The fast-food giant currently operates over 1,000 restaurants in the mainland and was planning to open a further 175 outlets this year. A slowdown in China’s economy and softer sales in the country, however, have contributed to negative growth and has made the company rethink its earlier expansion plans. McDonald’s will now aim to open just 140 stores instead.
McDonald’s chief operating officer, Ralph Alvarez, has said the fast-food chain is hoping to maintain traffic momentum from consumers through a strong focus on value pricing and strong operations. To combat rising food prices, the hamburger chain has begun introducing a low-cost lunch menu. Since the start of the year, McDonald’s has been offering combo meals that are a third of its former price. It still faces stiff competition from the likes of KFC, which began running promotions much earlier, while domestic Chinese fast-food brands further threaten McDonald’s dominance with products that are 35 per cent cheaper.
Some infrastructure development that the company was counting on as part of its expansion plans, such as the building of roads and houses in southern Chinese cities, has slowed. But Alvarez believes that McDonald’s underlying business remains strong and says he is “confident in this market’s long term potential”.
All is also not doom and gloom for the leading fast-food chain. Globally, McDonald’s actually increased its profit by nearly four per cent during the first quarter of 2009 compared with the same period last year. The positive result is largely credited to the global economic crisis, which has forced consumers to forgo traditional restaurants when eating out in favour of cheaper options. But the global performance only raises the question, what is holding it back in China?
McDonald’s chief operating officer, Ralph Alvarez, has said the fast-food chain is hoping to maintain traffic momentum from consumers through a strong focus on value pricing and strong operations. To combat rising food prices, the hamburger chain has begun introducing a low-cost lunch menu. Since the start of the year, McDonald’s has been offering combo meals that are a third of its former price. It still faces stiff competition from the likes of KFC, which began running promotions much earlier, while domestic Chinese fast-food brands further threaten McDonald’s dominance with products that are 35 per cent cheaper.
Some infrastructure development that the company was counting on as part of its expansion plans, such as the building of roads and houses in southern Chinese cities, has slowed. But Alvarez believes that McDonald’s underlying business remains strong and says he is “confident in this market’s long term potential”.
All is also not doom and gloom for the leading fast-food chain. Globally, McDonald’s actually increased its profit by nearly four per cent during the first quarter of 2009 compared with the same period last year. The positive result is largely credited to the global economic crisis, which has forced consumers to forgo traditional restaurants when eating out in favour of cheaper options. But the global performance only raises the question, what is holding it back in China?
| FACT BOX |
| - Globally, McDonald’s Q1 revenue fell 9.6 per cent to US$5.1 billion but profits still rose four per cent to $979.5 million. - In April, comparable sales for McDonald’s increased 5.5 per cent in Asia-Pacific, which delivered strong first-quarter results, but sales softened in China due to the country’s weak economy. - Earlier this year, McDonald’s also cut the prices on about 40 per cent of its items in China by as much as a third. |
Dan Ingall, client service director, multinational clients, JWT Beijing
McDonald’s is in unfamiliar territory in China.
Geographic expansion is no longer a source of “easy” growth, so McDonald’s must grow organically by improving consumer preference for the brand. The recession provides McDonald’s with some opportunities to achieve it. One is price-reframing communication aimed at demonstrating McDonald’s superior value and affordability as consumers invariably trade down from more expensive alternatives.
However, there are some more emotive, powerful and differentiating opportunities to consider. Chinese consumers don’t like uncertainty. During recessionary times the warmth, reassurance and support of family and friends become all important. McDonald’s should reassert its core brand values to be the beacon of happiness, a trustworthy friend in an otherwise unruly world, by leveraging the equity in its unique brand assets, such as Happy Meals and Ronald McDonald.
Also, food safety is of utmost concern after recent scandals. McDonald’s could woo safety-conscious consumers away from less trustworthy local competitors and tap into demand from the family segment.
Richard Bleasdale, regional CEO, iris Asia-Pacific
There aren’t many occasions when McDonald’s gets marketing strategy wrong. Its current global Q1 sales rise shows its strength in picking the market and the moment well.
However, the current blip in its China performance is noteworthy.
There are few businesses as ‘mass’ as McDonald’s or as tuned in to what is happening in the mass market’s wallets on a daily basis. This closeness to the action generally serves McDonald’s well in good times and bad, allowing it to keep its finger on the pulse and scale plans up or down as the situation dictates.
Global marketing chief Mary Dillon’s admission of the difficulties of being a truly connected ‘global local’ is telling. That is backed up by the latest research for China, which says that any growth is solely in the lower-tier cities, where the younger, moneyed population is switching to new China brands as alternatives to the traditional ‘glocal’ options.
McDonald’s move to introduce the low-cost lunch menu is a classic strategy. However, I’d suggest it needs to be done with a creative flair, which really resonates locally. Keeping and strengthening links with its younger target audience will be vital moving forward.
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