HONG KONG—Some U.S. consumer brands in China are struggling with tepid consumer demand and a trend toward nationalist buying. McDonald’s MCD 0.17%increase; green up pointing triangle is leaning in.
The fast-food company plans to nearly double its restaurants in China to more than 10,000 by the end of 2028, after recently spending $1.8 billion to buy back a bigger slice of its business in the country.
One of its challenges is a burgeoning Chinese rival called Tastien, which caters to local appetites with inexpensive burgers made of Peking duck, spicy tofu or fish-flavored pork, in addition to beef. The interiors of its restaurants are decked out in red and feature slogans such as “made in China” and “Chinese stomachs love Chinese burgers.”
Not to be outdone, Chicago-based McDonald’s has been offering new creations such as wraps made of chicken and pickled bamboo shoots, and promotions that have included Coca-Cola-flavored chicken wings and a sandwich made of Spam luncheon meat and Oreo cookie crumbs.
The company has created quirky promotions appealing to younger customers that have gone viral on social media. One is a combo meal that comes in a “cat box” made for felines to play in. In some stores the chain also unveiled exercise bikes equipped with trays, allowing riders to munch their meals while pedaling to wirelessly charge their mobile phones.
China is now the fastest-growing market for McDonald’s and its second-largest by number of stores, with more than 5,500, the company said in November. The more than 1,000 new restaurants McDonald’s opened in China last year marked a record for the company, Chief Financial Officer Ian Borden said during a February earnings call.
Some lunchtime diners on a recent afternoon at a McDonald’s in Beijing said that while they are aware of the upstart Tastien, they like the U.S. burger chain’s consistent offerings and find it a reliable location to see friends and hold business meetings. Tastien didn’t respond to a request for comment.
U.S. food and beverage companies are faring relatively better in China than some other consumer-facing companies as geopolitical tensions between the world’s two biggest economies intensify.
China sales at Apple and Tesla have fallen recently, and cosmetics firm Estée Lauder is facing pressure from competitors tailoring offerings to price-conscious consumers. Consumer spending is weak amid double-digit youth employment rates and a Chinese economy that is recovering unevenly.
Yum China, another McDonald’s competitor, operates more than 14,000 KFC, Pizza Hut and Taco Bell outlets in the country. Louisville, Ky.-based Yum Brands spun off its China unit in 2016 as a separately listed company after increasing competition and food-safety concerns hit revenue. The U.S. company receives a percentage of Yum China’s sales.
Starbucks also has big China plans, despite some struggles. The company said in 2022 that it planned to add thousands of new stores in the country. Luckin Coffee, a Chinese company, has in recent months outpaced the world’s biggest coffee chain as China’s largest by sales and units. Luckin now has more than double Starbucks’s nearly 7,000 locations in the country.
China is the fifth-largest market by sales globally for burger fast-food restaurants, and is growing roughly 6% a year, said Emil Fazira, an analyst at market researcher Euromonitor International. That is faster than in the U.S., Canada, France and Germany. Burger fast-food restaurants comprise only 5% of China’s overall fast-food market, so there is significant room to grow, she said.
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McDonald’s dominates the burger landscape: Its market share among fast-food restaurants in China serving beef burgers rose to 74.6% last year from 71.5% in 2018, according to Euromonitor International.
One popular McDonald’s meal in China allows customers to purchase two items, such as a double cheeseburger and a portion of chicken nuggets, for $1.92.
The company’s newfound optimism in the market comes after it sold an 80% stake in its China, Hong Kong and Macau operations in 2017 to a group that included Chinese state-owned enterprise Citic and U.S. private-equity firm Carlyle Group. As part of the $2.1 billion deal, Citic held 52%, Carlyle took 28% and McDonald’s was left with 20%.
Now McDonald’s is repurchasing Carlyle’s 28% stake, increasing the burger chain’s ownership to 48%. The move is contingent upon what McDonald’s in November called customary regulatory approvals. It will enable McDonald’s to “further benefit from the market’s long-term potential,” Borden said in February.
McDonald’s declined to comment. The company reports its first-quarter earnings on Tuesday. Carlyle declined to comment.
McDonald’s likely decided to raise its exposure to China given the country’s huge population and room for the company to grow, said Joshua Long, a managing director and analyst focusing on the restaurant industry at financial-services firm Stephens.
“Despite the geopolitical tensions they are taking the opportunity to double down,” he said, adding that customers are attracted to the chain’s reputation for consistency and convenience. “There’s certainly some competition, but there’s a lot of room for several brands to do well.”
McDonald’s doesn’t regularly break out its China revenue. In November, it said China and Hong Kong together represented nearly 5% of its global sales in 2022.
In February, McDonald’s reported that sales in the international segment in which it licenses franchising rights, such as China, rose 9.4% last year.
Munching on a cumin-flavored duck burger at a rival Tastien restaurant in Beijing one recent afternoon, Zhan Yirou said he spent 20 yuan, equivalent to $2.76, including a discount offered to first-time visitors, for a combo meal that also came with chicken nuggets and popcorn chicken.
“I had McDonald’s burgers yesterday and wanted to try something new today,” he said. While he enjoyed the taste, he said he didn’t see a huge price difference, and probably won’t return to Tastien.
“I wouldn’t just consider visiting Tastien to support the so-called Chinese hamburger, as quality and taste matter more,” he said.
Xiao Xiao contributed to this article.
Write to Newley Purnell at newley.purnell@wsj.com
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Appeared in the April 30, 2024, print edition as 'McDonald’s Is Supersizing Its Presence in China'.
