McDonald’s Sells Majority Stake in China and Hong Kong Business

09 Jan 2017 --- McDonald’s is to sell an 80 percent stake of its business in China and Hong Kong to a group led by the Chinese state-owned investment group Citic. The sale underlines the growing desire of China’s state-backed organizations to play an increasingly influential role in the food industry and comes as state-controlled China National Chemical Corp (ChemChina)looks to push through its $43bn proposed acquisition of Switzerland’s Syngenta.

Citic, which is taking a 52 percent stake in the business, is teaming up with US private equity firm Carlyle Group, which is acquiring a 28 percent stake, in the McDonald’s business in China and Hong Kong in a $2.1bn deal.

The deal also underscores the trend for McDonald’s-and other restaurant chains-to franchise more of its restaurants globally.

By franchising outlets, this means that the fast food giant is not encumbered with real-estate and other operational costs.

Currently, McDonald’s owns and operates around 65 percent of its 2,000 outlets in China with the rest franchised.

Under the 20-year deal, the 65 percent would now be franchised, with McDonald’s retaining a 20 percent stake in the business.

McDonald’s is looking to shift its business so that it’s more skewed towards a franchise model.

In March last year, McDonalds’s said it was on the hunt for partners to help it add more than 1,500 restaurants in China, Hong Kong and Korea
over the next five years.

While McDonald’s is looking to alleviate costs, Citic and Carlyle are hoping that by acquiring a majority stake in the business they will benefit from China’s increased urbanisation and expanding middle class with an increasing disposable income.

China’s working population is bigger than those of the US and Europe combined, yet at the moment spending levels of China’s middle class are just a small fraction of those in more developed countries.

McDonald's CEO Steve Easterbrook said, “China and Hong Kong represent an enormous growth opportunity for McDonald's. This new partnership will combine one of the world's most powerful brands and our unparalleled quality standards with partners who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships, all with a proven record of success.”

“By working together, we will unlock even faster growth and be closer to the customers and communities we serve as McDonald's works to be the leading Quick Service Restaurant across the Chinese mainland and Hong Kong.”

Mr Chang Zhenming, Chairman of CITIC Limited, said: “We believe CITIC's unique platform and its extensive resources will enable us to help realise McDonald's full potential in China.”

“Together with our partners, we will devote ourselves to continue upholding McDonald's extremely high standards of food quality and service. Importantly, this is also a strategic opportunity for CITIC to invest in the expanding Chinese consumer sector. McDonald's extensive network and consumer base will provide us with invaluable insights, which we will leverage to the benefit of our existing businesses.”