Chinese food and drink chains prepare to ‘invade’ the US

SEOUL, South Korea — The economic relationship between the United States and China is tense as it is, but that hasn’t stopped a wave of Chinese food and beverage chains from aggressively moving into the United States for the first time.

Chinese tea shops in New York and Los Angeles are offering consumers drinks topped with milk foam or cheese. Fried chicken joints try to attract customers in California with affordable fast food. Restaurant and beverage brands, some with thousands of stores in China, are putting down roots in American cities to escape brutal competition at home.

Also read: How countries can react to Chinese imports without affecting global trade

HeyTea, a tea chain originating from Jiangmen, a city in southern China, has opened three dozen stores in the country since 2023, including a flagship operation in New York’s Times Square.

Two other rival tea brands, Chagee and Naisnow, opened their first stores in the United States this year. Luckin Coffee, a chain with three locations for every Starbucks in China, has opened several locations in Manhattan.

Wallace, one of the largest fast-food chains in China, with more than 20,000 stores selling fried chicken and hamburgers, landed in Walnut, California, for its first store.

Haidilao, China’s largest hot pot chain, is redoubling its efforts in the United States after entering the market more than a decade ago.

The American expansion comes at a challenging time for the Chinese food and beverage industry.

The Chinese economy is no longer growing at a fast pace, hampered by a prolonged housing crisis and weak consumption.

To survive, restaurant chains are undercutting each other’s prices, triggering an unsustainable and destructive race to the bottom.

“China’s foodservice industry is suffering from severe oversupply,” said Bob Qing, founder of Tomato Capital, a Chinese firm that invests in restaurants.

In China, there are three times as many food and beverage establishments per capita as in the United States, according to Qing. And half of the new restaurants that open in China close within a year.

Many Chinese fast-food restaurants have expanded internationally in recent years, especially in Asia, but the United States, according to Qing, has broad appeal because it is “the only market as mature and large as China.”

But expanding into the United States is not without its challenges. Chinese brands have to walk a geopolitical tightrope because of China’s position as an economic rival — or adversary — of the United States.

While its global expansion is celebrated in China as a sign of the country’s progress and development, it can be seen as a threat to local American businesses.

Chinese food and drink chains are moving into the United States at the same time that many American brands that invaded China decades earlier are retreating.

This month, Starbucks sold a majority stake in its China operations to a Chinese investment firm, Boyu Capital.

Fast-food conglomerate Restaurant Brands International has sold most of Burger King’s China business to a Chinese private equity firm.

Domestic competition is especially fierce in China, where milk tea shops have sprung up over the past decade. According to some estimates, there are 420 thousand stores of this type in the country. Some have started selling drinks for less than $1, while others offer free online ordering.

Many of these brands feature a sophisticated version of bubble tea, which has been extremely popular for years. They brew loose tea leaves instead of using tea bags or powder and add fruit slices, fresh milk or creamy cheese foam on top.

HeyTea, which helped drive this trend and has about 4,000 stores in China, stopped accepting new franchise applications this year. The company began its expansion in the United States two years ago, when the battle between tea brands intensified.

At HeyTea’s Times Square location on a recent afternoon, lines stretched out the door with groups of customers waiting for elaborate drinks like its fruit tea with cheese foam.

“They are getting really big now,” said Farida Abdelaziz, 20, who waited up to 30 minutes with her friends for drinks.

Naisnow, a smaller Chinese tea brand, opened its first U.S. store in Flushing, a predominantly Asian neighborhood in New York, in October. The lines were long and sales were quick.

Its most popular items were drinks made with avocado and kale, developed for the American market. The company said it plans to expand to 500 stores over the next three to five years.

Jerry Yao, Naisnow deputy manager responsible for international expansion, said one difference was already evident: “The margins are definitely better than in China.”

The transition to the United States is not always smooth. Hot pot chain Haidilao, which has an almost devoted following in China, faced difficulties when it entered the market in 2013.

It did not offer menus in English. Prices were higher than customers expected. And their characteristically over-the-top service felt intrusive.

In China, Haidilao employees give free manicures to customers waiting for tables, perform choreographed noodle dances to entertain, and even hand-peel shrimp for customers.

But the attention from employees was initially perceived as “snooping” in the United States, said Qu Cong, chief financial officer of Super Hi International Holdings, Haidilao’s international arm.

“For American consumers, there is a strong sense of limits, so simply copying practices used in China may not work,” Qu said.

Haidilao began providing more guidance, in English, on how to navigate the hot pot experience, in which diners dip raw ingredients into a simmering broth at the table. Adjusted pepper levels on some bases and expanded beef options.

The chain gained attention on social media in the summer, when one of its stores appeared in the final episode of “And Just Like That…”, a sequel to “Sex and the City”. In the episode, the hostess notices that Carrie Bradshaw is dining alone and brings “Tommy Tomato”, a stuffed doll, to occupy the empty seat.

Chinese brands need to decide how much they should adapt to local tastes. When Wallace opened its first U.S. store last year, it drastically scaled back its extensive menu to focus primarily on fried chicken sandwiches.

Ricky Chen, president of Wallace USA, said the standard sandwich served in China consisted of lettuce and mayonnaise. For American customers, Wallace removed the lettuce and added pickles, something Chinese consumers “don’t usually eat.” It also made the food saltier.

Chen believes in Wallace’s potential in the new market. “American fast food is getting too expensive,” he said. At its California store, Wallace offers three regular-sized chicken sandwiches for $10. By comparison, a single chicken sandwich at Chick-fil-A or KFC costs about $6.

Wallace doesn’t hide its Chinese roots, Chen said. But it doesn’t announce them either. In the beginning, the majority of customers were Asian, as they knew the brand. That has already changed.

Wallace said it plans to open 10 more stores by the end of 2026.

Chagee, a tea brand that began selling shares on the Nasdaq in May, said customers don’t perceive it as a Chinese brand. The name derives from an ancient Chinese love story. Its logo features a concubine in Peking Opera attire, vaguely reminiscent of Starbucks’ two-tailed mermaid.

Emily Chang, Chagee’s North American commercial director, said she was hired to develop the company as an ABC — “American-born Chinese” brand. She stated that there are more than a dozen stores “in preparation” and that expansion should go beyond California. Chagee started in Los Angeles in April.

Qing, a restaurant industry investor and consultant, said that despite geopolitical tensions, the United States has been welcoming to Chinese food and beverage brands. He said the American embassy in Beijing invited him, along with restaurant chain owners, to visit several American cities earlier this year.

“This is one of the few industries where people are still willing to participate in this kind of exchange,” he said.