DISHING IT OUT
McDonald’s granting new licenses in China
McDonald’s Corp’s decision to allow investors with 2 million yuan ($329,800) and nine months of training to operate an existing restaurant through franchising could fuel its growth in China, despite the risks of high rents and competition. The fast-food chain granted new franchises in Shanghai and Shenzhen in December. Its website also noted the company is holding seminars for such traditional licensing in those cities.
McDonald’s first allowed traditional franchising, in which the licensee leases the restaurant from the corporation, in Jiangsu, Fujian, Sichuan and part of Guangdong provinces in 2010.
In some regions, McDonald’s also has allowed developmental licensing. Under this arrangement, a local licensee owns the business, including the real estate, and uses his or her own capital and local knowledge to optimize sales.
Such owners also have the right to open more restaurants within a particular region or province.
Lu Yina, public relations director for McDonald’s in China, said the company is confident it can develop its business with three models — directly operated restaurants, traditional licensing and developmental licensing.
Worldwide, more than 80 percent of McDonald’s restaurants are owned and operated by independent local businessmen and women. Franchising, which requires less upfront capital, is a crucial part of McDonald’s rapid growth in China, Lu said.
She said McDonald’s remains cautious in its selection of licensees to ensure that its standards are kept high.
Last week, McDonald’s Corp announced its global sales had increased 1.2 percent in January. Comparable sales in Asia-Pacific, the Middle East and Africa increased 5.4 percent that month.
But McDonald’s still lags behind KFC Corp. The Yum Brands Inc subsidiary runs more than 4,200 restaurants in China.
Only about 200 restaurants of KFC are franchised.
But with only one-third the number of KFC stores, McDonald’s is expected to double its locations to 4,000 in the next three years.
Gao Jianfeng, general manager at Shanghai-based Bogo Consultants, said the move shows McDonald’s efforts to accelerate its growth in China go hand in hand with heightened social resources.
“In doing so, McDonald’s can be released from high pressure from the retail side while focusing on building brand value and product quality,” Gao said.
Some investors have worried that the high cost of rent in first-tier cities could be risky.
In some mature business districts, McDonald’s has faced the prospect of being replaced by high-end retailers willing to pay higher rents.