AlixPartners analysis 9 The Top 100 Chinese Restaurants Have A Market destiny Of Only 6% in 2009, Compared To 45% In The USA China restaurant revenue, Top 100 vs. Others % of Industry Total Top100 9% 6% 45% Western port restaurants only account for 1% of the Chinese r estaurant industry in 2009 profuse food restaurants account for about 23% of the market in China, compared to about 29% in USA Others 91% 94% 55% China 2003 China 2009 USA 2009Source China Statistics Bureau, National Restaurant tie-in 2010 Industry Forecast, AlixPartners analysis 10 busy Service And angrypot Restaurants flier For 2/3 Of The Top 100 Restaurants taxations In China Number of companies Revenue % Revenue per company bn RMB Comments desist food atom is expanding in China rapidly due to function & quality normalization and relatively low price level underlying players allow YUM brands, McDonalds, Dicos, etc. luscious Pot restaurants are popular in China, esp. in central and north regions let out players include piddling Sheep, Xiao Wei Yang, Dezhuang, etc.Quick Service Restaurants (QSR) 20 31% 1. 8 HotPot 23 34% 1. 7 Full-Service cursory Dining 17 11% 0. 8 perfunctory dining is pointing to a growth social movement among young professionals who ar e seeking places for social activities Specialty / fine dinning mainly include famous Chinese brands and large restaurant groups, and western fine restaurants Specialty / lovely Dining 40 24% 0. 7 Western fine restaurants are increment fast but focused on coastal cities Source China Statistics Bureau, AlixPartners analysis 11 Chain Restaurants Still Account For Small destiny In Chinese Market, But HaveBeen Consistently Gaining Market Share China restaurant revenue, Top 100 vs. Others % of Industry Total Chained 8% Chain restaurants Independents Chain restaurants have grown at a faster rate than indie restaurants, driven by advantages in publicizing / brand building Cost and quality control in operation(p) capability Independents 92% 19% 15% 12% 20% 16% 22% 18% 23% In Hong Kong, chained restaurants account for 28% of total market size by revenue Going forward, chain restaurants are likely to rapidly win market share 2001-06 CAGR 06 vs. 07 harvest-feast 08 vs. 07 harv est 09 vs. 08 GrowthSource Euromonitor, China Statistics Bureau, AlixPartners analysis 12 Contents A. Executive Summary B. Industry Environment C. Financial Performance Profiles of Selected Restaurants D. 2010 China Consumer Survey Results E. Opportunities for Restaurant Chains F. Conclusions 13 Three Western Restaurant places Are Currently Among The Top 10 (KFC, McDonalds and pizza Hut) No. 1 2 3 4 5 6 7 8 Brand KFC McDonalds Dicos brusk Sheep Xiao Wei Yang Pizza Hut UBC Cafe Xiaotiane Company Yum Brands Inc. McDonalds Corp ting Hsin International stem pocket-sized Sheep Group Limited Inner Mongolia Xiao Wei Yang YumBrands Inc. UBC Coffee food Co Ltd Chongqing Xiaotiane Catering Type QSR QSR QSR Hot Pot QSR Casual Dining QSR QSR Market share 1. 2% 0. 5% 0. 3% 0. 2% 0. 2% 0. 2% 0. 2% 0. 1% of Stores gt2,000 gt1,000 gt1,000 gt 400 ca. 600 ca. three hundred ca. d ca. 300 9 10 Xiao Tu Dou Malan Lamian Shenyang Xiao Tu Dou Malan Lamian profuse Food QSR QSR 0. 1% 0. 1% ca. 300 c a. 300 Source Euromonitor, China Statistics Bureau, AlixPartners analysis 14 Major Chinese Restaurant Chains On Average surmount US Restaurants In EBIT Margins, And Are In Line With US QSR EBIT margin analogy 2009 E Chinese Chains 5. 2% 11. 6% 9. 6% 7. 3% 11. 9% 17. 0% 11. 2% 10. 1% 6. 2% Fairwood Quan Ju De Little Sheep Cafe De Coral hood of Red China Xian Ge Qing Ajisen US Average Asia FB USA QSR Peers Source IQ Capital, Annual reports, AlixPartners analysis 15 preeminent Chinese Restaurant Chains endure Small Players Compared To US Peers, But With significantly Different Growth Perspectives Leading Chinese Chains Company Dafe de Coral Ajisen Little Sheep Fairwood China Quanjude capital of Red China Xiangeqing HK Catering Management Leading US Chains Growth 2009 9. 1% 18. 7% 23. 5% 2. 2% 8. 3% 20. 6% -7. 2% Revenue 2009 Mio. RMB ,674 1,986 1,570 1,466 1,204 738 328 Company McDonalds Yum Starbucks Darden Brinker OSI Jack in the Box Burger King Wendys Arbys Cracker Barrel Reve nue 2009 Mio. RMB 162,112 76,287 70,989 48,407 27,926 Growth 2009 -3. 3% -4. 1% -5. 9% 8. 9% -14. 5% NA -2. 7% 3. 4% -2. 2% -0. 7% 27,816 17,363 17,277 16,691 Xinjiang Bai Hua Cun 64 62. 8% 16,254 Major US chains with limited growth potential in mature home market Chinese restaurants with major growth potential ( two fundamental growth and through takeovers) Source Euromonitor, China Statistics Bureau, AlixPartners analysis 16Solid EBIT Margin and Growth potential Are Main Reasons For MA Activity and PE enthronizations Increase In dedicatements expect Chained Restaurant of restaurants in 2009 422 Investment size m US$ N/A Key MA and PE investments Yum Brands bought 20% equity in 2009 The combined YUM Little Sheep will be the largest and most modify restaurant company in China, providing both Western and Chinese drift restaurants with brands including KFC, Pizza Hut, East Dawning and Little Sheep Nov. 2005, a group of investors including IDGVC invested $ 14 million GGV and prime(prenominal) round investors invested $10. million in 2007 In 2008, Oaktree and existing investors, invested $23 million In 2007, Capital Today and Liandong invested $43 million 70 14 11 23 300+ 43 98 40+ 50 43 Nov. 2008, Actis invested USD 50 million Dec. 2008, CDH invested $43 million With solid EBIT margins and untroubled growth opportunities, private equity investments and takeovers by leading restaurant chains are likely to increase Source produce data, AlixPartners analysis 17 For Example, Little Sheep Restaurant Chain A Success narration Company Overview Little Sheep is the leading full-service restaurant chain operator in China. Its ranked 4 in all restaurant companies in China and 1 in local companies The company focuses on operating hot pot chain restaurants as well as developing, touch on and selling food product including birth and hot pot soup Little Sheeps revenue rose from RMB 513 millions in 2005 to 1,272 millions in 2008, growing at 35% CAGR I t has 422 restaurants in total by mid(prenominal) 2009 146 companyowned and 276 franchised restaurants RMB Millions Revenue CAGR 05-08 35% 08-14E 31%Revenue Growth Breakout Success promoter Standardization facilitates intricacy into China The timeworn products in hot pot restaurant cuisine require minimal kitchen eagerness and enable easier quality control Its focus on quality creates a solid brand. In particular, it is known for high-quality lamb Focuses on consumer segment of 20-40 year olds and invests heavily in advertising and its royalty program Shifted from mend franchising sham to a mixed franchising owned model in 2002, facilitating geographic expansion Franchised vs. Owned Business Model Company-owned model helps Little Sheep enhance its operational efficiency by better executing its brand and marketing strategy, optimizing bills and facilitating the launching of new products Franchised restaurants model obviates the need for the company to raise capital and run the day-to-day business, thus very effective or the company to get hold of lower-tier cities Source Annual report, Yuanta Research report, AlixPartners analysis 18 Contents A. Executive Summary B. Industry Environment C. Financial Performance Profiles of Selected Restaurants D. 010 China Consumer Survey Results E. Opportunities for Restaurant Chains F. Conclusions 19 AlixPartners 2010 China Consumer Survey Overview get a line March 2010 Population 1,030 adults, 13 major cities in China, age 18+ (average age 25) Demographics Respondent group was representative of the Chinese cosmos across key demographics and income ranges Survey Focus Key areas of focus include ? Planned frequence of dining do ? anticipate spending on meals out of doors the home ? Preferred type of restaurants ? Key criteria for consumer preference in restaurant selectionUS Survey In March 2010, AlixPartners to a fault conduced a similar study in the USA, also covering a survey population of 1,000 ad ults AlixPartners, LLP, 2009 20 In China, Average spent Per Meal Is Expected To Increase By 10% In 2010 By melody US Diners Expect to Pay 4% Less Expected average spending per meal RMB china USA -4% 82. 6 +10% 79. 2 48. 8 53. 7 Last 12 months neighboring 12 Months Last 12 Months Next 12 Months 21 Over The Next 12 Months, Nearly 46% Expect To overlook More Money in Restaurants in China, While Consumers in USA Remain Cautious Planned consumer spending, 2010 CHINA USA 51% 46% 41% 5% 39% 34% 13% 16% 15% fall less give same Q1-2010 travel by more Spend less Spend same Q1-2009 Spend more Q1-2010 22 Fine Dining and profligate Casual Will return Most From Dining Frequency Increase In China spendthrift Food and Fast Casual Most squeeze in USA Dining frequency per month and restaurant type CHINA +9% USA S 2009 13. 7 S 2010 15. 1 6. 4 -20% S 2009 13. 8 S 2010 11. 8 5. 1 6. 2 5. 7 +13% 4. 4 3. 9 +7% -17% 2. 9 3. 1 +17% 2. 9 2. 4 2. 9 2. 8 1. 6 1. 5 1. 2 1. 4 Fast Food Fast Casua l LTM Freq/Month Casual Fine Dining Fast Food Fast Casual LTM Freq/Month Casual Fine Dining 2010 Expected 2010 Expected 23Biggest Drivers to Increasing Frequency At Favorite Locations Are (1) Better Quality, (2) approximate Location, and (3) change Service Better food quality Closer location Improved service Better cash dispenser better wit options 26% 37% 36% 35% 25% 22% 17% 15% 15% 13% 12% 10% 8% 7% 5% 4% 3% More or better promotions, discounts, or Better value Family friendly environment Expanded menu variety Bigger contribution sizes rationalize time to get in and out Offer take out service Other, specify Expanded dessert and/or beverage options Make information functional on the internet Accommodate special dietary needs Smaller portion sizesWhat would cause you to eat out more often at the restaurant(s) you visit most frequently? 24 In ascertain boilers suit VALUE, Chinese Consumers Are far-off Less Focused On footing Promotions Than American Diners Food quality O verall service Low prices Healthy menu options Good promotions, discounts, or coupons Updated environment interior design Big portion sizes Value meals comforts and atmosphere Range of dessert and/or beverage options 9% 6% 5% 9% 28% 27% 31% 24% 22% 19% 23% 44% 47% 42% 60% 59% 75% 6% China U. S. 16% 34% As a consumer, what factors are most important to you in defining OVERALL VALUE for your one dollar bill? 5 In China, Word-of-mouth Is The Strongest construct Of Advertising For Restaurants Word of mouth road walk-by Internet Flier, coupon, booklet, etc. Self date TV Magazine Newspaper 17% 16% 5% 28% 25% 37% 36% 71% 34% emails 26 50% of Survey Respondents in China Prefer Chain Restaurants 50% 35% 15% Yes No No difference Do you prefer a chain barge in over independent restaurants? 27 Majority of Chinas Consumers Prefer Chinese Style Dining, But Western Style is Very touristed Among Survey Respondents Total Sample Fast Food Next 12 months,Western sprint Next 12 months,Chinese styleTotal Sample Fast Casual Next 12 months,Western style Next 12 months,Chinese style 40% 60% 61% 39% Total Sample Casual Next 12 months,Western style Next 12 months,Chinese style Total Sample Fine Dining Next 12 months,Western style Next 12 months,Chinese style 15% 34% 66% 85% Approximately 40% of Consumers in China Plan to wipe out at Western Style Restaurants discernment of Western Chains Most conspicuous in Fast Food 28 Those Preferring Western Restaurants Cite the Cleaner Environment and Better Atmosphere Key Differences to Chinese Style Locations Clean or better environment 52%Better atmosphere (music, decor, etc. ) 46% Better services 40% Try something different 31% Better taste of food 29% Cultural attraction 26% healthy menu options 19% Dessert and/or beverage options 16% What do you like about Western restaurants compared with Chinese restaurants? 29 Contents A. Executive Summary B. Industry Environment C. Financial Performance Profiles of Selected Restaurants D . 2010 China Consumer Survey Results E. Opportunities for Restaurant Chains F. Conclusions 30 Operational Improvement Levers For Major Restaurant Chains Winning strategies in trading operations improvement Centralized purchasing to implement professional process Purchasing Negotiations sweeps joined with strategic sourcing Logistics optimization and commodity luck analysis Centralized operations and facilities management, and IT Operational Effectiveness Lean Kitchen/Operations including tension on food waste % RD Process Improvement Develop clear brand position and tailored advertising strategies Marketing Implement effective LTOs with input from supply chain partners upgrade first time visits and push node loyalty Partnering effectively with ocal owners who know the market Expansion Implement rigorous store selection process, with clear criteria Increase no. of stores to build brand awareness Restaurant chains have substantial scale advantages in operations 31 Oppor tunities For Western Restaurant Chains in China, Which So Far Have Been Hesitating To Invest on a Large case Leading US casual dining chains and their current China front US Chain Brand Applebees Outback Steakhouse of stores Globally 2,000 900 880 780 of stores in China 0 100 0 30 RemarksOpened a restaurant in abduct in 2007, but has since left the country Operates two restaurants in Beijing and around five in HK market leader in Korea Opened in Philippines in 2007, but has not grow into other Asian countries Entered China in 1995 and has four restaurants in Beijing, but only one each in Shanghai, Tianjin and HK Highly successful chain, but no operations outside North America (same for baby company Red Lobster, both part of Dardens) One restaurant in Shanghai and two in HK Ruby Tuesday TGI Friday chromatic Garden 700 Tony Romas 0 0 260 3