McDonald’s sells its Chinese activities to investors

Fast food chainMcDonald’s has sold a controlling stake in its Chinese operations for 1.6 billion euro as part of its restructuring plans. The new majority owners are a Chinese investment fund.

Streamline operations

Chinese Citic Ltd., Citic Capital Holdings (52 %) and American private equity firm Carlyle Group (28 %) will get a 80 % stake in the holding, with McDonald’s in control of the remaining 20 %. The goal is to add another 1,500 restaurants in China over the next five years, mainly in smaller Chinese cities. 

McDonald’s is trying to streamline its worldwide business, in order to better withstand smaller, more agile competitors and better serve the middle-class Chinese consumers who seek healthier food of higher qualities. It looks to do similarly in other Asian markets, like Japan and South Korea.

Expand aggressively

According to China Market Research Group analyst Ben Cavender the deal will drive McDonald’s expansion forward at a rapid pace. He also feels “Citic and Carlyle’s resources will allow McDonald’s […] to refurbish old restaurants, which is expensive to do”. The company trails KFC in store count, which will probably be a reason for its intentions to add 300 new restaurants every year, adding to its current 2,400. 

The 1.6 billion price tag may seem exuberant, especially considering the 20-year franchise rights and high costs for expansion and refurbishment, but Cavender says the chains are actually “cash machines”. McDonald’s CEO Steve Easterbrook says he wanted to collaborate with partners “who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships”.