China has just about everything you’d want in a restaurant market: a massive population with a growing middle class, pioneering concepts that have shown it is accepting of Western cuisine and, of course, roads that aren’t pockmarked by too many competitors. None of that is likely to change because of a lingering trade war between that country and the U.S., and Western brands will likely keep flocking there. “China is basically the market outside the U.S. for any chain that wants to grow,” said Aaron Jourden, senior research manager, global, for Restaurant Business sister company Technomic. “The number of stomachs in China, and the growing population that is middle class, you’re not coming anywhere close in the next decade. There’s no way to replicate what China is right now.” For global fast-food chains in particular, China is a vital market, one long proven to be a strong one thanks to the success of KFC—it’s the chicken chain’s biggest market. The coffee chain Starbucks has targeted China as a major growth market. Fast-food chain operator Restaurant Brands International, meanwhile, recently opened the first Tim Hortons location there this year, and already operates 30 restaurants in the country. “That’s pretty impressive for a chain built around a hockey player in a market that doesn’t know doughnuts all that well,” Jourden said. RBI has also recently reached a deal with TFI TAB Food Investments, Burger King’s largest global franchisee, to develop 1,500 Popeyes locations in China.

It’s not just big brands. Fatburger just opened its sixth location in the country. Shake Shack in January opened its first location in China’s mainland, in Shanghai, and the company believes it has a “tremendous growth opportunity” in the country. To understand the allure of China, just look at the coffee business. “It’s a huge consumer market where per-capita coffee consumption has grown about 15% per year,” Tim Hortons President Alex Macedo said earlier this year, according to a transcript of the RBI Investor Day presentation on the financial services site Sentieo. “We know density is good for our brand.” Starbucks is rapidly growing in that market—the chain has 4,000 locations in the country, and it represents about a third of its total global unit count growth this year. CFO Patrick Grismer told investors on Wednesday that the chain generates 80% cash-on-cash returns on new units in the country, enabling the brand to pay off a new location in just over a year. Still, Grismer said, competition in the market is growing more difficult, as noted by the emergence and rapid growth of the tech-centric coffee chain Luckin Coffee, which in just two years has become the second largest coffee chain in China. “Starbucks has demonstrated in China the appeal of the premium coffee specialty category,” Grismer said, “and that has attracted a lot of competition.” The development has come despite an escalatingtrade war between China and the U.S. Last month, President Trump urged businesses to leave China – saying in a tweet that businesses are ‘hearby ordered” to leave the country. The dispute could hurt relations between the two countries. Jourden, however, doesn’t believe it will impact U.S. chains’ sales in China, at least anytime soon.If the trade war lingers, however, or the severity of the rift between the two countries depends, it could open the door for some local or regional brands to “prove themselves.” Philippines restaurant operator Jollibee Foods has opened a couple of chains in China, as have brands from Japan and South Korea. And local concepts are starting to gain favor, as the ultra-fast-growing coffee chain Luckin Coffee has demonstrated. “There are opportunities to grow share if American brands get their image tarnished,” Jourden said. “But we haven’t seen that at this point.” Indeed, Starbucks has seen its sales recover in China this year as it has expanded its own digital and delivery capabilities. Executives on Wednesday cited competition and its own aggressive development for any recent slowdown. Maybe the bigger problem is economic. A trade war between the two countries has already sparked recession fears in the U.S. and worries about a slowdown in China. A deepening rift and subsequent economic recession would “hurt everybody involved.” For now, however, “we haven’t seen any information where the consumer in China is thinking the trade war with their purchases,” Jourden said. “Quality and price point are still top of mind.” – Source: Restaurant Business.