Why McDonald’s and KFC Are Rapidly Expanding Across China’s Smaller Cities

SNN – Western fast-food giants McDonald’s and KFC are accelerating their expansion across China, targeting smaller cities and rural areas as the next major growth frontier.

The shift marks a significant change in strategy. For years, multinational brands focused primarily on China’s largest urban centres. However, with those markets now saturated, companies are increasingly looking toward smaller cities like Hanchuan, where demand for international brands is rising.

McDonald’s plans to expand from around 7,000 outlets in 2025 to approximately 10,000 within a few years, while KFC aims to grow its already extensive network of over 12,000 restaurants by thousands more. Other brands, including Starbucks, Pizza Hut, and Burger King, are pursuing similar expansion strategies.

A key driver behind this move is demographics. Nearly two-thirds of China’s population lives outside its largest cities, offering vast untapped markets. In contrast, major urban areas are already densely populated with fast-food outlets, leading to intense competition and what analysts describe as “market cannibalisation,” where outlets compete with each other for the same customers.

Another factor is ownership structure. Although these brands are globally recognized as American companies, their operations in China are increasingly controlled by local investors. McDonald’s China is largely owned by Citic Capital, while KFC is operated by Yum China, a Shanghai-based company. This localization has enabled faster expansion and better adaptation to regional markets.

The growing involvement of Chinese investors also reflects a broader trend: declining enthusiasm among foreign investors due to economic uncertainty, slowing consumer spending, and rising domestic competition. Local investors, however, are more willing to take risks and invest heavily in expansion, particularly in less developed areas.

Despite the opportunities, the expansion comes with challenges. Domestic fast-food brands such as Tastien and Wallace offer similar products at lower prices and already have a strong presence in smaller cities. Western brands must adjust pricing strategies to remain competitive in lower-income regions.

Logistics is another hurdle. Building reliable supply chains in rural areas is complex and costly, potentially affecting profit margins. In addition, suitable commercial spaces are limited in many towns, making it difficult to establish large, modern restaurant outlets.

Even so, the momentum remains strong. The success of new openings in smaller cities suggests that demand for international fast food is growing beyond China’s major urban hubs.