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McDonald's plans to expand franchising in China
February 28, 2012 / 6:56 AM / 6 years ago

McDonald's plans to expand franchising in China

SHANGHAI (Reuters) - McDonald’s Corp (MCD.N), the world’s biggest hamburger chain said it plans to increase the number of franchised stores in China as it ramps up expansion in one of the world’s fastest-growing consumer markets.

McDonald’s relies heavily on franchises in more mature markets such as the United States, but has almost exclusively opened self-operated stores in China since entering the market two decades ago. It has 36 franchised stores in the country, the company’s website showed.

“Right now, it’s a low percentage. But I think that over a very short time, you can get to quite a good mix of stores being franchised,” McDonald’s China Chief Executive Officer Kenneth Chan told reporters on the sidelines of a conference on Tuesday, without giving specific targets.

“At the end of the day, McDonald’s is a franchise company,” he said, stressing though that the pace of franchising in China depends largely on whether the company can find the right partners.

McDonald’s lags rival Yum Brands Inc (YUM.N) in opening outlets in China. Yum has opened about 4,500 restaurants under brands including KFC, Pizza Hut, East Dawning and Little Sheep in the country, which is now Yum’s biggest earnings driver.

In comparison, McDonald’s owns more than 1,400 restaurants in China, and ranks the country as its third-biggest market in the world.

In a bid to compete for market share, McDonald’s opened a record 200 new stores in China last year, and has unveiled plans to boost investment in the country by 50 percent in 2012, aiming to open another 225-250 new outlets this year.

In addition to store expansion, building customer loyalty is also important to gaining market share, Chan said.

“We’re not looking to be the largest in terms of the number of restaurants ... but we want to be the best-quality, best-service restaurant,” he said.

“Thus, we will get more market share versus our competitors even though we have fewer restaurants.”

To lure more customers, McDonald’s has over the past few years made its food more affordable in China despite inflation and adapted its menus to local taste.

“It’s not about trying to grow at breakneck pace, but at a pace that .... can be sustainable in the long term,” Chan said.

Reporting by Samuel Shen and Jacqueline Wong

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