24 October 2018
A McDonald’s restaurant in Taipei. The US fast-food giant has just announced a pullback from Taiwan amid disappointing sales. Photo: Internet
A McDonald’s restaurant in Taipei. The US fast-food giant has just announced a pullback from Taiwan amid disappointing sales. Photo: Internet

What’s next on the menu after McDonald’s Taiwan pullback?

Many people, myself included, are longtime patrons of McDonald’s. Its fries, chicken nuggets and apple pie have been my comfort food since childhood, and I still dine in one of its many restaurants at least five to six times each week.

But the next time I travel to Taiwan, things may be a bit different at McDonald’s over there.

The US fast-food behemoth has announced that it will put its 31-year-old Taiwan business on sale, something reminiscent of HSBC Holdings’ (00005.HK) business overhaul.

In recent years Ronald McDonald has been pushed to go on a diet, shedding its ailing business in many parts of the world, as investors are losing their appetite for its shares.

The Nasdaq-listed shares have been in the doldrums after their 2011 peak.

Restaurant sales reached US$27.4 billion last year, a mere 1.5 percent growth from three years ago, while net profit plunged 13 percent to US$4.76 billion. These figures are simply frustrating given its market capitalization of US$90 billion.

When it rains, it pours. Washington has just announced a new ban on food containing trans fat, and the China market, still recovering from last year’s stale meat scandal, has yet to compensate for declining sales elsewhere.

Bloomberg adds a sour note: sales and net profit are expected to slide by 9 percent and 6 percent respectively this year.

Now what’s on the menu at McDonald’s? As exemplified by its pullback from Taiwan, the burger giant will cash out from low-return markets to concentrate on just a handful of key countries like China.

Taiwan Business Weekly reported on Wednesday that McDonald’s will franchise all its existing 400 outlets on the island, and its 16,000 local employees will have to wait for a new boss.

The news raised worries that Taiwan customers may no longer enjoy cheap food.

There are two types of McDonald’s restaurants in most markets: those owned and operated by the company and those franchised to third-party licensees.

With 239 restaurants in a city of just seven million residents, Hong Kong is among the very few markets where its restaurants are entirely operated by the firm. These markets also include the United States and mainland China, pillars of its global empire.

Company-owned restaurants, representing just 19 percent of its total store count, contributed 66 percent of its combined sales last year.

McDonald’s is pinning its hopes on Chinese diners for a turnaround. Eight strategic markets have been shortlisted for further penetration. On top of the list is China, where it aims to add 1,000 new stores to bring the total to 3,000.

Emerging markets are always seen as the saving grace amid lackluster performance globally. But the world’s largest fast-food chain still needs to do more in China, where KFC, with its commendable localization strategy and unmatched market share, has been eating into McDonald’s lunch for years.

Consumers, of course, won’t bother to know whether a McDonald’s restaurant is franchised or not as long as McNuggets and apple pie taste as they should.

So let’s sit back with our favorite fries and see how Ronald McDonald battles it out with Colonel Sanders in China.

This article first appeared in the Hong Kong Economic Journal on June 25.

Translation by Frank Chen

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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