How McDonald’s can improve penetration of China market
One reason McDonald's has underperformed in China is its reluctance to fine-tune its menu to fit local appetites
With a new group of shareholders, McDonald’s is looking to double its outlets in mainland China within five years. But what it may also need is a change in menu. Forget Big Mac and fries – that does not even make it into the top 10 favorite foods of Chinese.
What about beef chow fun (beef stir-fried rice noodles)? It was never on the McDonald’s menu, although the idea of launching “McBeef noodles” has been circulated on online discussion forums in Hong Kong for more than a decade since Dr Tso Wung-wai, an adjunct professor at the biochemistry department of the Chinese University of Hong Kong, made a bet publicly in 2004 that McDonald’s would never sell such dishes.
We are not sure if the new owners – Citic and Carlyle Group, which now control 80% of the China and Hong Kong franchise, with McDonald’s retaining a 20% stake – have included the new recipe in their five-year game plan, but the McBeef noodles could be a game-changing item.
Simply put, if McDonald’s can repeat the success of Panda Express, founded by Chinese- and Burmese-American couple Andrew and Peggy Cherng, who mixed Chinese cuisine into their fast-food chains, it will see a much broader market in China.
There is no doubt that McDonald’s has had trouble keeping up with its rival KFC, which had more than 5,100 outlets in mainland China as of January this year, more than double those of McDonald’s.
One reason McDonald’s has underperformed in China is its reluctance to fine-tune its menu to fit local appetites. While McDonald’s insisted on its American fast-food style, KFC included fried dough sticks, congee and noodles in its menu and won more market share.
Mainland China is one of the few areas where McDonald’s has lost out to rivals. In Hong Kong, for example, McDonald’s has 240 outlets, compared with about 70 KFC outlets.
Hong Kong has one of the highest densities of McDonald’s restaurants, as each outlet serves an average of 30,000 people per day.
But its penetration rate in mainland China has remained low. McDonald’s has about 2,500 outlets on the mainland and now plans to increase that number to 4,500 by 2022. If it succeeds, China will become McDonald’s largest market outside the United States.
Based on its game plan, McDonald’s wants to ramp up its opening of new outlets in mainland China to 500 per year, compared with its current pace of 250. About 45% of its new outlets will be in third- and fourth-tier cities, with 75% of McDonald’s outlets offering delivery services.
To make sure it is successful, beef fried noodle is not to be ignored.