McDonald’s Is Eating Up Franchise Expansion Opportunity in China


Where in the world can you find a consumer base more interested in Yum! Brands’ (NYSE:YUM) KFC than McDonald’s (NYSE:MCD). That would be China, but maybe not for long, if the world’s largest fast-food chain has anything to say about it. Street Insider reported Monday that a Chinese publication, WantChinaTimes, illuminated recently that McDonald’s is currently in the process of boosting its expansion efforts in the countryWantChinaTimes said McDonald’s is “aggressively” pushing to get more franchisees operating in China, and the company has even been organizing promotional events in high-profile cities in the country, like Shenzhen and Shanghai. KFC still enjoys a comfortable lead over McDonald’s in China, but if we know anything about the Oak Brook, Illinois-based chain, it’s that it doesn’t respond well to second best.

McDonald’s is no stranger to foreign expansion and franchisees, but Street Insider reports that its franchised locations only make up 5 percent of the company’s total footprint in China, and those stores are largely located in second- and third-tier cities that don’t always realize the best profits. KFC, on the other hand, has been aggressive about pushing its franchisee efforts in China, and that’s why it currently enjoys a lead in a country with a growing middle class of consumers that are beginning to flock to fast-food more and more.

But McDonald’s sees KFC’s franchising success and is now more determined than ever to match the company’s efforts and bolster them even more. According to Street Insider, McDonald’s is looking to double the number of stores open in China to 4,000 over the next three years, and it recognizes the success of franchisees as critical to achieving that plan. McDonald’s wants to orchestrate the opening of more franchisees in first-tier cities in China, growing is current footprint in the country, but its standards remain that those looking to franchise in China will only take over existing stores, must have around $325,000 in capital, go through up to 10 months of training, and run a store on a full time basis.

McDonald’s China plans sound aggressive, but the chain currently has little to no wiggle room as it suffers quarter after quarter of disappointing sales in the U.S., its domestic market, and isn’t seeing much headway abroad, either. Though McDonald’s still sits on top of the fast-food throne, its dominance over any and all fast-food chains is slowly dwindling, and it needs to act fast to ensure it can continue to offset losses. Its U.S. same-store sales only rose 0.3 percent in 2013, and that’s not a figure that investors are pleased with. Now, the chain is working to bolster its strategies both at home and abroad, and it is clear that China stands out to McDonald’s as one country that it can’t afford to miss.

China is a market especially appealing to retailers and global food companies because not only is its middle class segment growing, their palates are evolving, too. Fast-food chains used to struggle to survive in the country that is already teeming with the consumers’ favorite fare, but now that the middle class is growing and customers are looking for fast dinner options, the chains are seeing a surge of popularity in the China, especially KFC.

There’s definitely room in China for McDonald’s to grow — it’s all about trusting its franchises there and rolling out food items that appeal to Chinese consumers’ taste buds. McDonald’s has been known to effectively cater its menu to win over all of its different consumers, offering Japan the Mega Potato, and adding pasta to its Italian menu, and now it’ll be interesting to see what McDonald’s has in mind for China.