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News Release

HONG KONG

Foreign F&B expansion in China

A new white paper by JLL and LocalGravity explores the trends and lessons behind foreign F&B brands’ expansion in China


Hong Kong, 14 February 2017 - JLL (NYSE: JLL), in collaboration with retail data specialist LocalGravity, released today a new white paper, titled 'Foreign F&B expansion in China'. The report explores the trends behind foreign food and beverage (F&B) brands' expansion in China and the lessons these trends hold for future market entrants.

In recent years, China's middle class has embraced foreign dining. Recognizing the opportunity, many Western and Asian F&B brands have expanded aggressively across the country and have become fixtures in China's malls and shopping streets. JLL and LocalGravity examined the trends underlying the China roll-out strategies of 32 well-known international F&B chains, and gathered the insights these trends hold for other brands looking to deepen or establish a presence in the country.

Key insights from the report:

  • Overall expansion rates were high at over 20 percent YOY in 2015, and China's strong consumer sector means F&B remains one of the country's most active areas for growth
  • Foreign brands remain active in coastal and Tier 1 cities, and are also expanding with increased confidence in lower-tier cities and remote regions
  • There is some risk in the less-wealthy provincial capitals, where many brands have over-expanded
  • Small café-format shops selling coffee, tea, and ice cream were the most active category, expanding 30% y-o-y in 2015.Regional bias is strong among most chains, especially in the south, and there is room to catch up in wealthy east China cities

The report has also explored closure rates by format. Analysis has revealed higher closure rates in the fast food segment relative to other formats as the urban consumers' attention shifts upscale. Additionally, using a retail framework, expansion potential has been explored to understand how store presence varies across city tiers. Of the 32 brands studied, many are found to have a strong presence in China's top cities. However, the several "white spaces" across Tier 1.5, Tier 2 and Tier 3 cities reveal an ample room for growth. Furthermore, many of the foreign F&B brands appear to be highly concentrated in South China, and other parts of the country offer untapped potential.

"Many foreign F&B brands view the China market with understandable enthusiasm—after all, capturing even a small slice of the market there translates into huge, absolute sales volumes," said Steven McCord, Head of Retail Research for Asia. "Yet, the road to successfully taking advantage of the China opportunity is a difficult one, as some restaurant chains have discovered too late."

"The China F&B market is now one of the world's largest and fastest moving, but it is still quite fragmented, with enormous room for growth," said James Hawkey, Head of Retail for China. "Working with LocalGravity, we have tried to shed some light on international F&B operators' expansion strategies and their site selection in China. We hope that the trends we have highlighted from among the largest chains operating in China would be useful for those F&B brands that are at an early stage of their China journey."

 

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