Business
McDonald’s Bets Big on China Expansion Amidst Western De-risking Trend
Highlights
- McDonald’s expands in China, reclaiming a 28% stake from Carlyle Group, defying the trend of multinational companies reducing investments in the country.
- The move aims at greater control and aggressive expansion in the face of economic challenges and geopolitical tensions.
- Unlike others, McDonald’s sees potential in the Chinese market and views its majority partner, CITIC, as providing crucial political cover.
- Starbucks, Apple, Tapestry, and Nike also maintain dedication to the Chinese market, emphasizing the importance of agility in staying competitive.
- McDonald’s doubles restaurant count in China since 2017, reaching 5,500 outlets and making it the second-largest market.
- Ambitious goal: Surpass 10,000 stores in China by 2028, despite concerns about potential deteriorating relations between China and the West.
- Experts emphasize the need for further digitalization and localization to cater to Chinese consumer preferences.
- McDonald’s China menu already incorporates local tastes, such as the popular taro pie, indicating adaptability to local markets.
- Ben Cavender sees the current economic conditions as an opportune time for McDonald’s to double down on China, given the value-driven middle class and lower commercial rents.
In a surprising move that defies the current trend of multinational corporations reducing investments in China, McDonald’s has opted to take greater control of its China business and pursue aggressive expansion plans, signaling confidence in the market despite economic challenges and geopolitical tensions.
Just last month, the U.S.-based fast-food giant made headlines by repurchasing the 28% stake in its China business that Carlyle Group had acquired in 2017. This strategic move increased McDonald’s share to 48% in a $6 billion business encompassing operations in Hong Kong and Macau.
While other global companies are scaling back their commitments to China, McDonald’s sees the potential for a significant payoff. The decision contrasts sharply with the prevailing trend, and analysts believe it reflects the company’s willingness to navigate challenges for the prospect of substantial gains.
One advantage contributing to McDonald’s confidence is its majority partner in the China business, CITIC, a powerful Chinese state-owned conglomerate. Jason Yu, Managing Director of Kantar Worldpanel in Greater China, notes that having such a partner provides political cover and positions McDonald’s away from the forefront of geopolitical issues.
Notably, other consumer-facing U.S. companies like Starbucks, Apple, Tapestry (owner of Coach), and Nike have also remained committed to the Chinese market, emphasizing the need to stay agile to protect and expand their market share in the face of increasing competition.
McDonald’s has used funds from the Carlyle investment to double its restaurant count in China since 2017, reaching 5,500 outlets and making the country its second-largest market. The ambitious goal is to surpass 10,000 stores in China by 2028.
Despite concerns about potential deteriorating relations between China and the West, McDonald’s seems optimistic about its prospects. However, experts emphasize the need for further digitalization and localization to cater to Chinese consumer preferences in the $140.2 billion limited-service restaurant sector.
The McDonald’s China menu already incorporates local tastes, such as the popular taro pie, in addition to familiar offerings. Euromonitor data indicates that McDonald’s holds a dominating 70% share of the limited-service burger-focused restaurants market in China.
Ben Cavender, Managing Director and Head of Strategy at China Market Research Group, sees this as an opportune time for McDonald’s to double down on China. Despite slowing economic growth, he points to a value-driven middle class and lower commercial rents as potential advantages for businesses like McDonald’s.
In conclusion, McDonald’s bold move to strengthen its position in China reflects a strategic bet on the resilience and potential growth of the Chinese market, presenting a contrasting narrative to the broader trend of companies reevaluating their commitments in the region.
