McD’s expands in China as US sales decrease

Like American coffee giant Starbucks Corp, fast-food titan McDonald’s Corp is eager to expand its footprint in China. And mainly for the same reason: to counter slowing US sales.

McDonald’s said Tuesday it will open 2,000 new restaurants in China as part of a strategic partnership with state owned CITIC Ltd and Carlyle Group, a private equity company.

The announcement from McDonald’s comes a week after it completed a previously announced deal to sell most of its China and Hong Kong business to CITIC and Carlyle for up to $2.1 billion. The deal leaves McDonald’s with a 20 percent stake in its China business.

Last month, Starbucks announced that it was purchasing the remaining 50 percent share of its East China joint venture in a $1.3 billion transaction, marking the largest single acquisition in the company’s history. China is Starbucks’ fastestgrowing market outside of the US by number of stores and the company plans to operate 5,000 stores on the mainland by 2021.

The world’s largest coffee house chain reported that for the third quarter ended July 2 same-store sales from Chinese mainland were up a robust 7 percent. Sales at its mainstay US cafes open at least 13 months rose 5 percent.

McDonald’s plan to almost double the number of stores in China by 2022 is a way for the company to commit to the mainland market without putting in its own capital according to Arthur Dong, a professor at Georgetown University’s McDonough School of Business.

Dong said for the first 20 years of its development in China, McDonald’s was basically using its own money.

That is a “very expensive proposition and the returns were somewhat lower than they had expected. By selling to Carlyle they are tapping into a very deep pool of capital from the private equity world and giving Carlyle the master license to go out and develop their business in China.

“This takes a lot of the risk way from McDonald’s, but gives them an opportunity to further expand in the Chinese market which still has a lot of room for growth,” he emailed.