McDonald’s goes upmarket in China

By Mark Godfrey

- Last updated on GMT

Breakfast food has become a major battleground for fast-food chains like McDonald's
Breakfast food has become a major battleground for fast-food chains like McDonald's
There are clear signs that the newly independent China arm of McDonald’s plans to squeeze more revenue out of its stores, even as it seeks to double its store count across China up to 2022.

The company is looking at more healthy options and table service, as well as touch-screen ordering and upgraded delivery services, according to China boss Phyllis Cheung, who said she planned to double the store count to 4,500 by 2022 with the bulk of new openings in lower-tier cities. McDonald’s competitiveness in China appeared to receive a boost when a controlling stake in McDonald’s China arm was purchased last year by Chinese state-owned financial conglomerate CITIC.

Healthy dining and food safety will be the “cornerstone​” of McDonald’s​ future expansion, according to Cheung, who spoke at a ‘McBanquet’ gathering of suppliers and franchisers in Shanghai recently, which featured a talk and demonstrations by chefs and camera-friendly displays of vegetables and fruit arranged at the upscale WaterHouse Hotel on Shanghai’s famous Bund waterfront. Among the healthy shifts planned by Cheung is the use of sunflower and canola oil in McDonald’s restaurants, as well as the introduction of fruit and vegetable servings. Nutritional content will also be listed in-store from January.

McDonald’s China already appeared to be testing the water for more premium products with a major autumn marketing campaign for ‘German-style’ hamburgers sold at RMB17. With two beef burgers and two pork sausages, the hamburgers represent a large premium on single-burger hamburgers (RMB7 at Beijing stores). German products are synonymous with quality in China and Germanic origin is frequently a plank of marketing campaigns.

Battleground

Breakfast meat offerings have become a major battleground for fast-food chains in China, particularly as the country urbanises and first-tier cities shut out traditional street vendors (on food safety, pollution and gentrification grounds) heretofore common on Beijing streets. Breakfast hamburger-egg ‘McMuffin’ sells for RMB14.50 at McDonald’s in Beijing, with coffee and hash browns optional extras.

McDonald’s move upmarket appears to be in sync with the Chinese government’s diet plan for 2017-2030 which aims to reduce the number of overweight locals (currently 30% of China’s 1.3 billion population).

McDonald’s move into healthy, premium products may also be a catch-up move in an increasingly competitive Chinese fast-food market, which has seen the arrival of a wave of new local brands highly attuned to local tastes. Still the market leader in China’s fast food market, KFC​ has made a crayfish sandwich the key marketing item for the launch earlier this year of a new generation of upmarket, health-conscious ‘K Pro’ outlets, kitted out more like conventional restaurants, complete with salad bars. The first K Pro outlet opened in the prosperous city of Hangzhou.
Non-western fast food has also been part of McDonald’s concession to Chinese local tastes, with offerings like bowls of rice and chicken (served with ice tea) for RMB19. McDonald’s may have room to manoeuvre prices upwards, given a perception that its prices are lower than those of KFC. This is evident from comments posted across Chinese social media platforms, including consumer-focused forums like Zhihu and Guchang.

McDonald’s set meals range from RMB15-RMB20 whereas KFC set meals cost between RMB20 and RMB30, according to self-professed fast food expert Yang Cong Qi Shi. Increased Chinese outbound travel means consumers here are more aware of international fast food offerings and prices, suggested another commentator, Xi Ma Ma.

Another sign of McDonald’s new intent in China under CITIC stewardship has been new hook-ups with leading local real estate developers like China Evergrande, which will see outlets open in commercial properties being built regionally.

Related topics: Retail, China, Poultry, Pork, Beef

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