A couple of new China fast-food industry headlines reflect the rapidly changing and increasingly competitive environment in the sector.
Let’s start with the more humorous headline about KFC suing three companies in Shanghai for spreading false rumors about its products on social media, including one saying that it uses chickens that have eight legs.
The lawsuit came as KFC is struggling in China due to a stale and downscale image that it’s trying to revitalize through moves like sprucing up stores and adding premium coffee to its menu.
I’ve never heard of any of three companies being sued, whose names are Shanxi Weilukuang Technology Co, Taiyuan Zero Point Technology Co., and Yingchenanzhi Success and Culture Communication.
In all likelihood these are self-style “public relations” firms that take money from clients in exchange for doing things like smearing their rivals on social media.
KFC is seeking a relatively modest 1.5 million yuan (US$250,000) in damages and apologies from the trio, which allegedly conducted their campaign on the popular WeChat mobile messaging service.
KFC disclosed the lawsuit on its own website, and included the most popular of the false rumors that the company uses genetically modified chickens that have eight legs and six wings.
The case shows that Beijing isn’t the only one frustrated over the kind of rumor-mongering that regularly happens on popular services like Weibo (WB.US) and Tencent’s (00700.HK) WeChat.
Central authorities in Beijing have waged their own wars against this kind of rumor mongering, though their targets are more often rumors about politically sensitive issues.
The country’s courts even introduced formal definitions of what constitutes rumor mongering in late 2012 in an attempt to control the phenomenon.
This latest KFC story is sure to bring a smile to many readers’ faces, as most will know that such eight-legged and six-winged chickens are still the stuff of fantasy novels rather than a real thing.
But the story does illustrate one of the many challenges that KFC and its other rivals like McDonald’s are facing, as they attempt to reinvigorate their images and bounce back from a recent series of food safety scandals.
Meantime, it is reported that South Korean giant Caffe Bene is showing signs of distress following its recent aggressive China expansion, which mirrors the ridiculous explosion in coffee shops that has occurred in big cities like Shanghai over the last year.
I have personally noticed at least a half dozen Caffe Bene shops recently open in areas that I frequently visit. The latest reports give the bigger picture, saying Korea’s leading coffee chain has opened more than 600 stores in China over the last two years as it plays catch-up with names like Starbucks, Costa and even Hong Kong’s own Pacific Coffee.
Caffe Bene’s China president Qi Dong has reportedly disclosed on his microblog that he hasn’t been paid for the last eight months, and that he formally quit on June 1. The disclosure comes amid a flurry of other reports which said that Caffe Bene and its partners are scrambling to terminate store leases, and that the Korean firm is failing to pay many of its suppliers.
A report also cites Qi saying that Caffe Bene’s Chinese partner stopped paying its contributions to the venture three months ago.
The newspaper which provided the report, China Business News, attempted to contact Qi for more direct comment, but was unsuccessful. But it cited extensively from his microblog post, and other industry sources that seemed to substantiate the claim that the chain’s situation in China had indeed become dire.
That’s not too hard to believe, as the many Caffe Bene shops I’ve seen in Shanghai are usually empty, probably because the company expanded too quickly and didn’t properly market its brand the way the other chains did.
Even if it had done that, it would have faced a difficult time due to a boom that has seen hundreds of chains and individual premium coffee shops open in big cities like Shanghai over the last year.
I’m fully expecting a big shake-out that will see many of these shops close over the next two years, and this latest report indicates Caffe Bene could become one of the first and biggest victims.
Bottom line: Caffe Bene could become the first big victim of an unsustainable Chinese coffee explosion, while KFC’s new lawsuit against rumor mongers reflects one of the many challenges it will face as it tries to rebuild its China image.
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