McDonald's seeks strategic partners for expansion in China

McDonald's organizes a birthday party for children in Beijing. The company's mainland subsidiary currently operates 2,200 restaurants.[JIANG DONG / CHINA DAILY]

Fast food chain plans to open further 1,000 restaurants by 2020

McDonald's China is on the lookout for strategic investment partners in the mainland to help it open another 1,000 restaurants by 2020.

"We truly believe we can create strong and sustainable growth in the Chinese mainland, Hong Kong and South Korea, with a mindful introduction of strategic partners who can offer local expertise and competency, blended with the unrivaled global strength of the group, to allow accelerated, long-term growth," McDonald's President and CEO Steve Easterbrook said in an interview with China Daily in Beijing.

Steve Easterbrook, CEO and president of McDonald's

The company has appointed multinational financial services corporation Morgan Stanley to identify potential investors, who are expected to hold "majority shares" in the new sites.

The company's mainland subsidiary currently operates 2,200 restaurants, 35 percent of which are franchised. It also plans to find strategic investors in Hong Kong and South Korea.

The mainland is the company's third-largest market after the United States and Japan, but Easterbrook now expects it to jump to second by 2020. Easterbrook said he remains bullish on the China market, and open-minded to potential investors.

But he emphasized candidates should offer exceptional integrity, deep understanding of their local market, be financially stable, and have the competitive strength to grow.

Phyllis Cheung, CEO of McDonald's China, said: "With the introduction of strategic partners, we will be able to tap into the country's rich local resources, allowing investment capital to unlock our growth potential.

"We will also be able to make faster local decisions by being China-centric to achieve our goal of being the second-largest market for McDonald's."

She added the move is in line with the company's goal to increase its ratio of franchised businesses globally from the current more than 80 percent to 93 percent by 2018 and 95 percent in the long term.

McDonald's rival Yum Brands Inc, the parent of KFC, Pizza Hut and Taco Bell, announced in October it was spinning off its China business into a separate company.

An expired-meat scandal in 2014 involving Shanghai Husi FoodCo, which supplied many leading international fast-food chains, has hurt revenues at both Yum and McDonald's in the past two years, and weakened consumer confidence in the brands.

Slower growth has been felt particularly hard in first- and second-tier cities, but experts said the greatest potential for growth is in fourth- and fifth-tier cites where competition remains relatively weak.

Jason Yu, local general manger of global consumer research firm Kantar World-panel, said international fast-food chains have seen their growth flatline in the past two years, as a result of increasing consumer awareness of healthier food and liftestyles.

He said any significant transformation by McDonald's in China will only come about with hefty capital investment and locally know-how.

"Diversification and localization by McDonald's in China will demand strong local partners with consumer insight, market entry and relevant resources."

Yu said the deal is the right decision for a global company like McDonald's so it can deploy its own resources in other emerging markets where the growth could be higher.