Denny’s Takes a Bite of China 丹尼餐厅进军中国市场

By newsdoug on July 10, 2012

Denny's eyes China I was pleasantly surprised today to read that Denny’s (Nasdaq: DENN), one of my favorite US diner chains, is testing the Asia market with plans to open restaurants in China, part of a broader move that is seeing mid-sized restaurant chains pile into the market in a bid to copy the success of top names like KFC (NYSE: YUM) and McDonalds (NYSE: MCD). I also like the fact that Denny’s, known for its 24-hour breakfast menu, is taking a go-slow approach to China, with plans to open a modest 50 stores in the country over the next 15 years through a joint venture with local partner Great China International Group. (company announcement)

For those people out there less familiar with Denny’s, the company operates restaurants somewhat similar to Pizza Hut, offering lower-priced items in traditional sit-down restaurants with waiters and waitresses. That format works well in the US, where such restaurants are a more relaxed alternative to traditional fast-food like KFC and McDonalds that encourage people to eat quickly and leave.

But the format has had more difficulty in China, where restaurants like Pizza Hut are still significantly more expensive than rivals offering more local items like dumplings and noodles. As a result, such chains have seen much more limited success in China. In Denny’s case, the franchise’s go-slow approach means it’s likely to only open 4 or 5 stores over its first few years, and will probably experiment a lot with its menu to find the right formula to cater to local tastes.

I expect it will probably offer some of its American staples like hamburgers and perhaps a few breakfast items, but think it will probably focus on a large range of more local items like rice, noodle and dumpling dishes. If it develops a popular menu, its American image, relaxed atmosphere and 24-hour service could make it a popular choice with increasingly affluent young people, paving the way for modest success similar to Pizza Hut’s.

But don’t look for too much expansion, and I expect that even the goal of 50 stores over the next 15 years may be a bit ambitious.

More broadly, Denny’s plan represents the latest move into China by a growing number of mid-tier restaurant operators hoping to imitate the success of KFC and McDonalds. In addition to Pizza Hut, other mid-sized players who have found some modest success in the market include rival pizza chain Pappa John’s (Nasdaq: PZZA), ice cream specialist Dairy Queen and Japanese noodle chain Ajisen (HKEx: 538). Dairy Queen said earlier this year it opened its 500th store in China, and plans to add another 100 stores by the end of the year. (previous post)

I’m personally hoping that Denny’s will succeed, even though I know its China stores won’t look like the US ones I remember. In the meantime, look for more such mid-sized foreign restaurant chains to test out China as they search for new markets for overseas expansion.

Bottom line: Denny’s China expansion stands a good chance for success if it can develop a good local menu, though potential in the market will be limited.

Enjoy this blog? Please spread the word :)