RETAIL: McDonald’s, KFC Go High-Tech in China With Customization, E-Payments

Bottom line: KFC’s and McDonald’s latest moves to add high-tech elements to their China stores are a savvy way to update their images, and could help to attract a younger trendy crowd that has abandoned both chains in recent years.

KFC links up with Alipay

Leading global fast food chains McDonald’s (NYSE: MCD) and KFC (NYSE: YUM) are both in the headlines as we head into the heart of summer, each trying new high-tech approaches to reignite their faltering China stories. Announcement of these latest initiatives seems especially appropriate right now, as we’re approaching the first anniversary of a food safety scandal that dealt a major blow to both chains in China.

KFC’s deal will see it pair up with Alibaba (NYSE: BABA) to offer its affiliated Alipay electronic payments service at hundreds of its China stores. The McDonald’s news is similarly high-tech, and will see the chain extend its new state-of-the-art hamburger customization program to the China market.

Both initiatives are aimed at breathing new life into these 2 chains that were early pioneers in China’s restaurant scene but have lately become stale due to the entry of many younger, trendier brands to the market. Both KFC and McDonald’s were already struggling when they suffered a major setback last July after an investigative report showed one their main suppliers regularly sold meat that was past its expiration date. (previous post)

The pair had each separately launched a major re-branding campaign even before that scandal, and these latest moves look like extensions of that overhaul. Let’s begin with KFC, whose alliance with China’s leading e-commerce company should help to win the company new customers among the millions of users of Alipay, a Chinese equivalent of PayPal.

According to the reports, the alliance has seen KFC recently start to accept Alipay for electronic payments at 700 of its stores in Shanghai and nearby Zhejiang province. (Chinese article) It plans to extend the program to the rest of its 4,500 China stores nationwide, as part of a campaign by both partners to build up their online-to-offline (O2O) businesses that brings together traditional retailers and Internet-based service providers.

In another prong of its high-tech push, KFC said it already has rolled out wi-fi in 2,200 of its China stores, and 500 stores now have an online menu app. This kind of overhaul looks smart, and should appeal to the new generation of online-savvy young Chinese consumers. KFC’s China restaurants are expected to return to same-store sales growth this year after a long period of declines, and these kinds of steps might be the medicine it needs to sustain that growth over the longer term.

Have It Your Way, High-Tech

Next let’s look at McDonald’s, which is preparing to roll out its “Create Your Taste” program in China that lets customers customize their hamburgers with the condiments they want. (Chinese article) McDonald’s launched the program in the US on a trial basis, and has been expanding it aggressively there since late last year. The program is decidedly high tech by allowing customers to use kiosks to customize their burgers, in another variation of the O2O drive to be trendier and more gadgety.

McDonald’s will take a slow approach in China with the concept, which will be limited this year to a pilot program of 3 stores in Shanghai and one in the southern city of Guangzhou, according to a company executive. The program will be expanded next year to the cities of Beijing and Shenzhen, though the pace of expansion will be determined based on results of the pilot program.

The fact that McDonald’s is moving the program so quickly to China reflects the importance of the market, which will become only the company’s 6th worldwide to trial the program. Like the KFC tie-up, this program also looks like a savvy move with high-tech overtones that could help McDonald’s start to regain some of the momentum it has lost in China over the last few years.

I seldom visit either McDonald’s or KFC in China anymore, partly because I’ve become more health conscious, and also for the same reasons that many Chinese consumers have abandoned them. But I’ll admit that many of these initiative are piquing my curiosity and tempting me to return, which could bode well for both chains’ turnaround prospects if Chinese consumers feel similarly.

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