BEIJING—McDonald's Corp. and Yum Brands Inc. are looking to add
digital options in China that will make their fast-food sales even
faster and win back business after a rough year in the critical
Chinese market.
McDonald's will start testing mobile ordering and mobile payment
in China under a pilot program in the current third quarter. The
aim is to speed payment and meet consumer demands. "Given Chinese
consumers being so digital—we are now preparing," a spokeswoman
said.
Yum said its KFC business teamed up with technology giant
Alibaba Group Holding Ltd. in late June to launch mobile-payment
services for 700 of its 4,500-plus stores in China. Customers can
pay for their in-store orders of fried chicken in a few seconds by
scanning bar codes generated by Alibaba's mobile-payment
application Alipay.
Industry consultants say that across the board, Western
companies need to experiment more to connect online and in-store
business in a market of 885 million mobile users, who employ
smartphone apps to book all sorts of real-life services—from
hailing taxis to ordering personal chefs to their homes.
Wal-Mart Stores Inc. began using Alipay in some stores in China
in May. The industry consultants say mobile payment simplifies the
checkout process and reduces the chance a shopper will abandon a
purchase.
In recent weeks, McDonald's has also opened digital "Create Your
Taste" kiosks at two outlets in Shanghai. At one of the kiosks,
18-year-old Jia Yu tried out building her own burger, choosing from
24different ingredients on a touch screen. "People always want to
try something new, so I just gave it a shot," said Ms. Jia.
Demand for the burgers, which start out at 42 yuan, or around
$6.80, has beaten the company's expectations, with purchases of the
customizable burgers reaching levels five times higher than
McDonald's estimated, the spokeswoman said.
The company didn't disclose its estimate.
Attracting more diners and swifter sales is key for both Yum and
McDonald's, after Chinese media reports last summer connected the
companies with a restaurant supplier that allegedly sold them
expired meat. The companies dropped the supplier, but sales
suffered and haven't fully recovered.
McDonald's sales at stores open more than a year in China
declined 4.8% in the first quarter, said Kevin Ozan, McDonald's
chief financial officer, in an April earnings call. The fast-food
retailer doesn't disclose total for sales at its China outlets.
Yum said in April that its China sales, which account for
roughly half of Yum's revenue, fell 9% to $1.26 billion in its
fiscal first quarter that ended in March, down from a year earlier.
Those results came after declines in the third and fourth quarters
of Yum's previous fiscal year.
Companies want to cater to a growing Chinese trend of consumers
who would rather pay with their phones than pull out their wallets,
said Forrester analyst Xiaofeng Wang. Many homegrown Chinese
chains, like hot-pot restaurant chain Hai Di Lao, which serves
meats and vegetables dipped in boiling broth fondue style, are
already using mobile payments.
But McDonald's, should it continue the mobile-payment program
after its pilot run, and KFC are early entrants to the
online-to-offline market compared with their direct rivals, Ms.
Wang said.
McDonald's already uses mobile payment in the U.S. and was an
early adopter of Apple Inc.'s Apple Pay, which launched last year.
But analysts say mobile payment is taking off faster in China
because, unlike U.S. consumers, Chinese don't widely use credit
cards.
"Convenience is really important. If you don't provide it, your
competitor will," Ms. Wang said.
In Shanghai, a young man who gave only his surname, Ge, ordered
KFC for the first time using the mobile payment. Mr. Ge was a quick
convert, saying he would use his phone again the next time he
orders his fried chicken. "It's convenient," he said.
Fanfan Wang in Shanghai contributed to this article.
Write to Laurie Burkitt at laurie.burkitt@wsj.com
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