McDonalds held an Investor Conference in China last month and the results were surprising for many analysts and Fund Mangers. Surprisingly good I might add! The results show clearly that having a consistent strategy and sticking with it over many years does get results in China and can lead to profitable growth. Also, it is clear at least in the QSR segment that sticking to a worldwide core menu, while less successful than the extensive localization of KFC, can still be an effective strategy. It just depends on how deep your pockets are to withstand losses over a long period of time!
McDonald’s currently has 1,350 stores in 150 Chinese cities. An additional 175-200 new stores will be built in 2011 (13-15% growth over previous year) and the Company is targeting 2,000 stores by 2013 year end. Operating income in 2010 was $160 Million, a four-fold increase over 2006. It is interesting to note that while these results were impressive in the China market, they only accounted for 2% of global profits, confirming the broad world wide portfolio this brand has been able to develop in the last 50 years.
So after over 15 years of steady store development but poor financial returns in China, McDonald’s has finally cracked the code and can look forward to many years of profitable growth ahead. I would not however recommend this strategy to most Companies unless they are very strong financially and willing to sustain large losses for lengthy periods of time. For the rest of us, we need to be smarter and localize quickly to make our way successfully.