The seemingly unstoppable rise of McDonald's in China, and elsewhere in the world for that matter, has faltered, according to the company's recently released second quarter report.
While US sales rose 4.4 per cent, Asia, Middle East and Africa sales dipped by 1.7 per cent. One quarter's results cannot be the basis for a rushed judgment on the company's overall prospects, but it is a chance to put in context the performance of McDonald's in China.
Since the American fast food chain landed in China in 1990 it has established some 1,400 stores and has announced plans to have 2,000 outlets by next year. Pictures of the famous golden arches are often used to illustrate the growing presence of foreign retailers on the mainland but the hard reality is that Chinese sales only contributed around 3 per cent to overall McDonald's earnings last year. Moreover, McDonald's is rather overshadowed by the stellar performance of Yum! Brands in the Chinese market; KFC, its most successful chain, already has 3,700 stores in China.
Yet somehow McDonald's seems to exemplify one of the few really successful foreign retail Chinese stories. This is all part and parcel of the company's marketing genius, not just for its fast-food customers but for investors.
This genius can be traced directly back to Ray Kroc, who was not the company's founder or even the main innovator behind its products. Yet it was Kroc who transformed a small California-based hamburger chain, started by the McDonald brothers, into the world's largest fast food company (currently challenged by the Subway sandwich chain, which has more outlets worldwide, but far lower revenue).
In 1954 Kroc owned a small company making milkshake mixing machines and he toured the US to sell them. In the process he learned a lot about kitchens and restaurants. When he came across the McDonald's operation in Los Angeles, consisting of eight self-owned outlets and two franchise stores, he realised the company had phenomenal potential.
The chain (which still exists) was called White Castle and there was no reason to suppose it would not get even bigger. But Kroc looked at the McDonald's nine-item menu, its clean and attractive stores and the queues inside them, and had what he called 'an epiphany'.