Editor's note: KFC and McDonald's are also facing huge cost pressures in the Chinese market, but have implemented differentiated strategies. KFC's price increases are in pursuit of sales growth and profitability. McDonald's is aiming for low prices to attract consumers and win the market.

At the start of the new year, KFC and McDonald's, two restaurant rivals that live next to each other around the world, began to differentiate their China strategies.

Beginning Jan. 12, if you go to KFC to buy an Old Beijing chicken roll, you'll find it has gone up 50 cents. And at McDonald's, many items are on sale and there are chances to win a variety of prizes with a single cash register receipt of $18 or more.

Behind the price change

For this price hike, KFC said it needs to raise prices to cope with market changes because labor costs, price costs and rent costs have all risen, and confidently said it would not affect consumer loyalty.

"The price hike is its last resort." In the view of Han Jun, a profit consultant at Shanghai's Yingang, KFC's current strategy in China is very clear, i.e. to pursue sales growth and profitability. According to Han Jun, store resources are no longer very easy to find in large and medium-sized cities, especially where people are more concentrated. "Originally they could achieve the purpose of increasing turnover by opening stores, but now it is difficult to find such good store resources. Although it is a good idea to expand to third- and fourth-tier cities, it is difficult to achieve profitability in the short term. And the related human resource problems likewise cannot be solved in the short term." Han Jun analyzed.

"Continuing high rent has put tremendous pressure on costs in the fast-food industry. And Chinese consumers have not reached the income level where they can consume foreign fast food every day, which also limits their expansion." Han Jun said.

Shen Kun, a consultant at Beijing-based Elite Vertical Consulting Co Ltd, believes that adjusting earnings through price hikes is a normal market response when costs are rising. "And KFC's price hike is very skillful, by changing the combination of packages or pushing new products, consumers often do not feel the price change, and KFC can always make adjustments according to the market's response."

And McDonald's, which faces the same market as KFC, has chosen a different path.

An industry insider told reporters that the cost control of McDonald's products has also been high. Such as in the procurement and supply of products, McDonald's tends to its U.S. domestic enterprises to provide sources of goods for China, while KFC is more favored in China's local development of suppliers. Together with KFC and Pizza Hut and other brands of the same group of supply chain synergies **** enjoy the effect, KFC in China is also slightly better than McDonald's on the control of product costs.

However, the new McDonald's China chief executive, Mr. Schlosser, said McDonald's will accelerate its development in China to improve its return on investment. And in order to enhance the competitiveness of McDonald's products, McDonald's will continue its low-priced strategy to attract consumers in order to increase its market share in China.

Han Jun said that until McDonald's has a better way to introduce products that are more in line with Chinese tastes, low prices can indeed attract some less loyal consumers. And the Burger King brand, which entered China last year, is likewise facing enormous pressure to survive.

Differences in power

While McDonald's, with more than 30,000 stores around the world and a turnover of more than $40 billion, is still the biggest player in the industry, it has had to deal with the fact that it has been left far behind by KFC in China.

KFC, which has a chain of just over 11,000 stores in 80 countries and regions around the world, has a total of 1,500 restaurants in China. McDonald's, on the other hand, has only 700 restaurants in China.

Behind the disparity in the number of restaurants is a huge gap in its performance in China.

China contributes more than a quarter of KFC's profits. But McDonald's global CEO Jim Skinner used the word "weakness" in May 2005 when commenting on its performance in China.

Previously by the Ministry of Commerce and other selection of the "2004 annual list of China's top 100 food and beverage companies," McDonald's ranked second for several years because of the reluctance to provide sales and failed to list, more industry insiders as McDonald's sales performance in China is not ideal evidence.

McDonald's most direct solution to this "weak" market performance is to frequently "change the generals". June 1, 2005, McDonald's Greater China President Chen Bide resigned; in October, McDonald's has more than a decade of work experience in McDonald's McDonald's (China) Foods Co., Ltd. senior vice president, managing director of North China Lai Linsheng also suddenly "dismissed"; at the same time, a year ago, just assumed the post of general manager of McDonald's Beijing Shi Wenzhe also formally left.

Previously, KFC in China to 70% of the annual rate of growth in the opening of stores, can not be ignored is that KFC in the localization of fast-food products have been left behind McDonald's. The localization of the product line of KFC in the back. KFC's localized product line as well as the speed of launching new products have allowed KFC to achieve a greater space for survival in China.

McDonald's catching up

McDonald's business model in China has changed slightly.

Gu Hua, public relations manager of McDonald's (China) Co. Ltd. told reporters that many McDonald's restaurants in Shanghai, Guangzhou, Shenzhen, Nanjing and other major cities have begun to implement 24-hour business, and will consider whether to transform into a 24-hour restaurant according to the situation of each store.

Meanwhile, McDonald's has begun to introduce the drive-through restaurant "Dessert", which has a 65 percent market share in the U.S. On Jan. 12, McDonald's opened its wholly owned drive-through restaurant "Dessert" in Waigaoqiao, Shanghai. By 2008, McDonald's aims to open more than 1,000 stores in China, including regular restaurants and drive-thrus, Schlosson said.

"The drive-through restaurant will have some development in China, but it won't have a significant effect in the last one or two years." Han Jun thinks so. He said that the scarcity of resources for stores with concentrated urban popularity has led McDonald's to start introducing a new model to the more remote suburbs, and that car restaurants can develop new cooperation space through horizontal chain cooperation with motels. "But the limitations of drive-thrus on location and the lack of owned cars in China likewise mean that drive-thrus are unlikely to grow at a high rate in China."

One industry insider described McDonald's expansion of drive-thrus as "aggressive," "but it's doubtful that the new drive-thru model will be as successful in China as it has been in the U.S.," the source said. The source admitted that the popularity of cars in China and the corresponding culture is very different from the United States.

KFC previously opened a Chinese drive-thru restaurant in 2003, but has not expanded since.