McDonald's hopes to flip China fortunes with majority stake sale

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Another 1,500 McDonald's restaurants are set to open across the Chinese mainland and Hong Kong in five years under a franchise deal, the largest outside the US, between the fast food giant and a consortium led by the China International Trust and Investment Corporation (CITIC) and Carlyle Group.

McDonald's announced the Beijing-based conglomerate had won the franchise bid to run its China operations for the next 20 years on Monday.

A McDonald's fast food restaurant sign is seen in Beijing on January 9, 2017. /CFP Photo

The deal, which values McDonald's China operations at 2.08 billion US dollars, will give CITIC and CITIC Capital a controlling stake of 52 percent in the new entity, with US buyout firm Carlyle holding 28 percent and McDonald's the remaining 20 percent of shares, according to McDonald's chief executive officer in China, Phyllis Cheung.

With this transaction, McDonald is re-franchising all of its 2,600-plus stores in the Chinese mainland and Hong Kong, a major step towards turning around its fortunes in Asia and cutting costs globally.

A woman walks past a McDonald's outlet in Hong Kong on July 25, 2014. /CFP Photo

The franchise model is an effective recipe that McDonald's believes can unlock growth potential in China's 3rd and 4th tier cities through new restaurant openings, and improving flagging performance in its existing stores.

"Financial strength is very important to accelerating openings in China. Besides, CITIC's real estate networks and strategic alliances with developers including Vanke and China Resources may potentially open up more opportunities," Cheung told China Daily in Shanghai.

Customers wait to order meals at a McDonald's fast food restaurant in Beijing on January 9, 2017. /CFP Photo‍

According to Cheng, the company will rely on the partners' "unmatched understanding of the local markets" to add another 1,500 stores across the region in five years. East and Central China are less penetrated areas where Cheng sees more opportunities.

Menu innovation, restaurant convenience, digital retail and delivery services are among the key areas of focus as the fast food chain tries hard to please China's growing middle class who are willing to pay a premium for high-quality food and service.

(Source: China Daily)

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