Can Taco Bell Actually Win Market Share in China?
Yesterday Yum China announced the grand opening of a new Taco Bell in Shanghai, the chain’s first location in China after a decade-long absence.
With a potential customer base of 1.3 billion, Yum Brands and Taco Bell seem excited about the likelihood of a big expansion in China. This could be a key part of Taco Bell’s international expansion efforts for the brand, which is expected to reach 1,000 total international units by 2022.
“We’ve just scratched the surface of our global unit expansion potential,” Brian Niccol, chief executive officer of Taco Bell Corp, said in a press release. "The opening of this Taco Bell restaurant in China is an exciting milestone for the brand as this market holds tremendous growth potential. We look forward to supporting Yum China as it builds Taco Bell's presence in the country."
But this expansion will face significant market share obstacles through both other restaurants catching on to the lucrative opportunities in China, and their own parent company. Two of Yum brand’s subsidiaries have a significant market share in China; KFC and Pizza Hut have more than 6,500 restaurants combined in the country.
These two giants have been paving the way for international expansion in China since the ‘90s, and analyst Peter Saleh from restaurant analyst firm BTIG doesn’t anticipate Taco Bell will have the same trajectory of KFC and Pizza Hut.
“I think it’ll be many, many years before Taco Bell is a meaningful contributor to the Yum China story. And it will continue to be about KFC first, Pizza Hut second, and Taco Bell as a very, very distant third or fourth or fifth for Yum China,” Saleh said.
Taco Bell will have to compete with what Saleh says is significantly growing competition on the restaurant side in China, even in the past 12-24 months. Therefore Saleh thinks the brand won’t jump in head first after the initial grand opening.
“I just don’t think it’d be wise to flood the market with Taco Bells when you don’t know if it’s gonna work,” he added.
Yum China’s first attempt at a Taco Bell expansion fell flat when Yum previously operated a handful of concepts under the name Taco Bell Grande. All locations closed by 2008.
As they jump back in a decade later, Yum China may have to tread carefully in their expansion as they attempt to distance themselves from past food safety issues, when they were found selling tainted meat at KFC locations in 2014. But more than anything else they’ll need to figure out if Taco Bell concept really catches on with the Chinese audience and provides a good enough ROI to warrant a more thorough expansion.