The business strategy that Chinese restaurant industry takes to develop and attract customers

Introduction

The nature of the restaurant industry in China

The restaurant industry in China has been growing rapidly since the 1970s. Since then, China has been building a reputation as a country whose hospitality industry is well established. This growth was immensely contributed to developments in areas of stock ownership, private ownership, and joint ventures. The cooperative development of the 1980s also contributed to growth and stability in the country’s restaurant industry. This growth was characterized by, among other things, changes in business practices. These changes continue to be adopted as restaurant businesses respond to changes in opportunities and challenges in the market.

Today, China has become a world economic powerhouse. The country’s restaurant industry is keen to take advantage of the opportunities that come with the emergence of a global market. In this context, the restaurant industry has started embracing business practices that embrace cross-cultural factors in efforts to attract and retain customers. Unfortunately, this global market has also triggered a stampede for the expansive Chinese market by multinational enterprises especially fast-food restaurants.

As China continues to perform well economically, one of the market segments that continue to expand is the luxury market segment. At the same time, state-owned restaurants are increasingly embracing a new business strategy characterized by a shift “from commodity to brand” (Cai, 2004). In this regard, businesspeople in both the private and public sectors have realized that to get customers, they must provide superb service that gives them a wide range of options to choose from. Indeed, brand development is one of the business strategies that are commonly used in the pursuit of excellence in the Chinese restaurant industry. Other commonly used strategies include co-branding (Guillet, 2010), cross-cultural marketing (Tian, 2010), outsourcing (Lam, 2005), and franchising (Heung, 2008; Tsang, 2000; Cui, 2009). In today’s context, this is how the Chinese restaurant industry operates.

Business practices in China’s restaurant industry: Opportunities and challenges

Today, the Chinese business environment has been transformed by globalization and the onset of the information age. Consumers continue to seek information about Chinese restaurants through different means, including online. The issue of online consumer behavior has prompted players in this industry to put in place changes in the way they do business. In the online environment, people of different cultures come together to share information about different issues, including the best holiday spots, accommodation offers, and quality of customer service. Restaurants that have thrived most in China are those that focus on both local and international customers. To undertake these measures, these businesspeople have had to first appreciate the existence of a close relationship between restaurant industry and tourism.

According to Cai (2004) one of the most dramatic changes in terms of business practices in the industry is in the form of a shift from commodity to brand. The aim of introducing these changes is to address problems affecting all market segments. Some of the critical issues that are being addressed include brand development, market segmentation, and product differentiation. In shifting from commodity to brand, efforts are made to appeal to the luxury market segment as well exploit the numerous opportunities being created by a growing, increasingly assertive, Chinese middle class. To achieve these goals, restaurant operators are keen to exploit world-class expertise in order to establish the best models for their enterprises (Pine, 2002).

Changes in ownership structure are also common in the Chinese restaurant industry (Yu & Huimin, 2005). These reforms are being introduced to address internal organizational vulnerabilities as well as changes in the external environment. As these changes continue to take place, one of the main strengths is that the market continues to grow. At the same time, the Chinese government continues to be increasingly important role as a regulatory authority.

In fast-food restaurants, one of the most critical issues relates to perceived service quality (Qin, 2010). Qin undertook an empirical study with the objective of assessing the potential antecedents of satisfaction among customers in  the Chinese fast-food industry. The antecedents assessed include perceived value, food quality, and service quality. Qin (2010) also examined the relationship between customer satisfaction and behavioral intentions in mainland China. The findings of the study showed that perceived value, food quality, and service quality were all critical elements of service quality perception in the Chinese restaurant industry (Qin, 2010). Moreover, these dimensions were related directly and positively to satisfaction. This, in turn, had a far-reaching influence on behavioral intentions.

Qin’s (2010) study also explores a trend that continues to present a serious threat to the Chinese restaurant industry; that of the emergence of Western fast-food franchise restaurants. These restaurants have in recent years been undertaking ambitious plans to increase the size of their target market in China. These efforts were particularly heightened after China’s accession to the WTO (World Trade Organization). Western business models are being transferred to China, raising serious concerns about their ability to adapt to cultural and dietary differences. Meanwhile, local restaurants continue to have a unique competitive edge by their virtue of possessing an in-depth understanding of local cultural and dietary preferences (Qin, 2010).

Global competition remains a major challenge for the restaurant industry in China. According to Heung (2008), one of the biggest challenges for this industry arose at the time of transition to a market economy. One of the main challenges at this time was caused by the entry of international franchising restaurants into mainland China. Moreover, internal business factors also played a critical role in influencing the extent to which restaurant businesses in China thrived. Heung (2008) argues that it is imperative for studies investigating the impact of external and internal environmental factors on restaurant business in China to be addressed through qualitative techniques. On the basis of this technique, Heung (2008) found out that there is a tendency by state-affiliated restaurants and hotels to join international franchising. The study also found out that those restaurants and hotels that did not wish to join international franchising made this decision because they did not wish to abandon their management culture and structure (Heung, 2008). Unfortunately, not many studies have been carried out to determine the nature of relationships that franchisers and franchisees enter into.

Strategies for attracting customers in China

Restaurant owners in China use different strategies to not only attract customers but also to retain them. One of these strategies is co-branding (Guillet, 2010). In co-branding, two or more brands collaborate with the objective of reaching the objectives of every brand involved. It is widely regarded as a viable strategic business for restaurant and hotels in the West. This is especially the case in Europe and the United States. However, in the East, co-branding strategies that bring together restaurants and hotels have tended to trigger many unanswered questions (Guillet, 2010). This is particularly the case in China, one of the most promising and fastest growing tourism markets.

Few researchers have dedicated much of their time to in-depth analyses of the concept of co-branding. Moreover, the few that have investigated this concept have adopted Western perspectives (Guillet, 2010). It is imperative that the impact of this strategy in the East especially China is subjected to thorough, empirical analysis. Their influence on the perceptions of customers should be reviewed. According to Guillet (2010), emphasis should be on customers of diverse cultural and social backgrounds. Guillet (2010) observes that the prospects of co-branding strategies that bring together various hotels and restaurants in China present both opportunities and threats.

Awareness of cultural factors remains a major selling point for many restaurants in China. Some restaurants have even gone a step further by converting these factors into a competitive advantage (Cui, 2009). The need to adjust to cultural dynamics in China remains an area of priority for both local restaurant businesses and multinational restaurants. For local restaurants, the goal is to respond to the unique dietary needs of the over-increasing population of foreigners. For multinational restaurants such as McDonald’s and KFC, a major challenge is to adapt their American-style dietary style to the Chinese culinary culture.

Cultural differences always have a critical role to play in the practice of international marketing. In the restaurant industry, the ability to attract customers is highly dependent on the ability by the business to meet their specific needs. This explains why the restaurant and hotel industry continues to draw “special attention” to researchers (Cui, 2009). For these researchers, the urge to investigate the unique ways in which the restaurant industry chooses its marketing strategies is sometimes overwhelming (Cui, 2009). In such studies, cross-cultural theories form a core component of the theoretical framework. The theoretical framework also tends to be heavily influenced by the 4P theory of marketing. The term “4P” stands for Product, Price, Promotion, and Place, all of which constitute the marketing mix (Cui, 2009). Using the 4P marketing approach, Cui (2009) found out cultural differences in terms of values, language, and customer behaviors influence the way marketing strategies are implemented in international markets. The influence tends to be significant in situations where these cultural differences are an integral part of a national culture.

Another approach is for different theories to be put together to constitute an analytical model. The most important thing at this point is normally to analyze the relationship between these two theories. This relationship is normally used as a basis for the identification analysis of empirical findings. According to Cui (2009) this approach is useful because it enables the research to be thorough in the analysis and interpretation of findings. This is simply because of the diversity provided by the use of more than one theory.

In qualitative research, multiple case studies are also increasingly being used in marketing studies especially those focusing on the hotel, restaurant, and tourism industries. In such studies, some of the information is normally gathered using structured questionnaires and semi-structured interviews. It is common for researchers to supplement this data with secondary data in the form of scientific articles and company web pages (Chow, 2007).

The outsourcing strategy is also becoming increasingly common in today’s world of globalization. However, according to Lam (2005), the outsourcing market in China is still immature. Not all Chinese restaurant businesses that have embarked on the outsourcing strategy have been successful (Lam, 2005). This is perhaps the main reasons why restaurant managers in China have varying perceptions regarding the importance of outsourcing. One of the main hindrances is the ambiguity in the laws governing outsourcing practices. Another major problem is that the corporate culture of the outsourcing vendors in most cases tends to be incompatible with that of restaurants.

In contrast, the franchising strategy has been very successful in recent years especially in the fast-food business (Kim, 2006). Franchises are formed through strategic partnerships that bring together the franchisee and the franchiser. A critical step in this strategy is partner selection. Failure to select the right franchisor or franchisee may have a negative impact on the franchise in the long run. In literature, the tendency has been for the viewpoint of franchisors to be adopted (Xiao, 2008). According to Xiao (2008), there is a need for more research to be undertaken from the viewpoint of potential franchisees.

Today, China is a source of numerous growth opportunities for international restaurant franchisers. At the same time, interest in franchising among restaurant owners in the countries continues to increase. This interest motivates them to be knowledgeable about this concept in terms of its potential in developing, attracting, and retaining customers. Xiao (2008) noted that franchising preferences were significantly influenced by the educational background and work experience of restaurant operators in China. These preferences should be understood in the context of the culture of strong brand awareness that prevails in China. Potential franchisees in China are attracted by factors such as low franchise fees and high returns on their investment.

Global competition has brought about both opportunities and threats for franchising in China. This phenomenon transpired in a dramatic way during China’s transition to a market economy. During this time, international franchising entities ventured into the country and brought with them different modes of operation. Restaurants that insisted on retaining their management cultures were left behind in the dramatic transformation that was taking place in China’s economy. Most of the restaurant owners who refused to embrace the practices of the market economy speculated, albeit wrongly, that it was just a matter of time before China reverted to the planned economy.

The emergence of fast-food restaurants in China

Fast-food restaurants have become a dominant feature in China today. Western fast-food restaurants started exploring the Chinese restaurant market during the 1980s and early 1990s. Their focus was on attracting Chinese consumers by providing them with customer service that was in line with the Chinese culture. However, the fast-food industry seems to have started rather late in China. During the early 1980s, fast-food restaurants had already become a major component of the contemporary urban lifestyle in many parts of the world. Yet by this time China had not yet fully embraced this new dietary practice.

For fast-food restaurants to win over customers, they have had to mix the traditional with the modern. They have been compelled to mix Western-style dietary styles with Chinese preferences. Western fast-food restaurants have also been adopting the business strategy of encouraging as many Chinese people as possible to embrace the culture of dining out. Today, the popularity of this culture continues to grow. It continues to generate big business for these restaurants. Local entrepreneurs are also keen to reign in on the numerous opportunities that come with this change of culture. For those local entrepreneurs whose operations are based on the traditional business model, the greatest challenge is to adapt their marketing styles to the changing trends in consumer preferences.

From the viewpoint of collectivity, operators in the fast-food industry are keen to expand their market share within the expansive food and beverage market. To achieve this goal, they are compelled to come up with strategies of transforming customers into “life-members” by encouraging them to adopt eating behaviors that they will continue to hold onto all their lives (Yu & Huimin, 2005). In this market, quality of service matters a lot. As the consumer and supply markets continue to take shape, operators in the Chinese restaurant industry are aligning themselves to take advantage of emerging opportunities by attracting as many customers as possible. In this quest, efforts are being made to meet the specific needs of students, tourists, businesspeople, and the middle class (Kong, 2009).

To attract customers, restaurant operators need to understand differences among different regions. China is a very expansive country that is characterized by subtle cultural differences. Stark differences also exist as far as economic development is concerned. These factors have a far-reaching impact on trends in the country’s catering industry. The catering trends of Western China are different from those of Eastern China. For instance, Eastern China is home to the highest retail sales in the industry. In contrast, Central China has the fastest rate of growth. Across China, the most frequent consumers of fast-food come from urban areas. In urban areas, the highest percentage of consumers resides in well-off neighborhoods. Nationally, the most endowed populations reside in southern and eastern provinces.

Choice of foods greatly influences consumer perceptions of fast-food restaurants. To achieve success in efforts to attract local customers, restaurants have been compelled to emphasize on the usage of beans, grains, and vegetables. For foreign fast-food restaurants such as McDonald’s and KFC, the adoption of this distinct culture marks a point of departure from western-style dietary culture. Similar changes have been adopted in the way the food is cooked. There is a preference for food with low caloric content. The outcome of this adaptation process is that Chinese fast-food seems to be more nutritional than Western fast-food. The use of chopsticks at the dining table also serves as a major point of attraction for Chinese customers.

Cultural sensitivity also calls for awareness of differences relating to symbolism. Chinese people have a tendency to emphasize on the symbolism created by different colors during festivals. In a market where restaurant operators are always competing for a larger slice of the market share, integrating elements of symbolism can serve as a unique source of competitive advantage. This strategy can also be used to emphasize on aspects that mark a point of convergence between the Chinese and Western culture. This approach is common in areas that are frequented by tourists or have a large population of foreigners.

Changing consumption patterns and lifestyles

The consumption patterns of Chinese consumers have changed a lot in recent times. This has been contributed to largely by increasing affluence within the middle class especially in urban areas. The rapid rate of the country’s economic growth has also contributed to this situation. In the past, many people in China used to dine out only on special occasions. Today, it is more convenient for many Chinese to dine out several times every week. They are compelled to spend more time at the workplace. They also tend to engage in outdoor social activities more often. For people leading such a lifestyle, the costs and efforts involved in the process of preparing means outweigh the benefits. At the same time, more women are entering the workplace while households are becoming smaller. This combination of factors makes outdoor dining a necessity in most households.

For leading restaurant businesses, the challenge is on expanding the range of the products that they offer to their customers. As these restaurants continue growing, they have started benefiting from economies of scale. Those that are run efficiently are able to offer a wide variety of foods at affordable prices. In literature, researchers have become more interested in the dynamics of the Chinese restaurant market. One of the main areas of focus is the steps that various restaurants are undertaking to expand their market coverage. In this quest, managers of these restaurants have the option of continuing with their existing strategies or introducing new strategies.

For foreign restaurant owners, the choice is between standardization and localization. In standardization, the same brand is marketed in all countries of the world. This strategy is based on the assumption that the entire planet is one large, unique market. In localization, restaurant operators focus on adapting specific products to specific markets. For instance, McDonald’s produces certain products exclusively for the Chinese market. In standardization, the same product is developed using a similar marketing-mix. Similarly, the same product is marketed in the same way in terms of prices, promotions, and channels of distribution. In the case of localization, the uniqueness of every culture, country, and region is put into consideration during the production process. Different elements of the marketing mix are chosen based on context. Most international restaurant companies operating in China have realized that their success in attracting customers depends primarily on their ability to understand the needs of the local market.

The changing lifestyles and consumption trends in China are demonstrated in the way the country’s food services industry has changed. One of the ways of understanding these changes is by analyzing the way the industry is segmented. This segmentation can be understood in terms of restaurant formats. The main formats include full-service restaurants, cafes and bars, quick-service restaurants, and kiosks. It can also be understood in terms of the types of cuisine provided, for example Western, Chinese, and Indian. Another approach entails categorization on the basis of operating models; some restaurants operate as chain-based entities while others operate as independent entities.

Traditionally, full-service restaurants operate in such a way that customers simply sit down to be served with food made to order or in the form full-table service. In this model, customers pay after being served. In quick-service restaurants, standardized food ingredients are used to prepare foods conveniently for customers who pay in advance of being served. At first, quick-service restaurants became popular in China with the emergence of international brands. However, later on, this sub-sector expanded significantly with the entry of numerous local companies. Since mid-2000s, revenues from the quick-service sub-sector have been growing significantly. Between 2004 and 2009, the revenues grew from RMB253.8 billion to RMB470.6 billion.

One of the main drivers of the quick-service sub-sector is growth in China’s working population. China’s workforce continues to increase rapidly. This means that a higher number of people remain away from their homes during the day. These people tend to lack the time to prepare food at home. They opt to dine out for the sake of convenience. They also do this as a way of embracing the emerging lifestyles. The prevalence of this trend towards a change of lifestyle is evident in the fact that quick-service restaurants were able to survive the recent economic recession due to the over-increasing number of customers relying on them for everyday consumption.

As restaurant operators continue to increase the size of their market, it is worthwhile for them to appreciate the fact that this is a highly dynamic industry characterized by numerous growth opportunities. These restaurants can venture into any of the many available niche markets. However, difficulties continue to be encountered as far as market consolidation is concerned. This is because of the fact that it is not possible for restaurant operations in this country to be standardized. Consequently, no single restaurant operator has succeeded in dominating this market. At the same, many markets in the country are yet to be discovered simply because of diversity with regard to Chinese cuisine styles.

As the restaurant industry continues to report unprecedented growth, the main area of focus is on chain restaurants. The share of these restaurants remains very small compared to that of full-service restaurants that operate as independent entities. However, their rate of growth is higher than that of the restaurants that operate independently. According to Qin & Prybutok (2009), it seems that going forward, chain restraints will continue growing at a faster rate. This means that the traditional customer base of full-service restaurants that operate as independent entities is under threat. To maintain their relevance, these full-service entities should repackage the products and services that they are providing. Moreover, they should focus on creating niche markets in order to attract new customers. Qin & Prybutok (2009) argue that efforts to develop niche markets should double as opportunities for diversification.

Theoretical aspects

Attraction and retention of customers is one of the most serious challenges in the world of business. For customers to be retained, they must be satisfied with the products and services being provided to them. Organizations that satisfy their customers must always focus on meeting or exceeding their expectations. Parasuraman (2008), categorizes aspects of customer service expectations into five dimensions: tangibles, reliability, assurance, empathy, and responsiveness. Tangibles can be improved by putting into consideration the quality of physical facilities, personnel, communications materials, and the equipment used in customer service. Reliability is a critical factor in the restaurant business. Customers hate situations where they are not sure about whether meals made to order will always be served on time. Constant delays and postponements in the delivery of services lead to frustration among customers. Customers also feel bad about orders that are not delivered in a dependable and accurate manner. Similarly, assurance is important since it gives customers confidence that the food that is being served to them is of high quality. Employees of a restaurant must always be able to convey elements of confidence and trust among customers. In terms of empathy and responsiveness, focus is on ensuring that an individualized approach is provided to every customer. Moreover, customers like to be served in restaurants whose employees always respond to their specific needs in a satisfactory manner.

Evidently, the notion of customer satisfaction and its relationship with quality of products and services is adequately supported in both theory and practice. In the context of restaurant business, quality for a customer may translate into emphasis on the smallest details such as temperature, aroma, aesthetic appearance, and taste. For some waiters and other restaurant employees, the pressure to deliver on quality is simply unbearable. Employees who give up on pursuit of this crucial dimension risk losing customers. Employees need to understand that for customers, the reason for ordering a glass of water is as much to quench their thirst as it is to gain recognition for being a regular customer.

Pine (2002) argues that cultural dimensions tend to influence the acceptability of practices aimed at building customer satisfaction. However, Pine (2002) also hypothesizes that the restaurant’s atmosphere in terms of décor may not have a far-reaching impact on level of customer satisfaction. This hypothesis is based on the view that every service encounter brings together a service provider and a customer. Both participants must play their respective roles for efficiency in service delivery to be achieved within the environment provided by the service organization. It is worthwhile to point out that service organizations normally endeavor to remain competitive by protecting their margins.

Elements of customization should also be put into consideration in efforts to attract, satisfy, and retain customers (Qin, 2010. Customization is an excellent way of ensuring that the products and services being provided in the restaurant industry are of high quality (Qin, 2010). Incidentally, every business enterprise has rules and procedures for service delivery. These rules and procedures sometimes tend to create restrictions on the extent to which a product can be customized to suit a specific customer. Whenever such restrictions are imposed, aspects of quality are adversely affected. In such a situation, the customer may easily become dissatisfied (Qin, H 2010).

Qin (2010) also discusses a phenomenon whereby both customers and contact personnel in the restaurant industry tend to perceive elements of perceived control. On the one hand, contact people may attempt to control the customer’s behavior as a way of making their work less stressful and more manageable. On the other hand, the customer may attempt to gain full control of the service-delivery encounter with the aim of deriving the most benefit. The main assumption in this case is that the extent to which the customer is in control of the service encounter determines the extent to which he or she becomes satisfied in the end. According to Qin (2010), this phenomenon can enable theorists, marketing practitioners, and restaurant owners to assess the potential by employees to provide products and services that lead to customer satisfaction. To achieve this goal, only needs to assess the tendency by employees to let the customer take control of the service encounter.

Choice of business strategy in the Chinese restaurant industry: Focus on service quality

In the Chinese context, choice of business strategy is influenced by numerous factors. In literature, the conventional approach involves analysis on the basis of 4P marketing. The four dimensions of the marketing mix within the 4P theory include product, promotion, price, and place. In terms of product strategy, culture is arguably the main consideration. The choice of the food that customers eat is influenced primarily by cultural considerations. Customers focus on dietary habits that reinforce their values, beliefs, and customs. According to Hofstede (1994), the behaviors of consumers are culture-bound as far as their decision to purchase a certain product is concerned. Hofstede (1994) uses the model of cultural dimensions to explain differences in consumer behavior and consumption patterns. In China, a culture of collectivism is said to predominate (Hofstede, 1994). For restaurant operators to achieve success, they need to tailor their products and services in such a way that they mirror this dimension of collectivism.

Price strategy also constitutes a critical factor because consumer is also greatly influenced by affordability. Some people simply refrain from dining in certain restaurants simply because the prices are too high. When making pricing decisions, many marketing strategies put into consideration socio-cultural factors especially consumers’ perceptions. Other critical factors in this respect include market servicing, product adaptation, and consumers’ expectations. During its forays into the Chinese market, McDonald’s chose to adopt a low-price strategy. For McDonald’s, the adoption of this strategy was a prerequisite for success given that prices of most commodities tend to be lower in China than in the U.S. In the absence of a low-cost strategy, McDonald’s would not have succeeded in attracting many customers in China. This is because of the country’s income levels are lower compared to those of the U.S.

 

 

References

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Chow, I 2007, ‘Service quality in restaurant operations in China: Decision- and experiential-oriented perspectives’, Hospitality Management, vol. 26, pp. 698–710.

Cui, Y 2009, American Fast Food in Chinese Market: A Cross-Cultural Perspective: The Case of KFC and McDonald’s, Routledge, London.

Guillet, B 2010, ‘Travelers’ Takes on Hotel—Restaurant Co-Branding: Insights for China’, Journal of Hospitality & Tourism Research, vol. 34, no. 2, pp. 143-163.

Heung, V 2008, ‘International franchising: Opportunities for China’s state-owned hotels?’, International Journal of Hospitality Management, vol. 27, no. 3, pp. 368–380.

Kim, W 2006, ‘Determinants of Chinese hotel customers’ e-satisfaction and purchase intentions’, Tourism Management, vol. 27, no. 5, pp. 890–900.

Kong, H 2009, ‘Hotel development in China: A review of the English language literature’, International Journal of Contemporary Hospitality Management, vol. 21, no. 3, pp. 341 – 355.

Lam, T 2005, A study of outsourcing strategy: A case involving the hotel industry in Shanghai, China’, International Journal of Hospitality Management, vol. 24, no. 1, pp. 41–56

Pine, R 2002, ‘China’s hotel industry: Serving a massive market’, The Cornell Hotel and Restaurant Administration Quarterly, vol. 43, no. 3, pp. 61–70.

Qin, H & Prybutok, V 2009, ‘Service quality in the USA and mainland China’s fast-food restaurants’, International Journal of Services and Standards, vol. 5, no. 4, pp. 291-315.

Qin, H 2010, ‘Perceived service quality in fast-food restaurants: empirical evidence from China’, International Journal of Quality & Reliability Management, vol. 27, no. 4, pp. 424 – 437.

Tian, G 2010, ‘Cross-Cultural Customer Satisfaction at a Chinese Restaurant: The Implications to China Foodservice Marketing’, International Journal of China Marketing, vol. 1, no. 1, pp. 60 – 72.

Tsang, N 2000, ‘Service quality in China’s hotel industry: a perspective from tourists and hotel managers’, International Journal of Contemporary Hospitality Management, vol. 12, no. 5, pp. 316 – 326.

Xiao, Q 2008, ‘International hotel development: A study of potential franchisees in China’, International Journal of Hospitality Management, vol. 27, no. 3, pp. 325–336.

Yu, L & Huimin, G 2005, ‘Hotel Reform in China: A SWOT Analysis’, Cornell Hospitality Quarterly, vol. 46, no. 2, pp. 153-169.

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