McDonald Strategic Move: In a surprising twist amidst economic uncertainties and geopolitical tensions, McDonald’s has taken a bold step to increase its control over its China business. This move stands out in stark contrast to the prevailing trend where multinational corporations are reassessing and, in some cases, reducing their investments in China due to various challenges.
The recent deal involved McDonald’s repurchasing the 28% stake in its China business that Carlyle Group acquired in 2017. This transaction resulted in McDonald’s now holding a 48% share in the operations, including those in Hong Kong and Macau, with an estimated worth of $6 billion. What makes this move particularly intriguing is the prevailing global landscape where many companies are reevaluating their exposure to China, considering the ongoing geopolitical tensions.
One notable advantage for McDonald’s is its majority partner in the China business, CITIC, a powerful Chinese state-owned conglomerate. According to Jason Yu, the greater China managing director of market research firm Kantar Worldpanel, having such a partner provides McDonald’s with a level of political cover, positioning the company away from the forefront of geopolitical tensions.
While McDonald’s, Carlyle Group, and CITIC have refrained from commenting on the specifics of this move, industry analysts see it as a calculated strategic decision. In an environment where other consumer-facing U.S. companies, such as Starbucks, Apple, Coach owner Tapestry, and Nike, are reiterating their commitment to the Chinese market, McDonald’s stands out with its ambitious plans.
The funds derived from the Carlyle investment have enabled McDonald’s to double its restaurant count in China since 2017, reaching an impressive 5,500 locations. Notably, China has become McDonald’s second-largest market, showcasing the company’s significant growth and market penetration. Looking ahead, McDonald’s has set an ambitious goal of exceeding 10,000 stores in China by 2028.
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In this expansion endeavor, McDonald’s faces competition from various fronts. Yum China, the operator of KFC and Pizza Hut, boasts over 14,000 stores across the country. Domestic players like Wallace, with its focus on chicken burgers, and Tastien, specializing in “Chinese-style” burgers, are also aggressively expanding with thousands of stores.
However, the potential risks for McDonald’s cannot be ignored, especially if geopolitical tensions between China and the West intensify. Greg Halter, Director of Research at investment advisory firm Carnegie Investment Counsel, notes that if relations worsen, divestment from Chinese operations, similar to trends observed in Russia, could become a reality.
Despite potential challenges, McDonald’s seems well-positioned to outperform in the Chinese market. Ben Cavender, the Shanghai-based managing director and head of strategy at China Market Research Group, emphasizes the value-driven middle class and lower commercial rents as factors that could favor businesses like McDonald’s in China’s current economic landscape.
The move to take greater control of its China business aligns with McDonald’s optimistic outlook on China’s growth potential. As the company navigates the complexities of the geopolitical environment, its strategic bet on the Chinese market appears to be a well-calculated risk with potentially high rewards. As the economic dynamics in China continue to evolve, McDonald’s stands at the forefront, doubling down on its commitment at a time that, according to Cavender, presents a unique opportunity to seize growth in the Chinese market.