Wednesday, September 25, 2002
Slim in US, Big Mac bulks up in China
REUTERS
Lao Zhang's plump five-year-old daughter jumped up and down squealing for french fries when the family drove past a McDonald's on a trip to Beijing, where the Golden Arches are still a wondrous sight in the land of a billion consumers.
"There's only one McDonald's back home, which is always packed. When she saw the sign she insisted on having fries," said the oil firm employee from the eastern province of Shandong.
Such scenes are a ray of hope cutting through the gloom deepening around the world's biggest fast-food chain. As sales slump in the United States and Europe, McDonald's China says it has been growing in the double-digits.
"China offers tremendous potential for us," Hong Kong-based McDonald's China Development Co said in a faxed response to questions. "It is one of the countries in the world where we are expanding our store growth in excess of 100 annually."
Ronald McDonald has become a household name since making a rocky foray into Communist-ruled China in the early 1990s, when Beijing city authorities forced McDonald's from its biggest outlet in the world to make way for a commercial centre.
Big Macs are a must-try for youth raised on a diet of Western ideas and habits. Parents have been known to lose their cool stampeding for toys offered with childrens' meals.
Though far from a luxury eatery, McDonald's is mostly visited by urbanites with extra cash to indulge in meals costing around 17 yuan ($2.06), twice the cost of typical local fare.
>From 184 stores in mainland China five years ago, there are now 511 serving
burgers, shakes and fries to one of the world's fastest growing economies.
McDonald's China declined to reveal specific growth figures but said overall growth on the mainland and Hong Kong was in the high double-digit range in 2001.
McDonald's is known by many in China, but, according to Lehman Brothers' senior restaurant analyst Mitch Speiser, less than 100 million Chinese can afford a McDonald's meal.
Incomes of the three-quarters of the population who live in the countryside languish far below those of urban residents, who saw average disposable income of 657 yuan in the first half of 2002. So the strategy is to stick to cities for now. A nalysts said it could take decades before outlets are counted in the thousands as in the US.
"There's a great income disparity even between China's first-tier and second-tier cities so it's hard to imagine they can reach similar levels of revenues per store," said Ken Chan, a Hong Kong-based management consultant.
In 2000, China accounted for $19 million, just 0.6%, of the group's global operating income, Lehman's Speiser said.
"China is a significant region to penetrate in the long term but at this point, it's pretty much a rounding error to earnings," Speiser said from New York.
"Out of a 30,000-store base, it's still very small".
The hopes of McDonald's China are firmly pinned on launching franchises once the country -- a fresh member of the World Trade Organisation - issues franchising regulations expected soon. - Reuters
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