Strategy

McDonald’s China Stores Could Fetch $2 Billion

The fast-food giant has attracted at least three bidders to the auction of a 20-year license to run all of its 2,200 stores in China.
Matthew HellerOctober 4, 2016
McDonald’s China Stores Could Fetch $2 Billion

McDonald’s is finalizing a sale of the right to operate its restaurants in China and Hong Kong, a move that could raise up to $2 billion upfront from investors.

The world’s largest fast-food chain is aiming to franchise 95% of its stores worldwide, up from the current 80%. At least three bidders are reportedly competing to acquire a 20-year license to run all of McDonald’s 2,200 stores in China.

According to The Wall Street Journal, the sale could fetch between $1.5 billion and $2 billion. In addition, McDonald’s would also collect an estimated 5% to 7% of sales for the life of the franchising agreement.

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“In the lower-tier cities, we want to accelerate, and a local partner would have more local wisdom and more local resources,” Phyllis Cheung, chief executive of McDonald’s China, told the WSJ. “The whole idea of franchising is that you have more flexibility and speed to market — and are more able to answer to consumer needs.”

The McDonald’s brand has lost its early luster in China, with market share declining from 15.1% in 2010 to 13.8% in 2015. Cheung said McDonald’s is looking for a Chinese partner with a “deep understanding” of China’s market, rather than one that can simply bankroll new stores.

A franchise-only model in China makes sense now because the market has matured to the point where there are more people with experience running fast-food chains and fast-casual restaurants, according to Ben Cavender, director at China Market Research Group.

“There’s a stronger talent pool, and they have the capability to operate a franchise and operate it well,” he told the WSJ. ” Brands are also clamoring to try to grow into new markets, and they might not be able to do it quickly by themselves, and they need help.”

According to Reuters, the bidders include two U.S. private equity firm Carlyle Group and Chinese investment firm CITIC Group, U.S. private equity firm TPG Capital and Chinese retailer Wumart Stores, and a group led by Beijing Tourism Group and Chinese retail giant Sanpower Group.

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