Fast-food prices rise as cost of materials increases

(China Daily) Updated: 2011-01-04 10:39

BEIJING - Amid a surge in raw-material costs in China, competition among foreign restaurant chains in the country is turning fiercer, as some increase prices and others carry out special promotions. However, experts said improvements in the taste and quality of the food are the most important sales factor.

The US-based coffee chain Starbucks raised the price of its branded Frappuccino series in China by 2 yuan (30 cents) from Jan 1, while the price tag of some other products, such as vanilla lattes, was lowered.

Li Jing, a Starbucks spokeswoman in Shanghai, said the upward adjustment was partly to reflect recent increases in commodity prices. The price cut is designed to attract more coffee drinkers.

McDonald's in December raised the price of burgers, drinks and snacks by between 0.5 yuan and 1 yuan at its more than 1,200 restaurants on the Chinese mainland. Luan Jianghong, a McDonald's China spokeswoman, said that the fast-food chain had adjusted menu prices in line with the increase in raw material prices.

Meanwhile, KFC said it is not planning to increase prices in the near future. Instead, the company will improve internal controls to better handle cost pressures. Its parent company Yum! Brands Inc told China Daily that it had just launched a sales promotion for some items on its breakfast menu, and will add more variety to meet consumers' demands.

Tang Jiarui, an analyst at Everbright Securities, said Chinese customers are sensitive about fast-food prices. If the price surge is lower than the increase in the Consumer Price Index (CPI), it is acceptable. The nation's CPI, a major gauge of inflation, rose to a 28-month high of 5.1 percent in November.

"With regard to Starbucks, Chinese people will not object to a small price increase as long as the taste is good. However, when it comes to fast food, they can be sensitive" Yang Xu, a partner and senior retailing analyst at Hejun consulting company, told China Daily.

A Starbucks shop assistant in Jianwai SOHO, Chaoyang district of Beijing, told China Daily that business remains good despite the price rise. McDonald's says footfall at its Chinese outlets has not been affected so far.

Both Tang and Yang said that although the price increases have not influenced sales in foreign restaurant chains, the companies should ensure the quality and taste of their food, given the increased purchasing power of Chinese consumers.