tsc - frontier - casual dining market - china

Proprietary and Confidential

Casual Dining Restaurant MarketChina

Prepared Q4 2011

Casual Dining

Chinese Restaurant Market

Quick Service Restaurant

Hotpot Specialty/Fine Dining

Casual Dining Restaurants Offer Moderately Priced Food With Table Service

2

Casual Dining Restaurant Market – Definition

The Chinese consumer food industry is segmented into following restaurant formats:

• Quick Service Restaurants—self-service restaurants and customers pay prior to consumption to enjoy quick service and convenience

• Full Service Restaurants—traditional sit-down restaurants with ordering and full table service provided by waiters

• Hotpot—hot pot is placed in the middle of the table with ingredients in the pot, which are cooked on the table with full waiter services

• Casual Dining—offer low price food with table service and casual ambience; many casual dining restaurants offer full bar and a separate bar staff

• Specialty/Fine Dining—full service restaurant with formal ambience and special meal courses menu

KFC

Mc Donald

JiSheng

ZhenGongFu

BaiFuKaoBa

Little Sheep

ChongQing

Little Swan

XiaBu XiaBu

Xiangeqing

South Beauty

BaBeila

LaoNiangJiu

Full Service Restaurant

Ajisen

Chamate

JiaHeYipin

Pizza Hut

Starbucks

Source: FSG Research and Analysis; ‘My Decker Capital’ (December 2010); ‘Restaurants and Foodservice Review’, Alix Partners (May 2010)

Market Definition

The casual dining market comprises

restaurants offering table service and

coffee shops, which serve moderately-

priced food in a casual atmosphere; they

usually provide table service, and are placed between QSRs and fine

dining restaurants

Source: FSG Research and Analysis; ‘Restaurants and Foodservice Review’, Alix Partners (May 2010); ‘Western Fast Food Players in China Outlook 2010–2015’, Report Buyer (June 2010); China Latin Diaries; The Economic Observer Online; China Chain Store and Franchise Association

Chinese Casual Dining Restaurants Market is Fragmented with Large Players Accounting for about 6% Market Share

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Hotpot29%

Casual Dining21%

Specialty/Fine Dining50%

100% = 80 companies

Breakup for full-service restaurants in China(%, 2009) As per the market research report, by the end of 2010, the

Chinese casual dining market was expected to reach $310 billion

• According to China Cuisine Association, sales in the casual dining category grew 43.3% year on year in 2008, due to growing demand for low priced food by Chinese youth

By 2013, casual dining market is expected to grow and witness heavy investments by western chained restaurants, such as Pizza Hut, and Starbucks

• In 2011, Subway (a US–based casual dining chain) planned to open 300 outlets in China by 2015

• The country’s rapid urbanization coupled with the Chinese government’s plan to encourage foreign investment (in 2010) made this industry attractive for Western fast food players

Majority of the western and Chinese chained restaurants had plans to open casual dining restaurant (CDR) in tier 2 and tier 3 cities, such as Ningbo, Kunming, Fuzhou, and Tianjin

• This is primarily on account of dominance of well-established CDRs (Pizza Hut and Papa John’s) in tier 1 cities, such as Beijing and Shanghai

Average Net Profit Margin in the Chinese Food Service industry(%, 2008)

Hotpot Western Cuisine

Full Service Restau-

rant

Casual Dining

General Dining

Hotel Din-ing

Quick Service Restau-

rant

17.1%15.8%

12.3%

9.6%8.0%

6.1% 5.8%

As per Alix Partners, in 2009, China’s restaurant industry was highly fragmented with only 6.0% being contributed by the

China’s top 100 restaurants; however, large casual dining chains are likely to gain Chinese market share with special Chinese

menu

“We believe looking to cities outside Shanghai and Beijing will be the key to success for CDRs in the coming years.” – Howard Hsiao, Senior

Vice President, getchee Enterprise Solutions (July 2011)

“We believe looking to cities outside Shanghai and Beijing will be the key to success for CDRs in the coming years.” – Howard Hsiao, Senior

Vice President, getchee Enterprise Solutions (July 2011)

“We’ve been looking at cities outside the traditional markets of Beijing and Shanghai where a well-run restaurant can yield high profits before

market saturation occurs.” – Philip Tomlin, getchee Business Analyst (July 2011)

“We’ve been looking at cities outside the traditional markets of Beijing and Shanghai where a well-run restaurant can yield high profits before

market saturation occurs.” – Philip Tomlin, getchee Business Analyst (July 2011)

Casual Dining Restaurant Market – Overview

4

Notes: 1) Based on latest statistics available on secondary/primary domain2) This represents the number of its dine-in outlets; it has another 130 home delivery outlets

Source: FSG Research and Analysis; Company Website; Primary Research

Pizza Hut and Paulaner Brahaus Were the Earliest Entrants in the Chinese Market

NameCountry of

Origin

Year of Establishment

in China

Number of Outlets in China1 (2011)

Additional Information

Self-owned Franchised Total

Pizza Hut

US 1990 560 0 5602

Pizza Hut, an American restaurant chain, primarily offers pizzas, pastas, and rice dishes

• It also offers side dishes such as buffalo wings, breadsticks, and garlic bread

Pizza Hut China is a subsidiary of Yum! Brands, a global fast food restaurant company operating/licensing brands such as Taco Bell, KFC, and Wingstreet

Paulaner Brahaus

Germany 1992 12 0 12

Paulaner Brahaus is a German chain that serves Bavarian and Munich dishes along with Paulaner beers

In China, it started its outlets in cooperation with Kempinski Hotel, a German hotel chain that serves as the sole agent for Paulaner beer in the country

It has two restaurants in Shanghai and one each in cities of Beijing, Chengdu (Suchian), Dalian (Liaoning), Nanjing (Jiangsu), Sanya (Hainan), Shenyang (Liaoning), Suzhou (Jiangsu), Wuxi (Jiangsu), Xi’an (Shaanxi), and Yinchuan (Ningxia)

Key International Casual Dining Restaurant Chains

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Notes: 1) Based on latest statistics available on secondary/primary domain2) Starbucks receives royalties and license fees from licensed outlets that can resell Starbucks’ coffee, tea, and related products


International Chains Typically Operate Through Self-owned Business Model in China

NameCountry of

Origin


in China




Hard Rock Cafe

US 1994 1 0 1

Hard Rock Cafe is an international casual dining restaurant that serves a range of burgers, sandwiches, salads, and drinks

The restaurant is located in Beijing

Starbucks

US 1999 220 0 600

Starbucks Coffee is the largest coffee chain in the world

The company operates in China through a joint venture with Mei Da Coffee (in Beijing), President’s Group (in Shanghai), and Maxim’s Catering (in southern China)

It does not franchise its outlets but about 380 of its outlets are licensed2

Outback Steakhouse

US 2001 2 0 2

Outback Steakhouse is a casual dining chain that primarily serves beef and steak items in an atmosphere resembling that of an Australian outback

In China, both its restaurants are located in Beijing

TASTYTaiwan 2001 160 0 160

TASTY, owned by Wang Pin (a Taiwan-based restaurant Group), specializes in steaks and other beef-based dishes


6Notes: 1) Based on latest statistics available on secondary/primary domainSource: FSG Research and Analysis; Company Website; Primary Research

Western Fast Food Chains Continued to Make Inroads in China During the Mid-2000s

NameCountry of

Origin


in China




Papa John’s

US 2003 18 139 157

Papa John’s, primarily a take-away and delivery pizza chain, also offers table service in some of its restaurants

In China, Papa John’s operates through a hybrid business model (a combination of self-owned and franchised outlets)

Turbo RestaurantHong Kong 2003 13 0 13

Turbo Restaurant is a Hong Kong-based chain that serves a range of salads, pizzas, pastas, etc.

Hooters

US 2004 4 0 4

Hooters is a beach-themed restaurant that serves seafood, sandwiches, and spicy chicken wings

The company has one restaurant in Beijing, two in Shanghai, and one in Chengdu

First two restaurants were opened in Shanghai (2004 and 2006), followed by a restaurant in Beijing (2007) and another one in Chengdu (2008)

It operates in the country through Pacific Wings, a company controlled by Hooters USA, that manages the outlets in China


7

Notes: 1) Based on latest statistics available on secondary/primary domain2) NA denotes information Not Available


Some International Chains Serving Japanese-style Food Also Operate in the Market

NameCountry of

Origin


in China




Sizzler

US 2004 6 0 6

Sizzler is an American chain that offers salads, steaks, seafood, chicken, ribs, and beverages

It entered China through a 50:50 joint venture with Minor International, a Thailand-based hospitality Group

According to the terms of the joint venture, Minor International received exclusive rights to license Sizzler brand in China

All of its six restaurants are located in Beijing

Sakae Sushi

Singapore 2004 NA2 NA NA

Sakae Sushi is a casual dining chain that serves Japanese-style food

Its outlets are concentrated in the cities of Beijing, Shanghai, and Chengdu

It operates through a hybrid business model


8Source: FSG Research and Analysis; Company Website; Primary Research

Pizza Hut’s Success in China Led to the Entry of Other Pizza Chains in the Market

NameCountry of

Origin


in China




The Pizza Company

Thailand 2005 NA2 NA 14

The Pizza Company, owned and managed by Minor International Group, is one of the leading pizza chains in China

It operates through a hybrid business model and has 14 restaurants in Beijing

California Pizza Kitchen

US 2005 2 0 2

California Pizza Kitchen is a casual dining chain that serves pizzas, pastas, salads, appetizers, soups, sandwiches, and desserts

The company’s outlet is located in Shanghai

Costa Coffee

UK 2006 42 0 42

Costa Coffee is a coffee house company based in the UK that entered China through a joint venture with the Yueda Group, a Chinese state-owned enterprise

In 2008, it entered into a second joint venture in China with the Beijing Hualin Group, a leading Chinese retailer

Its outlets are concentrated in Beijing, Jiangsu (cities of Nanjing and Suzhou), Shanghai, and Zhejiang (Hangzhou city)




The Market Has Continued to Witness the Entry of International Chains till 2010

NameCountry of

Origin


in China




85o C Cafe

Taiwan 2007 NA2 NA 185

85o C Cafe is a cafe and bakery specializing in coffee, cakes, and breads

In China, it operates through a hybrid model

Tony Roma’s

US 2010 0 2 2

Tony Roma’s is a casual dining restaurant chain that specializes in serving ribs

It operates in China through Mas Millennium, its sole franchisee in the country

• Mas Millennium (Singapore) was incorporated in 1991 to act as a holding company to develop Tony Roma's restaurants in China, Hong Kong, Indonesia, the Philippines, Singapore, Taiwan, and Thailand

The company has one restaurant each in Shanghai and Chengdu




Domestic Players, such as Chamate and JiaHeYiPin, Serve Chinese-style Food

NameCountry of

Origin


in China




Chamate

Taiwan2 2002 NA3 NA 99

Chamate is a casual dining restaurant chain that serves Chinese-style food

The company’s stores are primarily located in Beijing, Guangdong (Shenzhen city), Hubei (Wuhan city), Jiangsu (cities of Changzhou, Jiangyin, Nanjing, Suzhou, Wuxi, and Xuzhou), Liaoning (Shenyang city), Shandong (cities of Jinan and Qingdao), Shanghai, Tianjin, and Zhejiang (cities of Hangzhou, Ningbo, and Yiwu)

The company operates through a hybrid business model

Grandma’s Kitchen

China 2003 5 0 5

Grandma’s Kitchen is a restaurant chain that offers Western food, such as steaks, along with beer

The company primarily targets tourists and Americans staying in the country

All its restaurants are located in Beijing

JiaHeYiPinChina 2004 75 0 75

JiaHeYiPin serves a range of Chinese-style food such as dim sums and noodles

Most of its outlets are located in Beijing

Notes: 1) Based on latest statistics available on secondary/primary domain2) Though Chamate originated in Taiwan, it is included as a domestic chain as it is owned and controlled by Shanghai Chamate Food (a Chinese company)3) NA denotes information Not Available

Key Domestic Casual Dining Restaurant Chains


Liang’an Coffee Has 350 Stores Located Across Several Cities in China

NameCountry of

Origin


in China




Liang’an Coffee

China 2003 NA2 NA 350

Liang’an Coffee is a coffee chain that was launched in China by UBC Cafe (a Taiwan-based Group) in 2003

Presently, UBC Cafe does not hold any stake in Liang’an Coffee

The company’s stores are located across China in Beijing, Guangdong (Shenzhen city), Guanxi, Hebei (Shijiazhuang city), Hubei (Wuhan city), Jiangsu (cities of Changshu, Jiangyin, Suzhou, and Xuzhou), Liaoning (cities of Dalian and Shenyang), Shandong (cities of Jinan and Qingdao), Shanghai, Tianjin, and Zhejiang (cities of Hangzhou and Shangyu)


Shanghai Babela Yizhou Food and Beverage

China 2005 30 NA NA

Shanghai Babela Yizhou Food and Beverage is a casual dining chain that serves pizzas, salads, soups, pastas, and sandwiches



Key Domestic Casual Dining Restaurant Chains

tsc - frontier - casual dining market - china

Documents

hybrid business

na denotes

casual dining

papa johns

pizza hut

paulaner brahaus

style food

additional