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“ McDonald’s is going to improve the proportion of franchise restaurants in China from 12% in 2013 to 20%-25% in 2015，” said Kenneth Tseng， CEO of McDonald’s China.
McDonald’s is known for its conservative and steady strategies since it stepped into China in 1999. In comparison， Yum’s KFC， its major competitors in China， allowed the franchise in 2000， while McDonald’s only established this as its major method of expansion.
Xiao Yujia， a researcher at China Investment Consulting， thought it too late for McDonald’s to allow franchise at this moment.
“It is not the best time for the western fast food industry in China at this moment， rendering the enterprises unable to make best of the industrial expansion. The rental cost for foreign fast food restaurants is increasing. Therefore， the effect of opening the franchise at this moment must be abated by the precautious choice of locations，” Xiao Yujia said.
Presently， McDonald’s owned 2000 restaurants in 26 provinces or municipalities of China， a figure that pales in front of the number of 4，400 restaurants of KFC in China. In addition， it has to face the threat from the newly elated competitors.
The Helplessness of McDonald’s
In 2008， McDonald’s made a test of opening franchise in China in a low profile. At the beginning only three franchise restaurants were opened， but they were soon “shut down” due to various reasons. It was not until 2010 that the U.S. company restarted the pilot franchise pattern in Jiangsu， in which it lowered the franchise cost for individual franchisees from 8 million yuan to 2 million yuan.
One year later， McDonald’s launched a pilot project in Yunnan for corporate franchisees. The project was gradually extended to some cities in Guangdong， Fujian and Sichuan. At the end of last year， Shanghai and Shenzhen were recruited into the list as well.
According to Kenneth Tseng， McDonald’s had recruited 46 franchisees in China by the end of 2013. The number of restaurants they ran accounts for 12% of the total number of McDonald’s restaurants in China. In comparison， 80% of McDonald’s restaurants in the world are based on franchise and the franchising fees could contribute more than 20% of the total profits of the company， but strangely， McDonald’s did not bring this successful pattern into China.
“Franchise involved many people factors. The foreign pattern cannot be simply copied and moved into China，”an insider of McDonald’s said. What’s worrying McDonald’s most for fully opening the franchise pattern is the uncontrollable manmade risk. “Once there is a food safety issue caused by people， it would be a disastrous blow at the brand.”
At the end of 2012， the “hormonedriven fast-grown chickens” from Shandong were reported to get into the lo-gistics center of Yum in Shanghai. This incident brought the two foreign fast food giants’ business in China a great doom.
In the third quarter of 2013， Yum’s revenue amounted to US$3.47 billion while its net profits hit at US$152 million， down 68% year on year. The Chinese market saw Yum’s sales revenue drop 11%. For McDonald’s， the revenue last year was US$28.106 billion， up 1.9%， but in the APMEA area， the sales revenue dropped 1.9% and the number of customers decreased by 8.8%.
In Xiao Yujia’s opinion， the longexisting bird flu reduced the consumption of chickens and struck at the fast food giants heavily. In addition， the consumers are more aware of their own health and are less inclined to choose foreign fast food.
Kenneth Tseng admitted that the headquarters of McDonald’s had requirements over the Chinese market.“Thanks to the increasing investment of McDonald’s into the infrastructure， we are able to support the fully opening of franchise，” he said. According to his plan， McDonald’s is going to have at least 400 franchise restaurants in China two years later， 100% more than the current number.
The Coins’ Two Sides of Franchise
From now on， McDonald’s will develop itself in China with the combined strategies of directly-owned restaurants， traditional franchise restaurants and progressive franchise restaurants. “At first we might be more focused on the first- and second-tier cities to expand our size. In the future we are going to open more restaurants in coastal cities，”Tseng said. For some remote inland cities， however， he said that the progressive franchise will more be used more frequently to reduce the company’s bur- den of cash and logistics.
Different from the traditional franchise， the progressive franchise allowed the franchisees to choose the locations of the restaurants on their own and pay the rent to property owners directly. They also assume every penny the restaurant needs as the major contributor of the capital. In 2011， Kunming， Yunnan-based North Star Group became the first progressive franchisee of McDonald’s in China. In the past two years， the number of McDonald’s restaurants in Yunnan increased from 13 to 15.
“To promote franchise in China， the most important thing is to find a correct franchisee，” said Christine Xu， CMO of McDonald’s China. Whether they have the same brand ideas with McDonald’s is the primary standard when they choose the partner. In addition， the franchisees need to go through the 9-10-month process of application， screening， interviewing， training， operating and restaurant delivery. A man who was once present in the Promotional Event of McDonald’s Franchisees said that McDonald’s was very strict for the qualifications of franchisees. Apart from the long process， McDonald’s also put into consideration whether the applicants have overseas study and working experiences. The franchisees are only allowed to open the restaurant in the city they are living and not allowed to have investment partners.
In addition， the long investment returns and the huge investment in the late period are the biggest concerns of franchisees. It is known that both KFC and McDonald’s charges the franchising fess of 2 million yuan， but they need to pay for the continuation of the franchise and the advertising， which respectively take 6% and 5% of the revenue. In comparison， Dicos， which claimed to be the “No. 1 western fast food brand with franchise in China”， only charges franchisees 250 thousand yuan at the beginning. And the continuous cost of re-subscription of the franchise and advertising respectively take 5% ad 3% of the revenue. Last year， the number of Dicos’s restaurants increased to 2100， making it surpass McDonald’s and became the second largest western fast food brand in China.
For this， Kenneth Tseng stressed：“We are eager to expand， but we pay more attention to the value and want the long and effective development.”
McDonald’s is known for its conservative and steady strategies since it stepped into China in 1999. In comparison， Yum’s KFC， its major competitors in China， allowed the franchise in 2000， while McDonald’s only established this as its major method of expansion.
Xiao Yujia， a researcher at China Investment Consulting， thought it too late for McDonald’s to allow franchise at this moment.
“It is not the best time for the western fast food industry in China at this moment， rendering the enterprises unable to make best of the industrial expansion. The rental cost for foreign fast food restaurants is increasing. Therefore， the effect of opening the franchise at this moment must be abated by the precautious choice of locations，” Xiao Yujia said.
Presently， McDonald’s owned 2000 restaurants in 26 provinces or municipalities of China， a figure that pales in front of the number of 4，400 restaurants of KFC in China. In addition， it has to face the threat from the newly elated competitors.
The Helplessness of McDonald’s
In 2008， McDonald’s made a test of opening franchise in China in a low profile. At the beginning only three franchise restaurants were opened， but they were soon “shut down” due to various reasons. It was not until 2010 that the U.S. company restarted the pilot franchise pattern in Jiangsu， in which it lowered the franchise cost for individual franchisees from 8 million yuan to 2 million yuan.
One year later， McDonald’s launched a pilot project in Yunnan for corporate franchisees. The project was gradually extended to some cities in Guangdong， Fujian and Sichuan. At the end of last year， Shanghai and Shenzhen were recruited into the list as well.
According to Kenneth Tseng， McDonald’s had recruited 46 franchisees in China by the end of 2013. The number of restaurants they ran accounts for 12% of the total number of McDonald’s restaurants in China. In comparison， 80% of McDonald’s restaurants in the world are based on franchise and the franchising fees could contribute more than 20% of the total profits of the company， but strangely， McDonald’s did not bring this successful pattern into China.
“Franchise involved many people factors. The foreign pattern cannot be simply copied and moved into China，”an insider of McDonald’s said. What’s worrying McDonald’s most for fully opening the franchise pattern is the uncontrollable manmade risk. “Once there is a food safety issue caused by people， it would be a disastrous blow at the brand.”
At the end of 2012， the “hormonedriven fast-grown chickens” from Shandong were reported to get into the lo-gistics center of Yum in Shanghai. This incident brought the two foreign fast food giants’ business in China a great doom.
In the third quarter of 2013， Yum’s revenue amounted to US$3.47 billion while its net profits hit at US$152 million， down 68% year on year. The Chinese market saw Yum’s sales revenue drop 11%. For McDonald’s， the revenue last year was US$28.106 billion， up 1.9%， but in the APMEA area， the sales revenue dropped 1.9% and the number of customers decreased by 8.8%.
In Xiao Yujia’s opinion， the longexisting bird flu reduced the consumption of chickens and struck at the fast food giants heavily. In addition， the consumers are more aware of their own health and are less inclined to choose foreign fast food.
Kenneth Tseng admitted that the headquarters of McDonald’s had requirements over the Chinese market.“Thanks to the increasing investment of McDonald’s into the infrastructure， we are able to support the fully opening of franchise，” he said. According to his plan， McDonald’s is going to have at least 400 franchise restaurants in China two years later， 100% more than the current number.
The Coins’ Two Sides of Franchise
From now on， McDonald’s will develop itself in China with the combined strategies of directly-owned restaurants， traditional franchise restaurants and progressive franchise restaurants. “At first we might be more focused on the first- and second-tier cities to expand our size. In the future we are going to open more restaurants in coastal cities，”Tseng said. For some remote inland cities， however， he said that the progressive franchise will more be used more frequently to reduce the company’s bur- den of cash and logistics.
Different from the traditional franchise， the progressive franchise allowed the franchisees to choose the locations of the restaurants on their own and pay the rent to property owners directly. They also assume every penny the restaurant needs as the major contributor of the capital. In 2011， Kunming， Yunnan-based North Star Group became the first progressive franchisee of McDonald’s in China. In the past two years， the number of McDonald’s restaurants in Yunnan increased from 13 to 15.
“To promote franchise in China， the most important thing is to find a correct franchisee，” said Christine Xu， CMO of McDonald’s China. Whether they have the same brand ideas with McDonald’s is the primary standard when they choose the partner. In addition， the franchisees need to go through the 9-10-month process of application， screening， interviewing， training， operating and restaurant delivery. A man who was once present in the Promotional Event of McDonald’s Franchisees said that McDonald’s was very strict for the qualifications of franchisees. Apart from the long process， McDonald’s also put into consideration whether the applicants have overseas study and working experiences. The franchisees are only allowed to open the restaurant in the city they are living and not allowed to have investment partners.
In addition， the long investment returns and the huge investment in the late period are the biggest concerns of franchisees. It is known that both KFC and McDonald’s charges the franchising fess of 2 million yuan， but they need to pay for the continuation of the franchise and the advertising， which respectively take 6% and 5% of the revenue. In comparison， Dicos， which claimed to be the “No. 1 western fast food brand with franchise in China”， only charges franchisees 250 thousand yuan at the beginning. And the continuous cost of re-subscription of the franchise and advertising respectively take 5% ad 3% of the revenue. Last year， the number of Dicos’s restaurants increased to 2100， making it surpass McDonald’s and became the second largest western fast food brand in China.
For this， Kenneth Tseng stressed：“We are eager to expand， but we pay more attention to the value and want the long and effective development.”