The following picture was taken at Barbela, a popular Pizza place in Shanghai. One nice feature of Barbela is they offer the same quality food as Pizza Hut, but at half the price. No wonder people will form a long wait line at Barbela during weekends. As you may know, Pizza Hut was (and still is) a very popular place in China, it’s not the good old Pizza Hut you see in the US.
This is just a glimps of the competition dymanics in China consumer products industry. My favorite budget hotel Home Inns (Rujia) is suffering from the same problem. Price war leads to shrinking margin. That’s why I like companies like Mao Tai (600519.SS) much more because nobody can do what Barbela did with Pizza Hut.
Disclosure: I am a share holder of Home Inns (HMIN), but not a share holder of Yum Brands (the parent company of Pizza Hut).