McDonald's scales back Chinese plans

24 April 2009

OAK BROOK, Illinois: McDonald's, the fast food restaurant chain, is scaling back the planned expansion of its operations in China, as a result of slowing sales in the country.

Earlier this year, Mary Dillon, McDonald's cmo, discussed the problems and opportunities that come with trying to create a universal "brand promise" as well as developing a regional bond with consumers.

The company now has over 1,000 restaurants in China, which currently provides just 2% of its total operating income, and had intended to open a further 175 outlets there this year.

However, after posting "softer sales" in the market in the first quarter of 2009, the US firm will reduce this target to around 140 new sites.

One of the main reasons for the slowdown in revenues was said to be that the prices of many of its domestic Chinese competitors were over 35% cheaper than those offered by the American giant.

In response, McDonald's has introduced a low-cost lunch menu, and its coo, Ralph Alvarez, said it will "maintain traffic momentum through a strong focus on value pricing and strong operations."

He added that broader infrastructural development, such as the building of roads and houses, had slowed in areas where the company was "counting on" further growth.

Overall, Alvarez argued that the restaurant group's "underlying business remains strong" in China, and that he still remained "confident in this market's long term potential."

Globally, McDonald's posted a 4.3% rise in comparable sales in the first quarter, including upturns of 4.7% in the US and 3.2% in Europe. 

A recent report by Haitong Securities, found that over 1,000 of China's biggest companies posted an average decline in profits of 73% in the last quarter of 2008, with a slide of 14% over the year as a whole.

It also warned there is a "higher possibility" of a similar decrease in the first six months of this year as the global downturn continues to impact the country.

Data sourced from Financial Times; additional content by WARC staff