First off, if you want to get rich (my words) the paper points to one clear direction: open a coffee bar, ice cream store, or a beverage stand. Everyone loves these things. Landlords like them because they don’t take up too much space, customers like them because they can use them to hang or have informal meetings, and the brands like them because: $$$$$. Margins on beverages are good. No annoying chefs and kitchens to deal with. The number of them – called small-format cafes in report language – grew 30% in 2015.
Regular restaurants, despite their notorious headaches, have not been too bad either, naysayers be damned. Of the 32 brands that JLL tracked, the average brand expanded their store network by 20% (and many expanded faster).
Pizza Hut is way out front, multiplying and recombining and mutating its way across China in the last year, far faster than any other brand. Who knew? Starbucks, Gong Cha, and Dairy Queen also not doing so bad, but they have nothing on The Hut.
The average closure rate for restaurants in China is 8%. That is totally normal and healthy. If it was up to me, I’d crank the throttle on that one.
Expansion was even faster outside of Tier 1 cities than it was in Tier 1 cities. One downside is that those brands may have over-expanded and are going to face a contraction when they realize Hefei doesn’t need forty places to get a mango frappuccino.
Brands that came from countries less than 250km from China expanded fastest. Who thought to measure this? That’s very clever. The implication is clear: Japanese and Korean brands have a lot of opportunity in China.
Lots of people talk about how coastal cities are saturated so brands have to go inland for growth. According to JLL’s figures, that’s not true at all.
There is a really interesting chart that measures the number of urban residents per store for eight big brands. For example, for every Costa Coffee in Shanghai and Beijing, there were about 250,000 residents. For every KFC, about 60,000. I did my own little measure here: for every Montreal smoked meat deli, 25 million.
Of all the brands they looked at, 45% of their stores are in malls. That rings true. We all live at the mall.
Congrats to JLL and LocalGravity on a thought-provoking and data-driven report. To read the entire thing, click here.