McDonald's boosts franchising on mainland

PUBLISHED : Wednesday, 24 August, 2011, 12:00am
UPDATED : Wednesday, 24 August, 2011, 12:00am


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Fast food giant McDonald's wants to open more franchised stores in western China in a bid to expand on the mainland in a faster and more cost-efficient way.

McDonald's China issued its first 'developmental licence', a form of franchising, to a catering enterprise in Yunnan province yesterday. With the licence, the franchisee will take over the operation of the existing 11 McDonald's restaurants in the province and has the right to open new ones across Yunnan.

Globally, more than 80 per cent of McDonald's 33,000 stores are run by franchisees. In China, however, the group only has six conventional franchised outlets and runs the other 1,300-plus stores itself.

'McDonald's China will leverage the developmental licence model to expand our brand and create opportunities for local entrepreneurs,' said McDonald's chief executive Kenneth Chan.

The developmental licence will allow franchisees to own or secure all assets, including property, and gives them the right to open new restaurants across a province or other geographical area. McDonald's collects a royalty based on restaurant sales.

Chan said the world's largest restaurant company was also looking for franchise partners in other inland provinces, but would continue a self-run business model in first- and second-tier cities in coastal regions.

The move is seen by the industry as McDonald's latest efforts to catch up with major rival KFC, owned by Yum! Brands, which runs more than 3,000 restaurants in China, more than double the number run by McDonald's.

McDonald's said earlier this year that it aimed to increase the total number of outlets to 2,000 by 2013.

Shi Jun, senior consultant with Beijing-based consulting firm Alliance PKU Management Consultants, said franchising would enable McDonald's to take advantage of local partners' capital and resources to expand its network and establish its brand name.

However, a tighter control over the quality of the products and services would be the reason it would run the stores itself in big cities, Shi said.

'It has been shown that it's hard to succeed in China using conventional franchising, ' said Shi.

Franchisors might find their local partners incompetent or sometimes even dishonest, Shi added.