Bucking the trend where markups rule the market, US fast-food chain Kentucky Fried Chicken (KFC) yesterday announced it would cut the price of egg tarts, one of its star products in Taiwan, as part of its ambitious plan to dethrone rival McDonald's.
"We believe now is the best time to rebate our customers, when everything, except salaries, is hiking," Olga Wu (吳美君), managing director of Yum Restaurants (Taiwan) Co (台灣百勝肯德基), said at a press briefing.
Consumers have felt pinches this year as the prices of gasoline, natural gas, water, electricity, tissues, vegetables and meals have all risen, squeezing their wallets.
Yum Restaurants, KFC's local representative company, expects to open its 140th KFC store at the end of the month, she said.
Its latest pricing scheme sees retail prices of egg tarts, regardless of flavor, drop by NT$2 each, representing a maximum 9 percent decrease in price.
Sales of egg tarts have grown steadily since 2001, when Yum Restaurants launched an extensive advertising campaign, Wu said. She added that it sold 33 million egg tarts last year alone, contributing to nearly 15 percent of its total revenues.
"Due to strict cost control, we anticipate the strategy can stimulate sales, leading to a fatter margin," she said, refusing to offer detailed figures.
Yum Restaurants' ambition to catch up with its larger rival, McDonald's, is reflected in a series of organizational structuring and marketing strategies.
It announced in January a doubling in the number of KFC outlets to at least 250 stores by 2010, backed by its hiring of an expansion expert from China, Yu Guowei (虞國偉), as Taiwan's associate director for development.
It expects to add more than 30 restaurants next year, with a majority equipped with drive-thrus, Wu said.
This contrasts with a flattening curve mapped out by McDonald's Restaurants (Taiwan) Co, which runs 348 outlets nationwide. Having gone through its fast-expansion period, its developmental focus is on expanding its customer base and boosting their number of visits.
Faced with KFC's announcement of of price cuts, McDonald's appeared unfazed.
"What consumers want is `value' for the long term. Price adjustments for desserts have little effectiveness," Viya Chen (陳薇雅), assistant vice president for marketing and communications at McDonald's, said during a phone interview.
The nation's No. 1 fast-food brand reduced retail prices of four set meals starting this month while hiking another four due to record spikes in raw material costs.
Chen said sales had not been affected to date and that the company was confident it would register stable revenue growth by offering a wide array of price-friendly choices.
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