Look Out McDonald's And KFC: Here Comes China's Alan Song

HONG KONG, March 3, 2025 /PRNewswire/ -- China's largest restaurant chains aren't as well-known globally as McDonald's and KFC. Yet one of the country's most successful venture capitalists thinks their international heft will increase over time, pointing to an important trend for investors looking for growth at a time of widespread economic uncertainty.

"The companies we have invested in -- like Lao Xiang Ji ("LXJ International"), Xiaocaiyuan and Babi Food -- can all become the McDonald's and Starbucks of the East," Harvest Capital's founding partner Alan Song said in a recent interview with Forbes China. "Chinese people can create their own brands and deserve a better life. Chinese entrepreneurs will also become owners of outstanding brands like those in the West."

"The world is facing the possibility of consumption downgrade, and China is no exception. We will closely align with the development trends of the Chinese and global economies, placing greater emphasis on developing high-quality consumer industries" that have found loyalty and growth worldwide, he added.

Song, who holds a doctorate in business from the University of Minnesota, founded Harvest Capital in 2007 with a focus on consumer retail business. An industry mentor at China's elite School of Economics and Management at Tsinghua University, he is also a member of the Global Council at New York University. Song joined the financial industry in 1995, working at Everbright Securities and Huatai Securities early in his career.

Harvest Capital founder Alan Song made the cover of the December issue of Forbes China. Forbes China

Harvest has focused on value investing since its founding. Song said other key success factors include being the sole outside shareholder and bringing in enough capital to have an impact on a company's operations.

Underlying his strategy is a belief that China's evolving "consumer society" will be a crucial driver for spending that improves the overall quality of life in the country. By focusing on essentials such as clothing, food, housing, transportation, healthcare, education and entertainment, Song said he wants to address the core and frequent needs of 80% of Chinese consumers.

As income rises, consumption is "no longer just about higher prices but about quality improvement," Song wrote in an article last year. "Since the last century, companies like Coca-Cola from the United States and Unilever from the United Kingdom have grown globally by offering high-quality, affordable products. Similarly, more such companies will emerge in China."

It's been a winning approach for Song so far. Harvest now has over $4 billion in assets under management. Among his most successful investments is a return of more than $1 billion from an investment of 350 million yuan (approximately $50 million) in the energy beverage company Eastroc. Harvest-invested restaurant chain Xiaocaiyuan has gained 25% since it went public on the Hong Kong Stock Exchange in December. In month, LXJ International, which has 1,400 stores in China and is the largest Chinese fast-food chain in Harvest's portfolio, submitted its application to list on the Hong Kong Stock Exchange. Harvest purchased 5% of LXJ International as a first-round investor in 2018 and is the sole outside shareholder, Song noted.

Looking ahead, Song believes that as China transitions from a production-oriented society to a consumption-oriented one, the share of consumer spending in China's GDP has nearly 20% room to increase from 50% (including public and private consumption) last year. In the process, he believes, China will spawn more global companies—hopefully including many of those in Harvest's portfolio.

Song said he's learned about success from the restaurant industry in the United States and Japan. Japan's three major beef bowl chains —Yoshinoya Holdings, Sukiya, and Matsuya—underwent a fierce price war in the 1990s, establishing Japanese fast-food chains' core values and cost structures.

Lessons from their experience has impacted the business communities in both China and the United States, Song said. Though domestic leaders at home in Japan, the group has not achieved success on par with KFC and McDonald's because of their inability to synchronize supply chain management efficiency with business expansion; Chinese companies now have the potential to do better, Song believes.

Edited excerpts from a recent cover interview with Song by Forbes China follow:

Forbes China: You're among the biggest gainers on the new Forbes China Midas List. How did you do it?

Song: In the financial industry, most people adhere to the philosophy that investing is based on portfolio theory. After introducing mathematics into finance, it became a game for smart people attempting to profit from market fluctuations. The history of Wall Street over the past 100 years has proven that most narrow stories do not end well. In contrast, those who persist with an entrepreneurial spirit often reap substantial rewards.

Over the past two decades, we have been fully committed to becoming a primary enabler of corporate growth. We're not limited to making suggestions in the boardroom; our (ideas) extend deeply into an enterprise's daily operations, encompassing brand building, channel expansion, marketing, insights into consumer trends, digital transformation and the establishment of business intelligence systems. We are not speculators seeking short-term arbitrage. In life's journey, flow (being fully immersed in a task) is crucial, and the essence of success is far more than just money.

I use the following as a metaphor for my work: I'm bringing a group of athletes to the corporate Olympics. I will feel very proud if I can help more Chinese companies become champions.

I believe in Peter Drucker's management science. For example, I've invested in many restaurants, fast-moving consumer good companies, food and beverage businesses, cosmetics and especially fast food. Many often ask why Chinese cuisine hasn't been able to go global and create world-class brands. I believe the reason is non-standardization. The diversity and complexity of Chinese cuisine make it difficult to standardize; it requires extensive training for chefs and personalized presentations.

With such a diverse range of global cuisines, why is it that only the United States has been able to cultivate the most publicly listed companies and brands? The U.S. has 61 publicly listed restaurant companies, and the world's largest industrialized restaurant brands are all in the U.S. — McDonald's, KFC, Starbucks, and Chipotle. If you study this phenomenon seriously, you will find that Americans believe in supply chain and management science. Globalization, industrialization, standardization, and modernization of their products are the secret weapon of the American fast-food industry's success.

The companies we have invested in -- like LXJ International, Xiaocaiyuan and Babi Food -- can all become the McDonald's and Starbucks of the East. Chinese people can create their own brands and deserve a better life. Chinese entrepreneurs will also become owners of outstanding brands like those in the West.

Charlie Munger once said life presents many opportunities, but few are genuinely structural. If you seize them, you will be a big winner. People who trade continuously cannot have a perfect life.

Forbes China: Is Harvest itself expanding beyond China?

Song: When an economy develops to a certain level, it has a certain degree of economic spillover. Capital, brands and entrepreneurs face the challenge of going abroad and participating in global competition. I think it is a good phenomenon. Harvest Capital is no exception. We are currently at a critical stage of international expansion. We are an institution deeply involved in consumption that has achieved significant results, and will participate in the global competition for consumer goods business. So far, we have established companies in the U.S., Japan, Singapore, and Hong Kong.

Consumer investment, however, differs from other types of investment. According to Maslow's theory of the hierarchy of needs, national cultures and ethnic backgrounds vary yet the underlying logic of consumption is fundamentally similar; people's basic consumption needs are consistent.

Therefore, there's a commonality in consumption culture, consumer civilization and consumption demand across different markets, cultures, and ethnic groups. In the future, we will focus on the mass consumer goods market -- primarily essential and high-frequency products and services.

At the same time, we will also cater to the everyday needs of ordinary people, focusing on products with exceptional cost-effectiveness. I don't reject elite consumption, but mass consumption has always been the mainstream demand in the development of consumer goods. We will do what we are good at within our understanding to create value for society.

In the past, reform and opening up in China meant foreign investment coming to the country. In the future, reform and opening up will mean that Chinese entrepreneurs will go abroad, becoming a significant force in global competition. Harvest Capital will undoubtedly move towards globalization as well, applying the experience we have gained in the Chinese market worldwide.

Forbes China: What are your plans for the coming year and beyond?

Song: In the future, China's economy will face challenges. The world faces the possibility of a consumption downgrade, and China is no exception. We will closely align with the development trends of the Chinese and global economies, emphasizing the development of high-quality consumer industries.

Harvest Capital's core investment principles currently rely on cash flow discount models. In the next one to two years, we will focus on building new channels in essential consumer goods sectors such as convenience stores, beverages and cosmetics. These areas are highly resilient to market risks and boast robust cash flow conditions.

As a financial practitioner, my goal is to transform Harvest Capital into Harvest Industrial -- and not just in China but globally. We are now looking at markets in New York, London, Paris, and Japan. Industry is what truly creates value, has social value, generates a wealth spillover effect, and truly drives social progress. This is the principle to which we adhere and is the true core spirit and pursuit of Harvest Capital. So, from this perspective, we are different from most PE and VC firms.

Forbes China: What, in a nutshell, does that approach boil down to?

Song: Moving upstream. Charles Dickens once said, "It was the best of times, it was the worst of times." However, all we need to do is become one of this era's strong ones.

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SOURCE Harvest Capital