McDonald’s to Open a Restaurant a Day in China in Four Years

McDonald’s Corp. (MCD), the world’s largest restaurant chain, should open an outlet a day in China as it challenges Yum! Brands for dominance in Asia’s largest economy as rising salaries boost spending on fast food.

“We should be opening a restaurant every day in the next three to four years” in China, Peter Rodwell, company president for Asia excluding Japan, Australia and New Zealand, said in an interview in Singapore today. “We’re now opening a restaurant every other day.”

McDonald’s franchised outlets in China may account for as much as 20 percent of the total within six years, Rodwell said, as the hamburger chain aims to increase its stores from 1,300 to 2,000 by 2013. While its website says more than 75 percent of restaurants worldwide are operated by franchisees, only six McDonald’s shops in the world’s most-populous nation are franchised, said Vivian Zhang, a Shanghai-based spokeswoman.

“Franchising can be a very effective way to grow in China,” said Ben Cavender, an analyst at China Market Research in Shanghai. “It will potentially allow them to accelerate their expansion on the mainland.”

China Franchises

McDonald’s plans to grow its franchising business, first started in Wuxi in 2007, as it is “confident about the China market’s future”, Zhang said in an e-mailed statement today. It has three franchisees with two stores each in Liaoning, Jiangsu and Zhejiang province, she said.

Photographer: Nelson Ching/Bloomberg

Pedestrians walk past a McDonalds China Co. restaurant in Beijing, China. Close

Pedestrians walk past a McDonalds China Co. restaurant in Beijing, China.

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Photographer: Nelson Ching/Bloomberg

Pedestrians walk past a McDonalds China Co. restaurant in Beijing, China.

“We expect somewhere in the range of 15 to 20 percent of the organization or the business will be franchised in the next five to six years,” Rodwell, who’s also responsible for the company’s Middle East operations, said in a separate interview for Bloomberg TV.

Most of McDonald’s 800 restaurants in the Middle East are operated by franchisees, he said.

McDonald’s fell 0.4 percent to $86.78 in New York Stock Exchange composite trading yesterday. The stock has climbed 13 percent this year, outperforming the 3.4 percent advance of the Standard & Poor’s 500 Index.

The Oak Brook, Illinois-based company has said it plans to recruit 50,000 employees in China this year, including 1,000 university graduates as management trainees. McDonald’s, which trails Yum in number of Chinese locations, moved its China training center from Hong Kong to Shanghai last year.

KFC, Pizza Hut

Yum had 3,200 KFC restaurants and 500 Pizza Huts in 650 Chinese cities at the end of 2010. McDonald’s had about 1,100 stores in China as of December.

McDonald’s may create more than 10,000 jobs yearly in China as each new restaurant requires about 60 employees, said Liam Jeory, a McDonald’s spokesman in Hong Kong.

McDonald’s “needs to get everything right at the very beginning before going ahead on a large scale” with regard to franchising in China, Michelle Chen, a Shanghai-based analyst with KGI Asia Ltd., said in a phone interview today. “A common issue with franchising in China is that franchisees want quick money and don’t have the same capability as the corporate for running a business.”

Sales at all of China’s fast-food chains rose 12 percent last year to 60 billion yuan ($9.3 billion), according to Euromonitor International. Yum led the market with a 40 percent share, compared with 16 percent for McDonald’s, the London- based researcher said.

McDonald’s has increased product prices in China at least twice this year to help mitigate pressure from rising prices. China’s consumer prices rose 6.4 percent in June from a year earlier, the most in three years.

--Rishaad Salamat, Andrea Tan and Michael Wei. With assistance from Vianne Fung and Frank Longid in Hong Kong. Editors: Michael Tighe, Subramaniam Sharma

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at +86-21-6104-3044 or mwei13@bloomberg.net; Andrea Tan in Singapore at +65-6212-1325 or atan17@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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