Chinese Restaurant Chains Expand in US Despite Economic Tensions

From bubble tea shops attracting customers in New York and Los Angeles to affordable chicken sandwich chains gaining traction in California, Chinese food and beverage brands are expanding their presence in the U.S. market. These companies, many boasting thousands of locations in China, are looking to the U.S. as a key growth area amid increasingly fierce competition within their domestic market.

Wallace, a fast-food chain with 20,000 locations across China, recently launched its first U.S. restaurants in Walnut, California, serving fried chicken and burgers to American consumers. Similarly, Haidilao, China’s largest hot pot chain, is intensifying its efforts in the U.S. after initially entering the market in 2013.

This expansion comes as China’s fast-food sector faces headwinds. Slower economic growth, coupled with a real estate crisis and subdued consumer spending, is driving intense price competition and eroding profitability. The move to the U.S. represents a strategic shift for these brands seeking more sustainable growth.

Oversaturation in China

“The Chinese restaurant industry is severely overcapacitated,” says Bob Qing, an investor in restaurants through his firm, Tomato Capital. This dynamic is forcing companies to seek opportunities abroad.

According to Mr. Qing, China has three times as many restaurants per capita as the United States. He estimates that half of all new restaurants in China fail within their first year of operation.

As a result, Chinese fast-food chains have increasingly turned to international expansion, particularly in Asia. However, the U.S. represents a particularly attractive market, “the only one as mature and large as China itself,” Mr. Qing explains.

Naisnow, a Chinese tea brand, opened its first U.S. location in Flushing, New York, in October, an area with a large Asian population. The opening drew a crowd, and sales were strong, particularly for its avocado and kale drinks designed for the American palate. Naisnow plans to open 500 locations within the next five years.

Jerry Yao, deputy director of international expansion, already points to a key advantage: “Margins are much better than in China,” he says. This improved profitability is a major driver of the U.S. expansion.

Cultural Adaptation

Expanding into the U.S. market isn’t without its challenges. Haidilao, a popular brand in China, initially struggled when it first entered the U.S. market in 2013. The lack of English menus, higher-than-expected prices, and its famously attentive service – a core part of its brand – were initially met with mixed reactions. In China, Haidilao staff offer complimentary manicures to waiting customers, perform dances for entertainment, and hand-peel shrimp for diners.

In the U.S., this level of attentiveness was perceived as intrusive, acknowledges Qu Cong, chief financial officer of Super Hi International, Haidilao’s overseas subsidiary.

Haidilao has since focused on clearly explaining its hot pot concept and ingredients to American customers – in English – and has adjusted spice levels and added more beef to its menu. The chain gained further visibility last summer when one of its restaurants appeared in the latest episode of And Just Like That…, the sequel to Sex and the City. In the episode, a hostess notices Carrie Bradshaw dining alone and brings her a plush toy to occupy the empty seat.

Chinese brands are carefully evaluating how much they need to adapt to local tastes. When Wallace opened its first U.S. restaurant last year, its extensive menu was simplified, focusing primarily on chicken sandwiches.

In China, Wallace’s basic chicken sandwich includes lettuce and mayonnaise. In the U.S., Wallace removed the lettuce and added a pickle, an ingredient that Chinese customers “don’t really like.” The entire menu is also more heavily seasoned.

Mr. Chen believes Wallace is well-positioned for success in the new market. “American fast food is becoming too expensive,” he says. At its California location, Wallace offers three large chicken sandwiches for $10 USD. A chicken sandwich at Chick-fil-A or KFC costs around $6 USD.

Wallace doesn’t hide its Chinese origins, but doesn’t heavily promote them either, says Mr. Chen. Initially, most of its customers were Asian, already familiar with the brand. That is no longer the case.

Wallace plans to open 10 more restaurants by the end of 2026.

Chagee, a tea brand, listed on the NASDAQ in May. According to Emily Chang, its North America chief business officer, customers don’t perceive it as a Chinese brand. Its name comes from an ancient Chinese love story, and its logo features a concubine dressed in Peking opera attire, vaguely resembling the Starbucks mermaid.

Ms. Chang has been tasked with giving the brand an “American-born Chinese” (ABC) identity. She says at least a dozen stores are in the works, and Chagee plans to expand beyond California. The first Chagee opened in California in April.

According to investor Bob Qing, the U.S. has been receptive to Chinese restaurant brands despite geopolitical tensions. He and several chain owners were invited by the U.S. embassy in Beijing to visit several American cities earlier this year.

“It’s one of the few sectors where people are still willing to engage in this type of exchange,” he said.

This article was published in the New York Times.