TING-QIAO, Dicos's parent company is said to go public, challenging KFC

The KFC rival and operator of the popular Dicos chain reportedly plans to serve up shares for investors four years after rumors of such a listing first emerged

Key Takeaways:

  • Ting-Qiao is reportedly planning to list in Hong Kong, offering investors a stable of restaurant brands including Dicos, Master Kong Chef’s Table and Belray Coffee
  • The company has traditionally focused on China’s smaller cities, leaving it with a smaller share of China’s fast-food market than global rivals KFC and McDonald’s

  

By Bai Xinrui

Just weeks after “old hen” chicken chain LXJ International filed to list in Hong Kong, the stock exchange’s chicken coop, that’s already a roost for KFC operator Yum China (YUMC.US; 9987.HK), is suddenly getting slightly crowded.

That’s the feeling on the perch, following reports that Ting-Qiao, a fast-food operator whose crown jewel is the Dicos fried chicken chain, is also planning a Hong Kong IPO. The pair of new listings would come even as China’s bursting property bubble and deflationary pressures have dampened consumer sentiment, casting a chill over the broader restaurant industry.

That said, the “consumption downgrade” sweeping over China has benefited fast-food operators whose cheap eats provide an attractive alternative to costlier table-service restaurants. Yum China previously reported its net profit rose 22% in last year’s third quarter and has used its strong cash position to pay regular dividends and repurchase its shares.

A unit of Taiwan’s Ting Hsin International Group, Ting-Qiao is a sister company of Hong Kong-listed instant noodle giant Tingyi (0322.HK) and Taiwan-listed Wei Chuan Foods (1201.TW). Ting Hsin International was initially founded as Taiwan Changhua Ting Hsin Oil Factory in 1958. It entered the Mainland market in 1988, engaging in both food manufacturing and restaurants. Its chains include Dicos and Master Kong Chef’s Table, while its manufacturing includes the Wei Chuan brand. It also operates the FamilyMart convenience store chain on the Chinese Mainland.

Ting-Qiao was first was rumored to be interested in a Hong Kong listing as early as March 2021, but never made a public application. The company currently operates four chains, Dicos, Master Kong Chef’s Table, Belray Coffee, and Master Kong Chef’s Noodle House. Among those, Western-style fried chicken maker Dicos is the best known.

Despite its current China base, Dicos is actually rooted in the U.S. It started out in Texas and was hoping to follow KFC and McDonald’s (MCD.US) into China’s then-fledgling fast-food market in 1994 when it opened its first store in Chengdu, capital of Southwest China’s Sichuan province. Ting Hsin Group formally established Ting-Qiao as a separate company in 1996, which is when it officially acquired the Dicos brand. The Dicos chain later opened its business to franchisees starting in 2000.

In addition to Dicos, two of Ting-Qiao’s other main brands are tied to Master Kong, one of China’s most popular instant noodle brands operated by sister company Tingyi. In 2006, Ting-Qiao established the Master Kong Chef’s Table chain targeting mid- to high-end consumers. It jumped on China’s coffee craze by launching its Belray Coffee chain in 2020. And most recently, it launched its Master Kong Chef’s Noodle House last year. According to Taiwan media, the company now operates more than 3,000 restaurants.

Dicos still a small fry

Dicos specializes in Western-style fast food, whose high cost-effectiveness and convenience make it more resilient in the face of economic downturns. According to a report by Caitong Securities, China’s Western-style fast food market is expected to be worth 298.3 billion yuan ($41 billion) this year, up 11.3% from 268 billion yuan in 2023. Clearly, the industry looks well positioned to keep growing despite weakness in many consumer-facing Chinese sectors.

KFC is currently king of China’s fast-food roost, controlling 16.4% of the market in 2023, according to Euromonitor and iMedia. It was followed by McDonald’s with 9.5% market share. China’s homegrown brand Wallace ranked third with 4.9% of the market. Dicos came next, though its 3.5% of the market was far behind KFC and McDonald’s.

Its low ranking owes in large part to the smaller size of Dicos’ store network. According to a report by IFC Securities published last August, Dicos had 2,402 stores as of last July, most of those operated by franchisees, far behind around 11,000 KFCs and about 7,000 McDonald’s outlets.

Encircling cities from the countryside

In its early stages, Dicos focused on opening stores in China’s largest cities like Beijing, Shanghai and Guangzhou, where residents were more affluent and more open to foreign foods. But high costs later pushed it to largely withdraw from such cities and instead focus on smaller ones. Such third-tier and lower markets now account for 60% of its stores, while stores in top-tier cities like Beijing and Shanghai make up just 3.8%. Dicos also tries to differentiate itself from its foreign peers with its prices. Its average cost per customer is 29 yuan, 14.7% lower than KFC’s 34 yuan, but slightly higher than the 28 yuan for McDonald’s.

Despite its relegation to smaller markets, China’s consumption downgrade could provide a new opening for niche restaurant operators like Ting-Qiao to return to top-tier cities. If consumers do indeed show a growing taste for such cheap eats, Dicos and other chains could use IPO proceeds to make a new push into big-city markets and narrow their gap with KFC and McDonald’s. As of last July, 16.8% of KFC’s stores were in first-tier cities, while the figure was an even higher 28% for McDonald’s.

Ting-Qiao could also use proceeds from a listing to grow its newer businesses, especially Belray Coffee catering to China’s fast-growing coffee market. The average Chinese consumed just nine cups of coffee each year in 2016, but the figure had nearly doubled to 16.74 cups in 2023. As consumption grows, the industry has boomed to generate annual revenue of 265.4 billion yuan in 2023, growing at an average rate of 17.14% over the previous three years.

Belray is just one of many chains catering to Chinese coffee drinkers and is still quite small with only around 100 stores. Accordingly, some believe some of the IPO proceeds could support that chain’s expansion, even as competition in the space intensifies from lower-cost names like Luckin (LKNCY.US) and Cotti, which sell coffee for as little as 9.9 yuan per cup.

At the same time, several other restaurant chains are also planning Hong Kong listings, including not only “old hen” LXJ International but also names like Green Tea Group. That could draw some funds away from names like Ting-Qiao, if and when it makes a public IPO filing. At the end of the day, the company has a relatively savory story in Dicos, but faces competitive pressure from both domestic and international rivals. Such a recipe might be tasty enough in a market devoid of too many choices but could be a tougher sell in the more saturated current environment.

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