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

March 21, 2013 Leave a comment

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.

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment