One of the mainland’s biggest developers has agreed to help McDonald’s reach its goal of opening 2,000 new restaurants in China by 2022.
In a strategic cooperation deal signed last week between Guangzhou-based Country Garden and the new ownership of McDonald’s China operation, the mainland’s third-largest developer by sales has pledged to provide locations for the fast food chain’s plan to nearly double its footprint in the nation of 1.4 billion potential burger chompers, according to local property portal Guandian.
The big deal by the purveyor of Big Macs is the second such tie-up for the company since McDonald’s flipped an 80 percent stake in its China operations to a group of investors including state-owned conglomerate Citic Group and US private equity firm Carlyle Group. The $2.08 billion, 20-year partnership deal was first announced in January and completed at the end of July.
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The Country Garden partnership is similar to a deal McDonald’s forged last month with residential giant Evergrande Real Estate Group, in which the food retailer agreed to piggyback on Evergrande’s nationwide property portfolio to accelerate its push into China’s lower-tier cities.
McDonald’s is said to be pursuing similar tie-ups with other top developers as the company targets double-digit sales growth in the battle for dominance of China’s fast food market. Early last month, McDonald’s unveiled a plan to expand its footprint in mainland China from 2,500 stores to 4,500 in just over five years. The strategy calls for the most substantial growth to occur in third- and fourth-tier cities, which will account for 45 percent of the brand’s China outlets by the end of 2022.
The new approach to securing shop locations comes after CITIC Limited and its investment-management arm Citic Capital Partners jointly took a 52 percent stake in the new venture, while Carlyle bought a 28 percent interest. Oak Brook, Illinois-based McDonald’s holds the remaining 20 percent stake in the new venture, which is the largest McDonald’s franchisee outside of the US.
The partnership will operate the brand’s existing 2,500 outlets in mainland China and 240 stores in Hong Kong, and will fuel expansion as McDonald’s races to catch up to rival Yum China, which operates KFC, Pizza Hut and Taco Bell in the country. Yum China currently dominates McDonald’s in terms of both market share and number of stores, with 7,685 outlets.
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Shortly after the Citic-Carlyle buyout was completed, Zhang Yichen, chairman of McDonald’s China Co. and chief executive officer of Citic Capital, told Bloomberg that McDonald’s was seeking partnerships with real estate giants to promote its growth in China. Zhang said that the fast food brand had formed a strategic alliance with Guangzhou-based Evergrande, in which the country’s third-largest developer by sales would offer McDonald’s the first look at locations in 250 cities.
The executive said that McDonald’s was discussing similar agreements with rival builders China Vanke and China Overseas Land & Investment, noting that all of these firms had close connections with Citic. “It’s very easy for us to put them together,” Zhang told the news agency. “This is a strategy that you’re not going to find in the US.”
Country Garden Offers Lower-Tier Focus
McDonald’s calculates that the huge scale of Country Garden’s operations will help the company gain a foothold in China’s lower-tier cities, beyond the major coastal metropolises and provincial capitals. Hong Kong-listed Country Garden, China’s top developer by sales, operated 722 projects across mainland China and Hainan as of year-end 2016, over 35 percent of them located in the southern province of Guangdong.
The developer posted a net profit of RMB 7.5 billion ($1.13 billion) for the first six months of 2017, citing its focus on projects in smaller cities as a driver of its highest ever half-yearly earnings. Country Garden said it would continue to invest in cities ranging from first-tier to “fifth-tier” as it anticipates continued profit growth into 2019.