How Does McDonald’s Intend To Turn Around Its Chinese Business?
McDonald’s High Growth markets are classified to include countries like China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands, and related markets. Further, they are believed to have relatively higher restaurant expansion and franchising potential. After initial success in the Chinese and Korean markets, McDonald’s saw revenues and other metrics for the region deteriorate. This was in part a result of people’s changing preferences towards healthier alternatives, and gaining popularity of other Western chains like Starbucks. Moreover, Chinese chains such as Kung Fu are strong competitors to McDonald’s and experts believe that the company does not have the food or brand position that Chinese consumers want.
To revive its business in the region, McDonald’s has come up with a new strategy which entails selling-off of some 2,800 odd restaurants in China, Hong Kong, and Korea. This will essentially lead to the company-operated restaurants being converted into independently run franchisees. McDonald’s has already franchised 80% of its restaurants worldwide, but only 44% of those are present in high growth markets. Through this strategy, the hamburger chain will earn a flat fee and a royalty, linked to the sales made by the franchisees. In line with this, McDonald’s has been actively seeking buyers for its restaurants in Hong Kong, China, and Korea. It is rumored that Carlyle Group, a private equity firm based in Washington, and a multinational group, are the final two bidders for this deal. The 20-year master franchise agreement is estimated to be worth $2 billion to $3 billion.
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However, the franchising strategy is in contrast to the company’s plan of further expansion in the high growth markets of China, Hong Kong, Korea, and Russia, wherein it intends to open up 1,500 new restaurants.
Have more questions on McDonald’s? See the links below.
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