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FORGET kung pao chicken and sweet and sour pork. There’s a new wave of food and beverage (F&B) chains flowing out of China, and it’s all about Sichuan hot pot, braised chicken rice and pickle fish soup – as well as mainstays like bubble tea.

Chinese F&B companies have expanded quickly into South-east Asia, and even into North America and Europe, in the past few years, driven in part by saturation at home.

According to Huafu Securities, nearly 3.2 million new F&B enterprises were registered in China in 2023, a 24.2 per cent increase from the previous year.

“In the past three years, Chinese companies’ overseas hiring and payroll have grown more than 200 per cent each year,” said Lin Tan, founder and CEO of PayInOne, a company that sells hiring and payroll services to Chinese firms operating overseas.

F&B companies are recruiting heavily overseas this year, Lin said, beefing up related businesses in food ingredients, services and equipment.

But despite the concerted push, building robust supply chains and overcoming localisation issues remain significant challenges.

Haidilao International is something of a veteran of Chinese efforts to make an F&B splash abroad. The Sichuan hotpot giant began its international expansion 12 years ago with an outlet in Singapore’s historic riverside district of Clarke Quay. It has since added 11 more in the city-state.

By March this year its overseas operator, Super Hi International, counted 119 stores globally, with three in five operating in South-east Asia.

Others have followed, bringing more diverse cuisines. There’s Tai Er, which now serves its signature poached fish with pickled vegetables in Singapore, Malaysia, Thailand, Indonesia and the US.

Meanwhile, Zhangliang Malatang, a spicy hot pot brand, had 63 stores across 15 countries as of last year. Another, Yang’s Braised Chicken Rice, has a presence in more than 10 countries with over 100 stores.

“Competition among small F&B businesses is really intense, putting high demands on operational efficiency, costs and innovation,” said Li Weisen, deputy general manager of Yang’s. Its Asia-Pacific headquarters saw domestic brand upgrades and overseas expansion as two key directions.

On the beverage front, Mixue, China’s largest bubble tea chain, has expanded to 11 countries with more than 4,000 stores as of September 2023, since opening its first overseas store in the Vietnamese capital of Hanoi in 2018.

That gave it a significant head start on its peers, which launched a flurry of overseas activity in 2023. Heytea opened in London, Melbourne, New York, Kuala Lumpur and Vancouver; Shuyi Tealicious ventured into Malaysia, Vietnam, Indonesia and Spain. Chabaidao debuted in Seoul in June, while Chagee made a comeback to Singapore earlier this month after debuting in Malaysia in 2019.

Even disgraced coffee chain Luckin Coffee is getting in on the action. The firm, which has turned its fortunes around since pivoting to franchising at home, opened its first overseas store in Singapore in March last year, and had reached 37 by end-June this year.

Franchising drives rapid growth

To gain a foothold in international markets, Chinese F&B companies are employing various strategies such as franchising, market selection, localisation, and supply chain management.

“Both franchising and direct operations are used as a strategy when expanding overseas. Overall, more companies choose franchising,” said Lin of PayInOne.

“Most will first choose South-east Asian regions, mainly considering lower personnel costs and easier management, before gradually expanding to Europe, North America, Australia, Japan and South Korea.”

While Haidilao has opted to run its own stores overseas, many F&B brands opt to franchise, and seek Chinese entrepreneurs abroad to staff and manage their outlets. They rely on the business acumen and local knowledge of overseas Chinese to select store locations and run their operations.

Heytea, Mixue, Yang’s Braised Chicken Rice, and Zhangliang Malatang are among many brands that expanded quickly overseas through this strategy.

Zhangliang Malatang’s overseas director recalled the enthusiasm of franchisees since announcing international franchising opportunities in 2019.

“We had about 300 interested clients that year, mostly from the US, followed by South-east Asia and Europe. We signed contracts for over a dozen stores,” she said, adding that the company has been receiving around 100 inquiries a month since early 2023 after a post-Covid market downturn.

The hot pot brand initially focused on the US market, but later expanded more rapidly in South-east Asia thanks to more apparent cost advantages and consumer dividends in the region.

For example, Indonesia has a large population, and young people there tend to be more receptive to Chinese cuisine and spicy flavors. The average spend per customer in Indonesian stores is around 70 yuan (S$12.80), and due to low labour costs, the payback period ranges from six months to a year.

Many look to Singapore as a stepping stone to Western markets, where they can test both consumer demand and their own competence at operating outside the mainland.

Luckin Coffee opened 32 self-operated stores in Singapore within a year of entering the market in 2023. A spokesperson said the city-state has a mature coffee market and an advanced economy, viewing it as a “touchstone” for international expansion.

Upstart tea brand Chagee followed suit. Returning officially in Singapore this August, the teamaker said it will open an Asia-Pacific headquarters there and prioritise expansion into five other Asean countries in the next five years. Like Luckin, the teamaker self-operates its stores and sells the same products as in China.

They followed the footsteps of fish specialist Tai Er, whose initial success in Singapore in 2021 led to expansion to Malaysia, Thailand and Indonesia the year after, then the US in 2023.

Coffee and bubble tea shops can expand overseas more rapidly than chain restaurants because of the degree of standardisation, and low supply chain requirements, said Carol Liao, Boston Consulting Group’s Greater China chair.

Liao said bubble tea and coffee have higher potential for success, while Chinese restaurants may require more time to gain widespread acceptance. “Even KFC took a long time to localise for the Chinese market,” she added.

To suit local tastes and customs, companies are adapting their menus, service styles and operational models.

Zhangliang Malatang, for instance, created step-by-step guides for eating malatang in Singapore, where many customers were unfamiliar with the concept of picking their own ingredients; Tai Er made significant adjustments in the North American market, removing self-checkout and self-service tea stations while increasing staff interaction to align with local tipping culture.

Chinese F&B companies are also establishing local supply chains and importing key ingredients from China to maintain quality and authenticity. They import easily transportable items like soup bases and seasonings from China while sourcing perishable ingredients locally. This approach helps maintain the core flavours of dishes while ensuring freshness and reducing logistical challenges.

Supply chain hurdles

Despite the enthusiasm, Chinese F&B brands face several challenges in their overseas ventures.

Supply chain issues can get them in a pickle. Establishing reliable local supply or efficiently importing ingredients from China remains a significant hurdle.

“Overseas supply chain development is still in its early stages with many problems, making it difficult to support new product launches,” an investor who has studied the US bubble tea market told Caixin.

“In the future, supply chains will certainly follow brands overseas. Now, some large raw material companies are also starting to expand internationally.”

Managing a workforce overseas also poses oversight challenges, Zhangliang Malatang’s overseas director said.

“Most F&B companies have multiple locations overseas with large geographical spans, but their management radius is limited, making effective supervision and communication with local employees more difficult,” she said.

An overseas manager of a Chinese restaurant chain told Caixin that the company initially believed it had major advantages in standardisation, store operations and personnel quality in the overseas market.

“However, upon implementation, we found that the Chinese food supply chain was immature overseas, and some food and safety regulations differed greatly from those in China,” he said.

“Localisation is a must for Chinese F&B companies when expanding overseas. They may benefit from their advantages in the early days, but if they don’t make localisation adjustments, these advantages could become constraints on overseas expansions.” CAIXIN GLOBAL