Pros and Cons – Starting and Operating Korean Fast Food Barbecue in China

Executive Summary

Korea Korean Barbeque (KKB) which initiated preliminary operations in Canada is all set to spread its wings around other parts of the world, including Chinese and other Asian destinations. Perhaps one of the chief reasons for its immense popularity and acceptance in many countries is the fact that it is wholesome food, prepared hygienically, in front of the customers and is devoid of any kind of food colors, preservatives or artificial flavorings.

Again, since Chinese food habits are similar to those practiced in Korea, it is widely believed that KKB would be an instant success in Chinese consumer food markets also, given the Chinese penchant for dumplings, noodles, chicken and meat products, tofu, etc. However, some of the main concerns are that KKB in China needs to address is with respect to country-specific laws and lucrative ready markets for its product lines. It is also necessary that these selected locations need to have standardized décor, excellent staffing, good integration with local cultures and customs. Conformance with local Chinese laws and practicing good corporate citizenship, especially about environmental protection and waste management are also important factors which KKB needs to consider in right earnest if it wishes to gain long-term sustenance and growth in a highly competitive Chinese fast food consumer market.

While China, with its burgeoning working population is ideal for fast food of the kind supplied by KKB, it is also necessary to undertake forays into other lucrative Asian markets like Malaysia, Indian subcontinent, etc.

Pros and Cons -starting and operating Korean fast-food barbecue in China

Introduction

KKB is perhaps the best thing that has happened to reasonably priced gourmet food in Canada. Although this concept has been introduced far away from Korea, or even, Asia, it is believed that it is only a matter of time when this concept could catch up in rest of the world and Korya Korean food would be the first and last word in gourmet food, not only in Canada, but in other parts of the globe, including China and other major Asian countries. “This restaurant kick-started with 3 corporate locations and is reaching the height of its franchising frenzy. Locations currently exist throughout Calgary, Alberta and Vancouver, British Columbia. With potential franchisees knocking at the door every day we expect to have locations worldwide within the next 5 years” (Profile).

This study would take a look at the perceived advantages and disadvantages of setting up shop in Chinese locations.

Issue identification

One of the major advantages that Korean food shares with Chinese food are their marked unity regarding choice of dishes. Noodles for instance, are favored by people of both countries as much as meat dishes that are loved by both Chinese and Korean people. Thus, Korean food is not a new commodity in China, nor would need any introduction as such to Chinese consumers, big and small- urban or rural. Perhaps, one of the main consideration would be the quality – which should not be a problem since KK BBQ foods are devoid of any artificial flavoring, preservatives or colors.

The main issue that needs to be considered in the formulation and adaptation of a clear cut strategy in the first place, on how business needs to be developed based on sustainable values like excellent and pristine flavored food, highest standards of customer support and care, view of long term growth and profitability. As a review in The Calgary Straight, January 21-27, 1999 has pointed out, “The interior design is stylish and modern, in a sort of haute fast food way. This is McKorea in the best sense of that phrase. The food arrives fast, is cooked in an open kitchen in front of you…Koryo provides inexpensive, reasonable authentic Korean food in a fast and friendly environment” (Reviews: Good Seoul Food).

Background, analysis and research alternatives

The main advantages and benefits of staging a KKB in China would be in creating avenues for its acceptability and patronage afforded to it by the local community. Since dietary recipes of Chinese are very much akin to that of Korean and there is common sizzling, mouthwatering and delicious cuisine common to both regions, the question of shifting adaptability to Korean food may not arise for Chinese populace. Food items like dumplings, noodles, tofu, etc., find favor of both Chinese and Korean people, although there may be slight differences in the mode of preparation “Industry sources claim that the casual dining segment in China is growing by 10% per annum, and is expected to reach approximately $310 billion by the end of 2010” (Western Fast Food Players in China Outlook 2010-2015).

The main challenges would be in terms of the investments, which could be approximately around US$ 300,000 to start with, and needs to be increased in later years. It would be in terms of setting up franchisees’ agreement with KKB Company in Canada, which would maintain the overall control and supervision of the business in China. Besides, Chinese markets would be very competitive and sustainability of business over the long term would be a major risk factor, given that customer preferences could change over time and changes in Chinese food habits, due to exposure to global cultures and eating habits. While ”China’s rising population and rapid industrialization coupled with the Chinese government’s plan to encourage greater foreign investment in China in 2010, makes this industry very attractive for Western fast food players” (Western Fast Food Players in China Outlook 2010-2015).

There are also major concerns in terms of the safety of Korean investments in China. For one thing, fast food industry is presented with major upheavals in terms of customer preferences, health hazards presented by fast food, obesity and related diseases health linked issues. Besides, “Food safety issues, Chinese regulations and rising public awareness regarding harmful effects of fast foods are currently the key issues facing the sector”. (Research and Markets: Western-Style Fast Food Players in China Outlook 2010, P.1). The aspect that KKB needs to first consider is what segment of the fast-food market would they be needing to tap- is it the elite, high class and sophisticated market which though difficult to retain, could earn good profits and bottom lines, or is it the common middle and lower-middle-class clientele who could assure normal business at reasonable prices, and perhaps on a long term basis.

Recommendations

This would depend upon a host of variables, economics and otherwise. Initially, it is necessary to recoup investments and costs and therefore, slightly higher pricing needs to be in the offing, which could be lowered after the market has been established and business firmly entrenched.

There are also concerns for cash flows and working capital needs to meet daily needs and make payments for supplies, wage bills, operating costs, and so on. Thus, it would become necessary that KKB would need to enforce strategic marketing and business plans in order to capture the retain major segment of the local community in its fast-food business that would not only cause migration of clients and consumers from other outlets to KKB due to enhanced food and attractive pricing. Besides, it is also necessary that the serving staff be courteous, polite and very attentive, and behave in a manner suiting the local community, and usher in better business in future. For this, the business must keep the maximum satisfaction index of patrons, clients and customers always uppermost in their business dealings. Besides, it is also necessary to maintain cost control and economic frugality in business, avoid wasteful and unproductive expenditures and maintain excellent financial structures, both internally and externally. This could be achieved by recruiting the best staff, providing excellent training and practicing good employee relations.

As a matter of fact, KKB has already taken the first step of posting employee news online and affording their employees to maintain online contacts with them, both online and through physical interviewing and counseling sessions. Strong communication is the keyword to efficient store performance, especially when these are based on global standards. Other major areas are the supply chain management for raw materials and supplies, work in progress, control over food inventories and their movement into and out of stores. Serving staff and counter assistants need to be fully trained on all aspects of business, through simulation exercises, if need be, and should be able to handle any quantum of traffic and business volume.

However, there are positives to this stage also. China is at the crossroads of massive economic development having sloughed off its stiff and conservative economic and social cultures which had heavily inhibited its growth prospects during the last several centuries and have moved over to an open and unfettered market economy.

Besides, in the Chinese context, “The food retail sector has the major share of 63% in the overall retail sector and it will continue to account for a major share in future also” (Market Research Reports: China Fast Food Analysis).

Process implementation

Initial investments and rentals

This business would be operated through signing of a franchising agreement under which the franchisees may be expected to take care of day-to-day operations and maintain business in accordance with franchisee norms. “Franchising is a great way to do business because a managing body takes care of all the planning and organization of your business and initial costs are minimal compared to starting a business from scratch…. For many, franchising is the easiest and most rewarding type of business, especially when you enter into a franchise where head office is supportive and truly cares about your interests, ideas, and skills” (Is Franchising Right for you?).

The financial arrangement for franchisee ship would be as follows:

• Phase 1: $1,000 (Refundable) to release any company information
• Phase 2: $5,000 ($3,500 refundable if you do not move into Phase 3) paid before Issuance of the Franchise Agreement
• Phase 3: $4,000 ($1,000 refundable) upon execution of the Franchise Agreement “The Total Turn Key Price is around $275,000 to $325,000 plus applicable taxes” (Initial Investments).

Expected time of opening store

It is important that this store be opened on a good and auspicious date, since Chinese are great believers of myths and superstition. This could be done on a Chinese New Year 201, hopefully on February 14, 2011, which happens to be a very propitious occasion. The event needs to be largely publicized so that the starting should be good. “As far as fast food goes, you’ll find nothing tastier, fresher, or fantastiker. (also, the portions are big!)” (Koryo Korean Barbeque: Restaurant Reviews).

Legal implication in terms of conformance with local Chinese labor laws, health and safety laws in food business, trade licenses and employment of children, etc.

“Food safety is a complex issue in China, presenting challenges to central government regulators as well as international trading partners. A deteriorating environment, lack of up-to-date food safety laws, ineffective governmental supervision, lack of general public awareness, all contributes to the problem”.(Thompson & Ying, P.13 )

All these aspects need to be considered while considering a franchisee for KKB in China. This is because finalizing a franchisee agreement needs to reflect on the legal and safety aspects of doing fast food business in China. Perhaps one of the major drawbacks of a registered licensing arrangement is that in this country, it makes it difficult or costly to terminate a distributor or franchisee agreement , and more often than not, franchisee agreements in China end up in litigation, which in all probability would end up favoring Chinese counterpart against a Korean, since the laws favor the host country and favor local business interests as against foreign interests, unless the terms of written contract contain enforceable clauses to the contrary.

Besides, in this case, the potential contractual agreements would be between the Canadian franchisee company, Koryo Korean BBQ Franchise Corp. which is a fast-food franchise in Canada and the actual owners of the KKB Trade license. Besides the fact that local trade laws may be heavily loaded in favor of local businesses vis-à-vis foreign enterprises, in the event of a dispute, or controversy, the likelihood of an early verdict would seem remote, if not impossible.

The Chinese Government has felt it necessary to enforce legislation in maintaining highest possible standards of food safety. This is done through preventive and control measures that seek to monitor all activities connected with food supply chain management through dispensation of nationwide united chain of command. Keeping in view the appalling food control system existing in China, the State Council issues the “Decision on Further Strengthening Food Safety Supervision “in 2004. (The Quality and Safety Food in China).

In order to render the role and responsibility of food safety more transparent and coherent, the need for constant supervision at each stage of production and processing is imminent and needs to be reinforced with departmental supervision as primary supervisory tasks and control over various types of food as the supplementary means.

Cost of producing/selling Korean food, with use of local and imported raw materials

It would be in the best economic interests of Korea to make good use of locally available quality food raw materials that are being used by other fast-food companies and businesses in the vicinity, locality or town. However, it is necessary that these raw materials meet stringent HACCP norms and approval of health inspectorate of China, in order to avoid future embarrassment or legal proceedings in the name of violation of laws. Besides, there are also aspects of higher costs for imported raw materials and concerns about their availability over long stretches of time. There are also anxieties about quality and preservation of food that are imported from other countries, including Korea, since fast food items may spoil if the storage and preservation aspects are compromised. Thus, substitute and complementary items could be locally picked and chosen for maintaining highest quality food standards. Investments in food processing equipment and machineries, including soft drink-making items, and other food articles could be maintained.

Cultural aspects of food business- food preferences of local Chinese population

Chinese people have penchant for meat and spicy food. There are also special delicacies’ in Chinese cuisine which are shared by their Korean counterparts like pork meat, chicken meat or beef pork liver boiled chicken gizzards small wanton or dumplings meat or chicken brothю

Expected Food Budgets that impact upon consumer consumption habits and spending capacities

Food products of this company must be competitively priced, at least at the beginning stages of their business. It is believed that Korean food is not very highly-priced, and is well within the economic reach of the Chinese working population, who may not be able to exorbitant prices for food required for daily consumption. Thus, pursuance of a budget by KKB need to observe Chinese eating habits and spending powers. Most Chinese, mainly working population would be circumspect about their daily spending for fast food, since wages may not be high enough to spend much for fast food items. For instance, Koryo food products are considered much cheaper and nutritious than authentic Chinese which may be more costly, due to more inputs. In contrast, KKB is prepared fast before the eyes of the eaters, and does not carry any preservatives, colors or artificial flavorings. Perhaps this fact could also account for its lower prices and its ability to meet even conservative budgets. To a very large extent, the budgets for Korean fast food would depend upon spending capacities of patrons.

Elements of competing with local American and European fast-food eateries like McDonald’s, KFC, Burger King and Wal-Mart and mobile local roadside eateries

The marketing strategies of American fast food companies may be different from that of their Chinese or Korean counterparts. While the former beliefs in innovative selling techniques like breakfast menu, drive-in restaurants and all-night stores, the latter scores on high quality and excellent service to customers. Besides, while all kinds of customers would crowd American fast food joints for a quick meal or snacks, only local Chinese or Koreans would frequent Korean food stalls. Besides the competition offered in the form of food joints on wheels and mobile food joints, at cheaper rates could affect Koryo Korean fast-food business. However, KKB needs to operate in a niche market and have a permanent customer base who would visit only KKB for their fast-food requirements.

Value creation

The first aspect that could make a successful KKB unit would understand the food needs of Chinese population and how best this company could fulfill them. The targeted segment of patrons is important, since this is what provides revenue and sustenance. A well-knit and regular set of customers could cover costs and help earn revenues over time, as would the need to attain and keep up highest standards of hygiene, cleanliness and service to customers. Home delivery and food combos are also attractive options. The main aspects that could distinguish KKB from others would be the consistently tasty and delicious quality of food, highest standards of customer servicing, thinking about long terms gains and not short-term benefits and building human and non-human assets for growth and development of this sector.

While China offers competition, it is also necessary to understand that Chinese burgeoning population, high rate of economic growth and spurt in business activities and an open and innovative cultural climate could encourage foreign investments, especially in the food sector. China’s reputation as the fifth-largest fast-food consuming industry in the world is also likely to come in useful, especially since fast food growth rates are expected to grow 25% annually.

Conclusions

To conclude, it could be determined that the setting up of an owned or franchised Koryo Korean food joint is a good decision, based on planned and deliberately researched facts and data. Despite cultural differences, China offers the best offshore investment climate, especially for the food sector. However, it is necessary that these stores need to be first located in centrally located areas of cities like Shanghia, Beijing or Guangzhou.

It is also necessary that these selected locations need to have standardized décor, excellent staffing, robust integration with local cultures and customs. Conformance with local Chinese laws and practicing good corporate citizenship, especially with regard to environmental protection and waste management are also important.

Finally, it is imperative that KKB takes good care of its employees and working staff, by offering good salary levels, commensurating with that offered by local American fast food companies in the locality, good and pleasant working environment and, above all, create a scenario in which both the servers and the served to enjoy the food and drinks offered to them, over a long period of time. This could be ensured by suitably attending to the competitive elements of business, health and environmental factors and using local influences for solving issues that may crop up in fast food business.

Works Cited

1. Initial Investments. Koryo Korean Barbeque. 2010.
2. Is Franchising Right For You? Koryo Korean Barbeque. 2010.
3. Koryo Korean Barbeque: Restaurant Reviews. Trip advisor. 2009.
4. Market Research Reports: China Fast Food Analysis. Food and Beverage Reports. 2010.
5. Profile. Koryo Korean Barbeque. 2010.
6. Research and Markets: Western Style Fast Food Players in China Outlook 2010, Forbs. 2010.
7. Reviews: Good Seoul Food. Koryo Korean Barbeque. 1999.
8. The Quality and Safety Food in China. Permanent Mission of The People’s Republic of China to the United Nations office at Geneva and Other International Organization in Switzerland. 2010. Web.
9. Thompson, Drew & Ying. Hu. Food Safety in China: New Strategies: Challenges, Recommendations and Conclusions. Global Health Governance. 2007.
10. Western Fast Food Players in China Outlook 2010-2015. Market Research. 2010.