Golden Arches hikes capex to 13B to fund new McDonald’s stores

Golden Arches Development Corp., the local franchise holder for the McDonald’s restaurant chain, has set aside a capital expenditure (capex) of 13 billion for next year as it incorporates more service technology innovations into its existing and future stores.

At the same time, the company is looking to implement price increases in 2019 amid the country's rising inflation, which just zoomed to its highest level in almost a decade.

In September, inflation rate, or the increase in consumer prices, moved at a much faster pace of 6.7 percent compared to 6.4 percent in August and 3.0 percent in the previous year.

The spike was primarily brought about by the increase in the prices of food and non-alcoholic beverages, which have been rising non-stop since the start of the year or since the government's Tax Reform for Acceleration and Inflation (TRAIN) law was implemented.

To recall, TRAIN, which overhauled the country’s tax system for the first time in two decades, imposed an increase in the excise tax on fuel, effectively increasing the cost of production and the delivery of food items across the country.

Unfortunately, the supply of McDonald' s Philippines — including rice, chicken, and vegetables — is 70 percent locally sourced.

"There will be [a price increase] next year," McDonald's Philippines Managing Director Margot Torres said. "Just like what we do every year.”

At the start of the year, the fast-food chain was also forced to implement a price increase in some of its products because of the excise tax on sugar sweetened beverages (SSB), which was also imposed under TRAIN law.

Right now, McDonald's Philippines is looking into a "strategic pricing plan" for next year. Kenneth Yang, president and chief executive officer of the company, said they will "try to be conservative" when it comes to imposing a price increase.

"We will try to be below inflation," Yang said. "What we try to do is become more efficient and increase our productivity so we dont have to pass all of the cost increases to our costumers".

In the meantime, the company will focus on innovating its existing stores. Hence, the increase in capex from 12 billion this year to 13 billion in 2019.

Yesterday, McDonald’s Philippines launched its first ever 'NXTGEN' store in Fort Bonifacio. Just like the McDonald's stores in Europe and in the United States, this new store features a new multi-point service platform, which includes Self-Ordering Kiosks and Split Counter System. It also has fast WiFi connection.

Torres said that incorporating the same features into the future and existing McDonald's stores would mean additional cost for the company. Nevertheless, she said the company plans to convert 10 percent of its restaurants into 'NXTGEN' format by 2019 and by 70 percent by 2021.

The company is planning to end the year with 620 stores from only 572 stores last year.