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Ruth's Forays into China

Zacks Equity Research

Florida-based fine-dining restaurant Ruth's Hospitality Group Inc. (RUTH) has recently forged a deal with Ko China Hospitality Limited to expand its footprint in one of the most dynamic markets in the world -- China. Per the agreement, both will open four new Ruth's Chris Steak House units in China over the next three years. The terms of the deal were not disclosed.

Ko China Hospitality Limited is a subsidiary of Hasmore Limited.  Hasmore shares a longstanding relationship with Ruth’s and has helped grow the latter's presence in Asia’s key markets like Japan, Hong Kong, Taiwan and Singapore.  Now the duo is set to explore the Chinese market by the end of this year.

The new units are slated to open at Shanghai and Beijing – places that are known for upscale dining. We believe that this move will be strategically positive for the company on the entry level.

However, the Chinese market is not free from competition. Following the growing demand for American dining brands, several U.S. restaurateurs like Yum! Brands Inc. (YUM) and McDonald’s Inc. (MCD) are currently serving the market with a much wider scale of operation.

In fact, since the last couple of quarters, China is driving Yum! Brands’ growth story. In Feb last year, Yum! commented that the consumption is likely to double in China over the next decade as urbanization steps up.

Yet another peer, Denny’s Corp. (DENN) also entered into a pact last year to unveil 50 restaurants in China over the next 15 years. The first unit is slated for a 2013 opening.

Growing income of the larger populace makes China a lucrative investment proposition. However, to be distinctive in this competitive market, Ruth’s will have to introduce variations in its menu to attract consumers from different social strata as well as focus on value offerings.

At present, Ruth’s finest steaks are available in more than 150 company- and franchisee-owned locations worldwide spread across the U.S. and several other countries and territories, including Puerto Rico, Mexico, Canada, Taiwan, Japan, Hong Kong, Dubai, Aruba, El Salvador and Singapore. Ruth’s currently holds a Zacks Rank #4 (Sell).

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