Translation for Battle of casual dining

The Economic Observer Online Industry News Beijing, China www.eeo.com.cn

9 July 2009

The intense competition within the western segment of the F&B industry in China is compelling some players into expansion while driving others to exit. Babela’s Kitchen is one of such that is in direct competition with Pizza Hut. The former has been successfully increasing its market share and reducing the latter’s, which resulted in the closure of 17 Pizza Hut stores in Shanghai last year. According to Babela chief financial controller, Lee Mu Zhi, similar effect would be visible in Beijing this year. Erosion of profitability as results of such battles are gradually driving many F&B players out of business and moving them away from the segment. Expansion of local enterprises Babela, a casual Italian–inspired restaurant chain, was founded in Shanghai in 2005 and is a direct competitor of Pizza Hut, an American restaurant chain and the world’s largest pizza chain with more than 400 stores in China, including 50 in the city of Shanghai. Babela adopted the ‘close combat’ strategy, setting up its stores next to Pizza Hut’s. While offering similar items as Pizza Hut, Babela’s pricing is lower and comparatively more cost-effective, hence the growing market share. The chain opened its first store in Pudong, Shanghai and started its competition with Pizza Hut. Babela started reaping success few years later as Pizza Hut starting scaling down on its operations in the city. Currently, Babela has 38 stores in Shanghai and nine stores in Beijing. The chain targets to open another 21 more in the capital city. Lee said that Babela is also aggressively growing its delivery service and is partnering Cuscapi for a centralised order and delivery centre, adopting Cuscapi’s proprietary call-order--delivery solution. Growing popularity of casual dining Casual dining chain is rapidly gaining popularity in China in recent years. According to the 2008 China's Top 100 Catering Business Report published by China Cuisine Association, sales in the casual dining category grew 43.25 % year on year, ranking first among the industry and Western style F&B stores’ average profit ranked second in the industry. Huge profits and healthy cash flow underlines growing investments into the chain restaurant industry and rapid expansion of existing chains, even during economic downturn. According to a yearly public survey ended February 2009, the total investments by seven players in the chain restaurant industry were USD156 million. Cuscapi executive director, Her Chor Siong said that traditionally there were plenty of individual restaurateurs, running typical F&B business. There were very few large F&B players or restaurant chains that adopted enterprise-level business management model for their operations, hence less competition for solutions providers. He added that interest and investment for F&B chain business have grown over the years, catapulting the segment growth. This segment now has more players and the numbers are growing, resulting in stiffer competition. While the need for sophisticated solutions increases as operations grow and evolve, both business opportunities and competition also increased for solutions providers. Sizable profit margins Lee commented that Babela adopted the same concept as Pizza Hut but its business thrives because it has homegrown advantage. Predominantly profit margins were sizable as competition was leaner in the western casual dining segment. Her added that although the cost of living in Taiwan was nearly 50% higher than that in Beijing and Shanghai, the prices of food and beverage in Taiwan are about 30% lower. This is because Taiwan's food and beverage industry is matured and prices have moderated, while the competition in China’s F&B grew tremendously only in the last few years, driving the spike in prices. Lee opinioned that when the F&B industry in China began to saturate, the pricing of casual dining chains would eventually decline 30% and profit margins would thin out.

Back to News Clippings >>