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McDonald’s China seeks franchisees for further expansion

May 7, 2014

mcMcDonald’s China is speeding up its expansion in China by allowing more franchising opportunities for individual operators as opening up more franchises is the most effective way to grow a business chain.

At the end of April, McDonald’s China opened its 2,000th store in Tianjin. McDonald’s China CEO Zeng Qishan stated before the opening that the 2,000th store was a milestone for the fast-food chain’s operations in mainland China.

“We spent 18 years opening 1,000 stores in China, but we added another 1,000 within five years. In 2013, we opened an additional 270 restaurants, which is a record-breaker for mainland China McDonald’s fastest-expanding market,” Zeng told the Chinese-language New Financial Observer. “We hope to continue with the same pace of expansion and aim to open 300 stores in 2014,” Zeng noted.

But the world’s largest fast food restaurant chain has still been slow in its expansion, compared with its long-time rival KFC.

The fast food restaurant, which specializes in fried chicken, had over 4,500 branches in more than 900 Chinese cities by the end of 2013.

In addition, Dicos, a Chinese fast food restaurant chain, overtook McDonald’s store count last year. As of 2013, Dicos had more than 2,000 stores in China, trailing KFC.

A chief consultant at an investment firm said that McDonald’s China has been forced to change its strategy in response to the competitive market. Holding an edge in terms of business scale is important for chain operations, so the number of stores holds a value that could not be overlooked, said Li Weihua, an expert in franchising. For a long period of time, McDonald’s was a franchise-oriented company in terms of global operations as 80% of McDonald’s restaurants are franchises and franchisee fees contributes at least 20% to the company’s total profit.

However, it has not been very aggressive in duplicating its global success by opening more franchises in the Chinese market.

When McDonald’s China first allowed franchising for individual operators in 2008, there were only three franchisees. The number rose to 46 by the end of 2013, with the company aiming to increase its franchisee ratio from 12% in 2013 to 20% to 25% in 2015.

Li further explained that McDonald’s has been conservative in allowing franchising for individual operators because its integrity in the commercial market of China is relatively low and because its legal system is not considered fully functional.

While franchises dent the confidentiality of the brand, the company might not be able to guard its rights, Li added.

In its bid to surpass KFC, McDonald’s China has to seize opportunities available in the second, third and fourth-tier cities, the consultant said.

Zeng said that the company tried to open franchises in smaller cities six years ago and that it plans to facilitate a similar business model in first-tier cities as well.

Source: China Times

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