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Case Details |
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Case Code: BENV034
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| Case Length: 16 Pages |
| Period: 2008-2016 |
| Pub Date: 2017 |
| Teaching Note: Available |
| Price:Rs.500 |
| Organization : McDonald’s |
Industry : Restaurants
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| Countries : China |
| Themes: Exit Strategy |
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McDonald’s in China – Shifting Fortunes of the World’s Biggest Fast-food Chain |
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| As part of its global expansion, McDonald’s decided to enter China realizing that the Chinese market held huge potential. Over the years, China had witnessed a growth in the urban population, a change in the spending habits of consumers, and the influence of Western brands. With the introduction of economic reforms in China in the 1980s, independent businesses were allowed to operate. By the mid-1990s, there was a boom in the children’s entertainment market with the emergence of theme parks, video parlors, computer games, etc. McDonald’s wanted to capitalize on theses economic and cultural developments and expand its business in China .. |
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PayPal (11 USD)
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| The success of the Shenzhen outlet acted as an impetus to McDonald’s to expand its chain nationwide. The first big McDonald’s outlet and its second in China opened in Beijing on April 23, 1992. The 28,000 square foot restaurant was located in one of the city’s busiest shopping areas. It attracted about 40,000 customers on the first day. The store had 29 cash register stations to handle the customer flow. McDonald’s and the Beijing Department of Agriculture worked together to establish a network of local farmers, manufacturers, and other suppliers to support the large scale operations of McDonald’s restaurant in Beijing. . ... |
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| McDonald’s standardized operations to ensure the quality and consistency of cuisine at all its restaurants across China. While localizing the menu to some extent, McDonald’s was careful not to localize too much, in order to differentiate itself from the smaller local players. In China, it launched a version of its ‘Dollar Menu’ known as the ‘Value menu’ that offered sandwiches and other items at a lower price. It also introduced a smaller version of the ‘Value Meal’ that offered small fries and a small drink for just twenty cents..... |
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| One of the main reasons for the popularity of McDonald’s in China was its high quality. Chinese media had reported widely on its clean dining rooms and kitchen, fresh ingredients, strict quality control, high standards, etc. The media commended its standardized procedures of food production, recipes, and modern management techniques. McDonald’s repeatedly emphasized that its suppliers in China followed the same standard as the suppliers in the US and other countries. The company ensured quality by making surprise visits to its suppliers and checking whether they were following the quality norms or not.... |
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| McDonald’s started to face a declining market share and lackluster sales, and the condition worsened after the 2014 scandal. Same store sales declined for four consecutive quarters. In 2015, though McDonald’s opened several new outlets, its market share dropped. .. |
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| Even as McDonald’s was facing problems in China, its sales in other markets too started to dwindle. In the US, customers began opting for healthier alternatives and started showing an interest in outlets serving food which they perceived to be wholesome and made of healthy ingredients. They considered McDonald’s synonymous with cheap and greasy food made of unhealthy ingredients. The younger generation wanted fast casual food and customizable healthy food of high quality in a good ambience rather than mass-produced fast food.. .. |
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| As a part of the plan, its markets were reorganized and China became a part of the high growth market. This signified that China had strong growth potential. To develop these markets, franchising was important as franchising was not well developed there and there were several opportunities to grow. McDonald’s planned to grow its share in the informal eating out sectors in these markets. As part of reorganizing the business, .. |
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| It received several bids from state-owned China Cinda Asset Management, dairy foods company Beijing Sanyuan Foods, Sanpower Group and noodle shop owner ChemChina. Chinese retail giant Sanpower Group; TPG Capital and Bain Capital were also in the running. TPG partnered with Wu Mart and Bain with Green Tree Hospitality .. |
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Exhibit I:Fast Food Industry in China
Exhibit II: Fast Food China – Market Share in 2015
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