McDonald's issues licenses

By Wang Xinyuan Source:Global Times Published: 2011-8-25 0:16:00

McDonald's Corp, the world's biggest fast-food chain operator, is trying for the first time in China its business model of developmental license to individuals, which is popular in other countries, aiming to catch up with its competitor and expand business in the fast growing economy, analysts said on Wednesday.

McDonald's China issued Tuesday the first developmental license to an individual for outlets in Yunnan Province, Weng Xiaomeng, McDonald's China spokeswoman, told the Global Times on Wednesday.

The developmental license model is one form of franchising that McDonald's has been using in mature markets, such as the US, to grow new business, but it is the first time for the license to be issued in China, Weng said. 

Before this, McDonald's heavily relied on exclusively opened, self-operated stores in China, though it also expanded through licensing conventional franchise stores.

Unlike conventional McDonald's licensees, developmental licensees own or secure all assets, including property and buildings, and have the right to open new restaurants across a province or other geographic area.

McDonald's collects a royalty based on a percentage of restaurant sales.

"The developmental license owner is committed to open 20 new stores within five years," Weng said. The first licensee, Ren Jianmei, is also responsible for the management of existing 11 McDonald's stores in Yunnan.

Weng said that Ren is a businesswoman with experience in food and beverage industry and property development, and, most importantly, shares the values of McDonald's.

"The new model will help McDonald's to catch up with KFC to some extent," Dai Qiaoling, executive director at Frost & Sullivan, told the Global Times.

McDonald's new franchise model will lead to faster growth compared with self-opened stores and conventional franchise stores, Dai said.

Though McDonald's outpaces KFC in the total number of stores globally, in China, the number of its stores is only about half of KFC's 3,200 stores.

McDonald's plans to have 2,000 stores by 2013 from the current 1,300 stores, Weng said.

Despite faster growth, the business risk will increase as it is brand subcontracting and will be harder to control, Yan Minghang, an analyst at the CIC Industry Research Center, wrote in an e-mail to the Global Times.

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