McDonald's Corporation (NYSE:MCD) is in the process of implementing a new business model for its Chinese markets — getting local chefs to cook and sell food at their own cost.
The American burger chain is said to be searching for a partner for its Chinese and Hong Kong franchises, sources told Financial Times (FT). The decision was taken earlier this year due to flagging sales and fierce competition in the region.
Operations were running smoothly in China and other parts of Asia until 2014, when the expired meat scandal jolted McDonald's. This ruined the brand’s image in the country and led to a drastic decline in sales initially. However, since then, McDonald’s has taken numerous steps to rebuild a positive image of its brand.
Pressure from investors, who have showed concerns over the quality control of the Asian arm of the business and to revive the market, has pushed the management to join hands with local partners to fortify its reputation. According to FT, the bidding process has entered the second round and could fetch nearly $2-3 billion. However, despite tremendous efforts, there has been no breakthrough yet as McDonald’s did find top-tier companies interested in partnering it, but had to turn down most bids, according to FT.
McDonald’s stated: “We are making solid progress as we look for long-term strategic partners with local relevance who have complementary skills and expertise.”
According to analysts, the American fast food chain is in trouble in the mainland as it does not offer products which Chinese consumers demand. The brand position is also weak or does not suit market dynamics, analysts believe. Rising competition from Chinese food chains and international eateries have also weighed on the company’s growth.
However, this is not the first time that an American brand has struggled to find a suitable partner in China. Yum! Brands, Inc. (NYSE:YUM) was also making efforts to find a local partner as part of its spin-off plan which was announced last year. The company found local investors for its Yum China division but a deadlock over of selling stake percentages led to the end of deal.