McDonald’s Asia to sell 2800 restaurants
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McDonald’s Asia is preparing to sell some 2800 restaurants across Asia as it introduces a new business model in its fastest growing major market.
And Reuters has named frontrunning investors in what looks to be a spin-off business in much the same nature as Yum! Brands is selling off its Chinese KFC, PIzza Hut and Taco Bell operation.
Early contenders as partners with McDonald’s US include state-backed China Resources and private equity investors Bain Capital, TPG Capital, Baring Private Equity Asia and MBK Partners. China Resources already has street cred in the food sector, operating Pacific Coffee chains in Hong Kong, Macau, Singapore and China.
McDonald’s is planning to create a new Asian business which would own restaurants as master franchisee, using local market knowledge and capital to expand networks in respective markets.
Operations in China, Hong Kong, Macau and South Korea would be rolled into the new entity, although it is highly likely separate businesses could be created for each market – one for China, one for Hong Kong-Macau and another for Korea.
McDonald’s has a stand-alone, listed business in Tokyo which encountered huge market problems several years ago and last year lost US$310 million after a major cull of its network. The company is trying to sell down its stake in that business from 49.99 per cent to 20 per cent.
Inside Retail Hong Kong expects that McDonald’s Asia would likely be funded by a cashed-up investment partner for about five years before potentially being floated, most likely in Hong Kong.
A fortnight ago, McDonald’s Chicago-based CEO Steve Easterbrook revealed plans to open 1500 new stores across China, Hong Kong and Korea within five years – 1300 of those in Mainland China. Globally, the company plans for 95 per cent of its restaurants to ultimately be franchised.
“add value and unlock growth potential in key markets”
In China’s mainland, McDonald’s already operates some 2200 restaurants – its new target is 3500.
Easterbrook says strategic partners could “add value and unlock growth potential in key markets” in Asia.
“This will allow McDonald’s to accelerate our growth and scale faster across diverse markets placing us closer to our customers and the communities we serve,” he said on March 31.
Reuters quotes sources revealing McDonald’s has engaged Morgan Stanley to run the sale of the restaurants in China, Hong Kong and South Korea, with a formal, public sale process to be launched in mid-May.
The final business model is subject to negotiations with potential buyers, but McDonald’s expects a one-time franchise payment and ongoing royalties based on sales – the typical industry rate running between 3 per cent and 5 per cent. Capital investment required to roll out new stores would be the responsibility of the franchisee.
Reuters said McDonald’s declined further comment beyond its March 31 statement from Easterbrook and the private equity companies named, China Resources and Morgan Stanley all also refused to comment.
Questions & Answers
Q.Which specific markets are included in the new Asian business entity McDonald's is creating?
Which specific markets are included in the new Asian business entity McDonald's is creating?
Operations in China, Hong Kong, Macau, and South Korea will be rolled into the new entity. It is possible that separate businesses could be created for each market, such as one for China and another for Hong Kong-Macau.
Q.What is the primary motivation for McDonald's to adopt this new business model in Asia?
What is the primary motivation for McDonald's to adopt this new business model in Asia?
The company aims to accelerate its growth and scale faster across diverse Asian markets. Strategic partners will add value and unlock growth potential, bringing McDonald's closer to customers and communities.
Q.What is the expected financial arrangement McDonald's will have with its new franchisees?
What is the expected financial arrangement McDonald's will have with its new franchisees?
McDonald's expects a one-time franchise payment and ongoing royalties based on sales, typically ranging between 3% and 5%. The franchisee will be responsible for capital investment to roll out new stores.
Q.Who are some of the potential investment partners being considered for the new Asian business?
Who are some of the potential investment partners being considered for the new Asian business?
Early contenders include state-backed China Resources, and private equity investors such as Bain Capital, TPG Capital, Baring Private Equity Asia, and MBK Partners. Morgan Stanley has been engaged to run the sale.
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