In response to China’s ongoing consumption slowdown, fast-food giants KFC, McDonald’s, and Haidilao are strategically shifting towards smaller store formats. These companies are innovating by introducing kiosks, food stalls, and mini stores across China, aiming to capture consumer dollars in a challenging economic environment.
Tommy Zhang, a medical researcher in Shenzhen, frequently passes by a KFC stall on his way to work. Located strategically near a subway station in the city’s bustling college town, the stall offers pre-packed breakfast combos for quick pick-up, catering to the busy morning rush. “They seem to be doing great business,” Zhang notes, reflecting the effectiveness of KFC’s new strategy.
This trend is not unique to KFC. McDonald’s has also been rolling out similar kiosks and food carts in high-traffic areas like subway stations and parks in major cities, including Beijing, Guangzhou, and Changsha. Haidilao, China’s largest hotpot chain, is also capitalising on this shift by establishing smaller, alternative store formats. These smaller outlets are designed to meet late-night demand and budget-conscious consumers, particularly in third- and fourth-tier cities.
The move towards smaller store formats, also known as “backfilling,” is a strategic response to the changing consumption patterns in China. As consumers increasingly prioritise value-for-money deals amid economic uncertainty, these smaller, cost-efficient stores allow fast-food chains to maintain profitability while expanding their market presence. “Smaller locations are much cheaper to build, so even if they generate lower per-store sales, they may be quite profitable from an operating margin and cash return perspective,” said Sean Dunlop, a senior equity analyst at Morningstar. This approach enables fast-food chains to capture additional revenue in areas where a full-sized store might not be viable.
Yum China, the operator of KFC in China, is particularly bullish on this strategy. The company reported a record revenue of US$2.7 billion in the second quarter, driven by a 4% year-on-year increase in same-store sales. Yum China plans to further expand its presence in lower-tier cities by introducing more “small town mini stores,” which require significantly lower capital investment compared to traditional outlets.
McDonald’s is also aggressively pursuing this model, with plans to grow its outlets in China from 6,000 to 10,000 by the end of 2028. Meanwhile, Haidilao, which has already seen a 15% increase in same-store sales, is ramping up its small-store strategy to cater to the growing demand in less affluent areas. According to a report by Euromonitor, China’s street-stall-and-kiosk market generated 331 billion yuan in revenue last year and is expected to reach 506 billion yuan by 2028. This growth is fueled by the increasing popularity of convenient, experience-driven dining options that these smaller formats offer. As China’s consumption landscape continues to evolve, the shift towards small-store formats by leading fast-food chains underscores a broader trend in the industry. By adapting to changing consumer preferences and economic realities, KFC, McDonald’s, and Haidilao are positioning themselves for sustained growth in a challenging market.
