New McDonald's set to expand faster in China

The launch of the new McDonald's China in Shanghai. PROVIDED TO CHINA DAILY

Some 2,000 quick service outlets to open by 2022 in small cities

McDonald's Corp, the global fast-food chain that has forged a new partnership in China last month, will expand faster by opening 2,000 new restaurants in the next five years.

They will be set up mostly in third-and fourth-tier cities with a focus on take-aways and digitalized services.

The company said it will increase its expansion pace from about 250 new outlets this year to 500 per year from 2022 onward.

It did not disclose other details like the scale of new investments that would ensue.

The new partnership, jointly established by CITIC Ltd, CITIC Capital, Carlyle Capital and McDonald's, paid $2.08 billion for the US-based fast food chain's business in the Chinese mainland and Hong Kong.

The deal received regulatory approval and was completed on July 31.

The new company will become McDonald's largest franchisee outside of the United States.

CITIC Ltd and CITIC Capital together hold a majority 52 percent stake in the new company, while Carlyle Capital will hold 28 percent, and McDonald's 20 percent.

Currently, McDonald's operates and manages 2,500 restaurants in the Chinese mainland, including 600 franchises, and 240 restaurants in Hong Kong.

The new company will manage all the 2,000 new restaurants directly.

Despite McDonald's global dominance, KFC, owned by Yum China, has bigger presence in the Chinese quick service restaurant. Yum China runs more than 5,000 KFC restaurants in over 1,100 cities and counties.

KFC's wide presence in China appears to have bolstered the confidence of McDonald's investors in the new expansion plan, industry insiders said.

The new partnership of McDonald's aims to achieve double-digit sales growth annually in the next five years.

The goal includes delivery coverage of 3,375 restaurants or over 75 percent of the total.

"China will soon become our largest market outside of the United States," said Steve Easterbrook, McDonald's president and CEO.

"The mainland and Hong Kong are leading the global system in capturing new consumer trends such as delivery and digitalization and it is driving strong performance and growth momentum."

Zhang Yichen, the new chairman of McDonald's China, said restaurant ownership at the local level will foster entrepreneurial spirit within the company.

For example, considering the strong demand for takeout food and the population density in China, Zhang emailed Easterbrook regarding the need to develop a customized software system for the Chinese market.

The latter dispatched McDonald's global IT team to support the China business. Now, the take away operation in China tops the global chain's comparable systems across markets.

Zhang said CITIC has more than 1,400 bank branches in China. Besides, CITIC and Carlyle's extensive resources and market expertise in real estate, supply chains, retail, consumer goods and technology, coupled with the global quality standards and branding of McDonald's, will prove to be a winning formula.

Jason Yu, general manager of Kantar Worldpanel China, a firm that researches shopper behavior, said, "CITIC operates many branches in third-and fourth-tier cities, and they understand the local market, hence will be able to help McDonald's to choose appropriate sites for new restaurants and also provide useful real estate information."