KFC, Wal-Mart Pressured to Cut Prices?

Two articles posted on the China Price Bureau web site December 12, 2008 announced that Wal-Mart, McDonalds, and Kentucky Fried Chicken stores in China are cutting prices before and after the Chinese New Year (January-February). These price cuts are indicators of the serious lack of demand in the Chinese economy right now and possibly reflect desperate government efforts to get things going.

McDonalds and KFC are giving out coupons that give discount prices on chicken nuggets and other items by up to 36%. KFC is giving out a coupon that cuts the price of a 6-piece chicken nugget meal from 11 yuan to 7 yuan during January; another coupon cuts the price of 2 pieces of chicken in February from 15 to 10 yuan. McDonalds is offering prices for meals that are lower than its prices from 10 years ago.

Wal-Mart is cutting prices on groceries, clothing, health products, and furniture. For example, the price of chicken legs is being cut from 22.8 Yuan/500g to 14.8 yuan, a 35% price cut that curiously almost matches the 36% price cut being offered by foreign fast food restaurants. A 4-liter bottle of corn oil is being cut from 72 yuan to 52.9 yuan, a 26% cut. While Wal-Mart’s slogan is “Everyday Low Prices” this is the first time Wal-Mart has announced a big price cut like this since it entered the China market.

Since when is it newsworthy that McDonalds is giving out coupons? Reading between the lines here, it looks like the government has pressured these companies to cut prices in order to keep people happy and stimulate demand. It’s curious that two very similar articles about price cuts by foreign-owned chains would appear simultaneously, and both price cuts refer to the Jan-Feb time period. The Wal-Mart manager spouts rhetoric about “the grim economic conditions,” “preserving customers’ quality of life” and “increasing market demand.” She also mentions that Wal-Mart plans to extend the discounts to appliances; the government also recently announced a subsidy for rural households to purchase appliances which are in serious oversupply.