McDon­ald’s not re­treat­ing from China


FAST-FOOD GI­ANT MCDON­ALD’S CORP on Mon­day an­nounced the sale of 80 per­cent of its Chi­nese main­land and Hong Kong op­er­a­tions to a con­sor­tium in­clud­ing China’s CITIC Ltd and the Wash­ing­ton­based pri­vate equity com­pany Car­lyle Group LP in a deal worth up to $2.1 bil­lion. Bei­jing Youth Daily com­mented on Wednesday:

Un­der the agreed terms, CITIC and its in­vest­ment man­age­ment unit CITIC Cap­i­tal will ac­quire a 52 per­cent stake in McDon­ald’s op­er­a­tions in the main­land and the spe­cial ad­min­is­tra­tive re­gion and Car­lyle a 28 per­cent stake.

Although the deal is yet to be closed, it has given rise to con­cerns that the fast-food chain is back­ing out of the Chi­nese mar­ket amid in­creas­ingly in­tense com­pe­ti­tion. The rise of lo­cal fast-food chains has posed a chal­lenge to its lead­ing po­si­tion and over­all prof­its.

Such spec­u­la­tion is un­called for. McDon­ald’s is nei­ther quit­ting the Chi­nese mar­ket nor will it re­lin­quish its con­trol over its restau­rants in the Chi­nese main­land and Hong Kong, be­cause the lat­est deal is more about sell­ing its fran­chise op­er­a­tions.

McDon­ald’s has more than 2,400 out­lets in the main­land and 240 in Hong Kong, and about twothirds of them will be re­fran­chised. How­ever, the cor­po­ra­tion will re­tain a 20 per­cent stake as well as its man­age­ment, mean­ing that Chi­nese share­hold­ers are un­likely to af­fect its core strate­gies.

Os­ten­si­bly the fast-food firm is sell­ing a ma­jor stake in its China busi­ness to a group of in­vestors led by CITIC. Yet in fact, by in­tro­duc­ing lo­cal cap­i­tal and re­sources as well as a new master fran­chisee to the game, it as­pires to re­duce the risks em­bed­ded in its China op­er­a­tions while seek­ing to ex­pe­dite its ex­pan­sion to re­gain its foot­ing.

Its ma­jor ri­val KFC, owned by Yum Brands Inc, has twice as many restau­rants on the Chi­nese main­land and the gap is not likely to nar­row in the fore­see­able fu­ture. Co­op­er­at­ing with CITIC, a re­source­ful Chi­nese enterprise known for its ex­ten­sive real es­tate net­work, is a tar­geted move that may help it to com­pete for mar­ket share. Re­treat­ing from the lu­cra­tive Chi­nese fast-food mar­ket, where huge po­ten­tial re­mains un­tapped, is not what McDon­ald’s wants.

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