A USDA Foreign Agricultural report indicated ongoing studies reveal that Chinese food consumption away from home is more significant than anticipated. According to the report, “Consumption patterns in China are in a state of transition, particularly in rapidly changing urban areas. Income growth is allowing households to substitute vegetables, fruit, and livestock products for staple grains. More recently, consumers in China have begun selecting goods based on quality over price and quantity, and food consumed away from home is rising as well.”
- Specifically, of the food consumed away from home, about 40% is consumed in cafeterias, 20% in restaurants, 10% in fast food venues and another 10% at small food stands. Meat is the leading food category that is consumed outside of the home with over 50% of household meat consumption occurring away from the home. Seafood is number two with over 30% of household consumption outside of the home and about 30% of drink purchases are for away from home consumption. The report goes on to show that these away from home consumption levels rise with increased income.
- The obvious beneficiary of this shift toward more away from home consumption in China is YUM. China currently accounts for nearly 30% of YUM’s segment operating profit and the company expects this profit contribution to grow to 40% by 2017. A cultural preference for dining out will make it easier for YUM to achieve this goal. YUM’s China same-store sales slowed somewhat in 3Q08 on a sequential basis to 18% (from nearly 30% in both 1Q and 2Q), and the company is lapping a difficult 30% comparison in 4Q08. That being, said the company is well positioned to capitalize on China’s growing economy over time. As incomes rise, YUM will benefit as more people choose to dine out.
- Starbucks is another company that is betting on China. SBUX expects that China will become its largest market outside of the U.S. and is, therefore, increasing its investments in its China operations. At the end of fiscal 2007, SBUX’s stores in China accounted for 8% of its International store base, and the company more than doubled its FY07 company-operated unit openings in China from the year prior. SBUX’s China business will be helped if the percent of drinks consumed outside of the home continues to grow beyond the 30% level.
Food Consumption Away From Home Differs From In-Home Consumption
Away From Home Consumption By Outlet Type