The Strategist

Chinese McDonald's gets a new owner

01/09/2017 - 13:34

McDonald's is selling 80% of its business in China and Hong Kong to Citic and Carlyle Group investment funds. The buyers will obtain the franchise to manage the fast food restaurants chain for 20 years.

Nacho Facello
Nacho Facello
Consortium of Citic and Carlyle Group is acquiring 80% of the corporation’s regional business for $ 2.08 billion. Among other clauses, the agreement implies provision of the general franchise for development of McDonald's restaurants in the region for 20 years. The company's operations in mainland China and Hong Kong have been estimated at $ 2, 08 billion, according to Citic’s message. Citic and its division Citic Capital will have 52% stake in the business, Carlyle - 28%, and McDonald's will retain the remaining 20%. The franchise’s term is designed for 20 years.

Experts believe that the deal will help the American companies compete in the Chinese market.

" Resources of Citic and Carlyle will allow McDonald's to quickly expand its presence in the market and to modernize the old restaurant, which is rather expensive," - said Ben Cavender, an analyst at China Market Research Group.

McDonald's unit in China and Hong Kong will keep the management team after closing the deal. The board of directors will include representatives of Citic, Carlyle and McDonald's. McDonald's, the world's largest chain of fast-food restaurants, is now changing its business structure in some regions, including China, South Korea and Southeast Asia in an effort to streamline global operations.

Currently, China operates 2400 McDonald`s restaurants, and there are about 240 of them in Hong Kong. In 2016, China ranked the world’s third in number of McDonald's restaurants after the US and Japan. In late March, the company's management announced its intention to bring China into second place during 2016 by opening more than a thousand restaurants in the country.

McDonald's is lagging behind KFC by number of restaurants in China. Referring to this fact, Cavender pointed out the transaction is expected to result in "aggressive expansion and active investment" in the chain’s development.

The consortium said that the cooperation implies, inter alia, development of new menus, wider use of digital technologies in sales and growing delivery.

"China and Hong Kong represent a huge growth opportunity for McDonald's", - commented McDonald's Head Steve Easterbrook.

There are more than two thousand McDonald's restaurants in China, and third of them are already working under the franchise. Previously, The Wall Street Journal reported, citing sources, that Citic and Carlyle intended to additionally open about 1.3 thousand McDonald's restaurants in China and Hong Kong. They also planned to develop McDonald's operations not only in key Chinese areas including Beijing, Shanghai and Guangzhou, but also in smaller cities.

McDonald's has operated in China since the early 90s. In recent years, the US company has faced a significant increase in competition in the region, where it ranks second among Western fast food chains after Yum! Brands. McDonald's main competitors are Taiwanese restaurant chain Dicos and Real Kung Fu chain, offers traditional Chinese noodles.

McDonald's was founded in 1940 by brothers Dick and Mac McDonald. They opened the first restaurant in San Bernardino, California. The chain currently ranks second in the world after Subway.