McDonald’s stuck in development bottleneck in China

August 13, 2013 Leave a comment

McDonald’s stuck in development bottleneck in China

Staff Reporter

2013-08-13

Despite its leading status in the global fast food market, McDonald’s has invariably lagged behind KFC in the Chinese market, a food market with the largest potential in the world.

The strong rivalry has stilted McDonald’s sales performance and expansion in China, which has been aggravated by a litany of other problems, including increasingly acute competition in the market, rising operating costs, economic sloth and the company’s own sluggish localization process.In addition, the McCafe brand of coffee and cakes has yet to catch on in China since its entry around two years ago. The young brand still lags far behind Starbucks in nationwide brand recognition.

McDonald’s has tried to emulate the localization strategy of KFC in China by rolling out chicken and beef rice dishes in June and extending the duration of serving these dishes from 5:00pm-5:00am. Industry insiders, however, believe the belated localization move will not be able to reverse McDonald’s sluggish sales in China.

McDonald’s China staged a worse-than-expected performance in terms of both sales and profit margin in the first half this year, according to its recently released financial statement. The figures show that McDonald’s witnessed its profits in the Asia-Pacific region together with the Middle East and Africa drop 4% year-on-year to US$190 million in the second quarter this year, due mainly to an increase in new stores and manpower in China.

According to the Guangzhou-based Time Weekly, due to languid sales in Japan and a decline in China, McDonald’s sales in Asia, the Middle East and Africa tumbled 3.3% year-on-year in the first quarter, making it the region with the worst performance worldwide for McDonald’s, whose global sales slipped 1% in the quarter.

Analysts note that McDonald’s is stuck in a bottleneck in its development in China, as shown by its sluggish sales and profit.

McDonald’s has denied any setbacks in its development of the China market. The company said that it plans to open 300 new stores in China this year, after opening more than 256 in 2012. As of the end of June this year, McDonald’s had 1,777 stores in China employing over 90,000 staff.

Some analysts also attribute McDonald’s unsatisfactory performance in China this year to the sluggishness of the overall food market in the nation and the outbreak of the avian flu. Yum Brands, which operates KFC as well as Pizza Hut and other chains, also suffered a 20% year-on-year decline in same-store sales and a 63% drop in profits in China in the second quarter.

Filed under Macro Trends

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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.

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