McDonald’s Corp. (NYSE: MCD) had investors lovin’ it in 2010 – from its dividend increase in September to soaring sales to share price appreciation that has doubled the return of the broader stock market indexes.
But one place where the Golden Arches have fallen flat has been China. There have been concerns that McDonald’s may be dominating at home, but it has left the door open to competition abroad.
Those fears could evaporate soon, however, with news that MCD plans to double its China presence by 2013. According to reports, McDonald’s China Chief Executive Kenneth Chan told reporters in Beijing, “It took us almost 19 years to reach 1,000 restaurants (in China). We will get our next 1,000 restaurants within three years.”
The move is well-timed. Back in October when it reported third-quarter earnings, fast-food powerhouse Yum! Brands (NYSE: YUM) said it saw a +6% increase in its China sales at its nearly 3,700 locations – mostly under its KFC brand. With more than double the locations of McDonald’s and impressive growth like this under its belt, the writing was on the wall that MCD had to step up its game or risk becoming a second-tier competitor to YUM in this booming market.
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McDonald’s hasn’t been sleeping on its China sales – the company has opened 165 new restaurants in the country this year and is planning 200 more in 2011 – but the scale of its new China expansion plan proves the company is serious about the region.
Coupled with the move for more stores also comes a rebranding and facelift for most existing restaurants, as well as slight increases in menu prices. In mid-November, the company had raised menu prices by 0.5 to 1 Yuan, or about 8 to 15 cents, to offset higher food costs and improve margins.
This focus on Asia is good news for investors. The obvious reason is that the aggressive expansion will help McDonald’s profits and earnings, but more important is the fact that MCD stock may not have other sources of growth without this China strategy. The addition of McCafe smoothies and coffee has been a game-changer for McDonald’s in recent years, and the company’s dominance of the breakfast market gives it an edge over every domestic fast-food player. But realistically, what else can MCD do in the States to boost revenue?
Premium menu items the Angus burger line have helped boost margins, and promotions like McDonald’s Monopoly and the relaunch of the McRib have piqued consumer interest. But those gimmicks are not a long term plan.
If McDonald’s is going to see growth in the future, it has to be beyond America’s borders – and the new China strategy to double its stores by 2013 is a step in the right direction.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow Jeff on Twitter at http://twitter.com/JeffReevesIP.