Young Chinese are trading Shanghai for small cities. Brands like KFC are following them with thousands of stores.
David Gray/Reuters
- China's workers are migrating from megacities to smaller towns because of economic challenges.
- Big domestic and international brands, like Starbucks, are expanding in these smaller markets.
- Migrants to lower-tier cities have disposable income that they're happy to spend on pricier coffee.
China's megacities are losing their appeal with some young workers, who are leaving them behind for smaller towns. Big chains like KFC and Luckin Coffee are following them.
Shanghai and Shenzhen both saw a net outflow of people in 2023, according to data Bloomberg cited on Tuesday from MetroDataTech, a Shanghai-based consultancy. MetroDataTech did not immediately respond to Business Insider's request for data.
High-stress work environments and greater costs of living are pushing people back to their hometowns, Bloomberg reported. They're struggling to make it in big cities as the world's second-largest economy suffers from a flailing property market and slow post-pandemic consumption recovery.
Smaller cities' lower costs of living give reverse migrants more disposable income. Both Chinese and international fast-food businesses are eager to help them spend it.
It's a potentially lucrative move for the companies: When brand names like Starbucks open in small cities, people are willing to stand in line for hours and fork out over double the usual amount for specialty coffees, according to local media reports.
Going big on smaller cities
China's smaller cities aren't exactly an untapped market.
Around one-third of Starbucks' 6,800 outlets in China are already located in small markets, a local media outlet reported last year, citing Canyandata, a Beijing-based food and beverage data platform.
KFC and Pizza Hut operator Yum China, which plans to add 6,000 stores in China by 2026, is also betting big on small cities. Chinese cities are unofficially categorized into "tiers" based on gross domestic product, population, and political administration. The four first-tier cities — the biggest type of city — have over 15 million people each.
"Over half of our new stores have been in lower-tier cities in recent years," Joey Wat, the CEO of Yum China, wrote in a shareholder letter earlier this month. "A good share of our future growth should come from the growing pool of consumers in such markets."
Domino's operator DPC Dash, which operates in 30 cities, said this month that more than half of its 835 restaurants in China are outside Beijing and Shanghai.
Local food joints are cashing in, too.
About half the total stores operated by some of the country's biggest fast food chains, such as burger joint Fuzhou Tastien and bubble tea chain Mixue Bingcheng, are located in third-tier or lower cities, according to Bloomberg, which cited Canyandata. Third-tier cities have 150,000 to 3 million residents.
The cost of living crisis driving young people out of China's big cities is a trend that echoes across continents. Some young people in countries including the US, UK, and Korea are finding that they can no longer afford to move out of their families' homes. Others are giving up on hubs like New York City and London because they feel lonely, stressed, or unsafe there.