Popeyes re-enters China to take on KFC in fried-chicken fight

Tims China will relaunch the fried chicken chain Popeyes in China, as food and beverage franchises snap up retail space to capture an anticipated post-lockdown consumption rebound.

The Chinese operator of Canadian coffee chain Tim Hortons announced a partnership with Miami-headquartered Popeyes on Wednesday, with the aim of opening 1,700 outlets in China in the next decade. Popeyes first attempted to crack the Chinese market in 2020 but retreated last year during the pandemic.

“Every market has seen a post-Covid sustained surge in economic activity. We believe that the same will happen in China in the coming quarters,” said Peter Yu, managing partner of Cartesian Capital, a private equity group that is the majority shareholder of Tims China.

The vote of confidence comes as foreign capital flows back into Chinese equities and investors seek to capitalise on the country’s reopening, with the Hang Seng China Enterprises index up 46 per cent since the end of October.

Chinese consumers’ strong appetite for fast food has made the country a vital growth market for KFC, McDonald’s and Burger King as sales have slowed in western markets in the past decade. An estimated $82bn was spent at quick-service restaurants in China last year, compared with $60bn in 2015, according to Statista.

Popeyes faces a formidable opponent in KFC China, which has a loyal customer base and the support of deep-pocketed parent company Yum China. On Wednesday, the Kentucky-based fried-chicken chain reported $7.2bn in sales and $787mn in operating profit in China for 2022, underscoring how demand had held up even as the country was slow to emerge from zero-Covid lockdowns. It operates more than 9,000 KFC restaurants in around 2,000 cities.

Yu said there was no “secret recipe” for success for Popeyes in China, adding that the partnership would localise menus and invest heavily in research and development of new products for trend-conscious Chinese consumers.

Popeyes will adopt the same growth strategy as Tim Hortons, he added. This involved first opening stores in high-profile locations to build brand awareness before making its products easily accessible at other sites, including through franchise and joint venture agreements.

The coffee shop franchise has rapidly expanded its footprint in large cities over the past year. Yu, who also serves as Tims China’s chair, said it planned to open 400 units this year, including standalone stores and stands in convenience stores, taking the total to 1,000.

Tims China is joining a group of private equity and venture capital-backed food and beverage chains that are signing leases while rents remain cheap in the aftermath of lockdowns.

Many small independent restaurants and shops closed their doors during the pandemic, without government support to tide them over. This has opened the door for well-funded players to capture more of China’s retail real estate.

“We see our costs coming down [in property],” said Yu, adding that Tims China had greater bargaining power with two chains. “There are a lot of synergies in real estate when you have two operations rather than one.”

Yum China is also expanding its restaurant empire. This week it announced plans to open between 1,100 and 1,300 stores in China this year.

Tims China went public in September on New York’s Nasdaq exchange through a special purpose acquisition vehicle, but its shares have fallen by nearly 60 per cent since the listing, trading at around $4 as investors shy away from riskier investment vehicles. Thus far, it has not benefited from the post-lockdown boom in consumer-related China stocks.

John Zolidis, founder and president of Quo Vadis Capital, said: “The question for shareholders is whether the company can scale to profitability and positive cash flow without needing an equity raise. It’s a steep hill to climb but could be possible depending on execution.”

Additional reporting by Hudson Lockett in Hong Kong