McDonald’s franchises in China need 5 years to break even

McDonald’s franchises in China need 5 years to break even

Staff Reporter

2013-03-21

McDonald’s franchises in China may need up to five years before they break even, according to the Shanghai-based First Financial Daily. Chinese investors interested in taking up a new McDonald’s franchise must pay an initial fee of 2 million yuan (US$320,000) and must also pay for the building itself, equipment and other additional costs, including monthly franchising operations and advertising fees. An outlet may need to operate for five years before it starts to see a profit, based on the current sales of a typical McDonald’s restaurant and the increasing cost of running a business in the country, analysts say. The US fast food giant is continuing to expand its China network, with new franchises licensed in Hunan province last September, and the Jiangsu Rongjin Group obtaining franchise rights last October. McDonald’s has also opened more outlets in Fujian and Sichuan provinces, according to sources familiar with the business.

McDonald’s is one of the world’s highest-grossing fast food chains and derives its profits from other channels in addition to its burgers, selling franchising and property as well as renting out its outlets. The company reported operating revenue of US$9.9 billion in 2011. Total business from its restaurants, franchising fees and rents accounted for 32%, 23% and 45% of operating revenue, respectively. However, the company has failed to successfully apply its standard business model in China. Rival KFC beat McDonald’s into China and has held the lead in terms of revenue and expanding its franchises over the past 20 years. McDonald’s hopes to expand its network in mainland China from 1,500 to 2,000 restaurants by the end of 2013 and 20%-30% of its restaurants will be franchise outlets by 2015. According to analysts, McDonald’s should work more closely with agents within China to better understand the local market.

Chart Of The Day: China PMI Vs Electricity Production

Chart Of The Day: China PMI Vs Electricity Production

Tyler Durden on 03/20/2013 22:13 -0400

HSBC’s China Flash PMI just printed above expectations at 51.7, disappointing those hoping for more stimulus but just Goldilocks enough to satisfy the world that China is firing on all cylinders… But, and there’s always a but, the following chart suggests that the diffusion-driven survey-based PMI data may be just a little different from the hard data on the ground. Of course, everything could have magically turned around in the last 3 weeks (aside from Copper demand and PBoC repo/rev. repo that is). For now, we tip our hat to the well planned PMI print as indicative that all is well in the smog-ridden pig-barren nation but scratch our chin at just what is powering all this growthiness… HSBC’s Flash PMI upticked more than expected but remains in that neverland zone… and here are the stunning sub-indices showing the ‘surges’ – hhmm – employment? pricing? even New Export Orders are in ‘fence-sitting’ mode… But when judged against the history of a relatively tight relationship to Electricity production… is it any wonder we call it the Chart of the Day… It seems we are about to witness a jump from -13% YoY decline (as we discussed here the largest ever) to a +10% YoY rise in the span of just one month…

China’s Hidden Debt Risk

China’s Hidden Debt Risk

20 March 2013

Zhang Monan. Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform.

BEIJING – In the last 200 years, there have been more than 250 cases of sovereign-debt default, and 68 cases of domestic-debt default. None of these was an isolated incident. Indeed, such defaults – combined with factors like large current-account or fiscal deficits, overvalued currencies, high public-sector debt, and insufficient foreign-exchange reserves – have always triggered financial crises, from the Mexican peso crisis in 1994 to the Russian ruble crisis in 1998 to the American subprime mortgage crisis in 2008.

Since China’s era of reform and opening up began, the country has experienced three instances of large-scale public-finance problems. In the late 1970’s, the country faced a debilitating fiscal deficit. In the 1990’s, its corporate sector was plagued by “triangular debts” (when a manufacturer that has not been paid for its product is unable to pay its suppliers, which in turn struggle to pay their suppliers). Later that decade, financial institutions were burdened by bad debts generated by state-owned enterprises.

Now China is experiencing a fourth instance of elevated debt risk, this time characterized by high levels of accumulated local-government and corporate debt. To be sure, China’s national balance sheet, which boasts positive net assets, has garnered significant attention in recent years. But, in order to assess China’s financial risk accurately, policymakers and economists must consider the risks that lie in the country’s asset structure – and the liabilities that are not included on its balance sheet. Read more of this post

Swedish business is being cast as a model for long-term stability and growth; the Swedish model of active ownership of companies – the distinctive way Sweden has placed corporate power not with management but with shareholders who are obliged to elect board directors and be involved in big strategic decisions

March 20, 2013 6:52 pm

Scandinavia: Model management

By Richard Milne

Swedish business is being cast as a model for long-term stability and growth

The two men joke, finish each other’s sentences and defend the other from attack. “You start!” jokes one when the subject turns sensitive.

But behind this veneer of camaraderie, the two are rivals: Börje Ekholm and Anders Nyrén are two of Sweden’s most important businessmen, heading the holding companies that together control more than half of Stockholm’s stock exchange.

For the first time in the 69 years that their two companies – Mr Ekholm’s Investorand Mr Nyrén’s Industrivärden – have existed side by side their chief executives have agreed to give a joint interview.

The subject that has brought them together is the Swedish model of active ownership of companies – the distinctive way Sweden has placed corporate power not with management but with shareholders who are obliged to elect board directors and be involved in big strategic decisions.

With a structure that promotes long-term thinking, the Swedish model is attracting interest worldwide from regulators and governments looking to head off financial crashes. Some think that adapting the model’s tenets could reduce the short-term thinking that can damage companies, while also boosting local industry. Read more of this post

Biggest Solar Collapse in China Imperils $1.28 Billion; China’s Solar Billionaire Undone as Banks Push Suntech to Brink

Biggest Solar Collapse in China Imperils $1.28 Billion: Energy

Investors stand to lose most of the $1.28 billion they put into Suntech Power Holdings Co. (STP) after the solar manufacturer said it wouldn’t resist a bankruptcy petition filed in China.

The company, based in Wuxi, outside Shanghai, had more than $2 billion in debt and defaulted on $541 million in bonds due on March 15, prompting eight Chinese banks to ask a local court to push Suntech’s main unit into insolvency.

“There’s a host of companies that have gone to Wall Street investors and gotten billions of dollars, and these investors are ultimately going to be on the hook and get nothing out of it,” Angelo Zino, an analyst at Standard & Poor’s Financial Services LLC in New York, said in an interview yesterday. Read more of this post

Easy money over for Asian junk bonds; 50% of January deals are now trading underwater

Easy money over for Asian junk bonds

Bankers and investors warn high-yield bonds from Asian issuers face headwinds due to compressed spreads.

By Jame DiBiasio | 21 March 2013

After a banner year of issuance, capped by a record $10.6 billion issued in January 2013, investors in Asian high-yield debt face a tougher environment.

“Income will dominate and capital appreciation will be limited,” says Bryan Collins, portfolio manager at Fidelity Worldwide Investments.

Tim Jagger, head of Asian fixed income at Aviva Investors, says that in contrast to the equity-like returns that investors enjoyed in 2012, this year they will only make money from the coupon of Asian high-yield bonds.

Julian Trott, head of debt syndication for Asia ex-Japan at Goldman Sachs, says 50% of those January deals are now trading underwater. He expects credit investors will return to high grade instruments. “There will be more discrimination of high yield by investors,” he says. Read more of this post

Buffett Says Bet on Natural Juices of Market; “Never bet against what humans can accomplish if they’re operating in the right soil. And we have the right soil.”

Buffett Says Bet on Natural Juices of Market

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said investors should bet on the “natural juices” of capitalism in the U.S. even as lawmakers struggle to narrow the budget deficit.

People tend to “focus too much on what the government’s done, and to give them either credit or blame,” Buffett said in an interview conducted by the chief executive officer of Business Wire, the Berkshire subsidiary that distributes press releases. “The real credit belongs to our system.”

Buffett, 82, has used annual letters to shareholders and public appearances to highlight the prospects for the world’s largest economy, where most of Berkshire’s operations are based. He’s also called for an increase in taxes on the wealthiest individuals to help reduce budget deficits and forestall cuts, an approach that Republicans say would hurt growth.

The U.S. economy “is coming back because of the natural juices of capitalism and not because of government,” Buffett told Business Wire’s Cathy Baron Tamraz in a video interview posted online today. “We have a wonderful system that eventually is self-cleansing and always moves forward.” Read more of this post

Brainbox nation: America remains the world’s biggest spender on R&D, though others are inching up

Brainbox nation: America remains the world’s biggest spender on R&D, though others are inching up

Mar 16th 2013 |From the print edition

IT IS NOT much to look at: an anonymous suburban office building, wedged between a shopping mall and a car dealership. Yet the Defence Advanced Research Projects Agency, or DARPA, has had a hand in many of the most celebrated technologies of the age, from the internet to global positioning systems to radar-foiling stealth aircraft. Its boss, Arati Prabhakar, jokes about having invented fire.

DARPA remains gamely engaged in research that to outsiders sounds like science fiction. Its Living Foundries programme, for example, is trying to work out how to use microbes to detect and repair worn or corroded materials. Blood Pharming aims to create a kit to grow blood from a culture for battlefield transfusions. ChemBots is investigating robots that can change their shape to squeeze through small openings and then reconstitute themselves on the other side.

America puts more into R&D than any other country, and agencies like DARPA are in the vanguard. Yet by the National Science Foundation’s latest count, in 2009, the country’s share of global spending on R&D had fallen to 31%, from 38% in 1999. As a share of GDP its expenditure now ranks only ninth in the world, at almost 2.9%. Investment in research even fell slightly in absolute terms for a couple of years during the recession, whereas in other countries it continued to grow quickly. China’s outlays, for instance, raced ahead by 20% a year in the decade to 2009. Read more of this post