Rapidly diversifying internet giants in China are taking on Western food chains such as McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM). Startups, backed by Alibaba Group Holding and Tencent Holdings, are enticing customers with discounted food and options to pick from vast majority of restaurants.
The rising fleet of motorbike carriers on Chinese roads is creating difficulties for already struggling McDonald’s and Yum, owner of KFC and Pizza Hut. These fast-food chains had an edge over rivals for years, as they delivered fried chicken and hamburgers to homes and offices in no time through their bike-driving couriers.
Startup firms Meituan Waimai and Ele.me operate through mobile apps and are growing by partnering with huge numbers of food outlets in China. Meituan is backed by Alibaba, while Ele.me gets support from Tencent.
Their apps offer menu of big and small restaurants and people are more likely to use their delivery app, as it offers several menus rather than a single restaurant. According to iResearch, food sales through these startups hit 97.5 billion yuan last year, representing a jump of 54 percent from 2013.
During an investor conference in May, Yum executives said that these services are creating increasing competition for the company’s Pizza Hut and KFC outlets.
Separately, a spokeswoman at McDonald’s said the delivery market is getting competitive and the company is planning to seek opportunities on the online platforms.
Sales of McDonald’s and Yum! Brands have been declining in China amid rise of new delivery firms. McDonald’s and Yum are now joining hands with the delivery startups. McDonald’s, KFC and Pizza Hut have partnered with Baidu and Meituan, backed by Alibaba. Pizza Hut and KFC also joined Ele.me.
Both KFC and McDonald’s incur a delivery charge of nine yuan, which is kept by the delivery firm, according to a spokesman for Ele.Me. Six percent of the overall orders are from Western outlets such as Pizza Hut and McDonald’s, Ele.me said.
Yum said deliveries represented 7 percent of its $6.82 billion revenue in China last year.
Industry analysts say rising competition is effecting fast-food chains, which are already combatting to revive business they have lost to competitors as status of their brands has declined and competitors’ fast-food chains have expanded.
Yum’s sales for the second quarter plummeted 4 percent to $1.6 billion in China from last year.
