Phyllis Cheung: McDonald’s Enjoy Greater Autonomy as Golden Arches

What’s is in store for McDonald’s China since changing its name to the Golden Arches? McDonald’s China CEO Phyllis Cheung said she was “flattered” when the name change triggered heated online debate, but she was more concerned about the company’s plans than the online buzz.

McDonald’s China CEO Phyllis Cheung spoke with CBN on November 21 about McDonald’s China’s development strategy after the official independence. “While independent development means greater autonomy, it also carries more pressure,” Cheung, “McDonald’s has announced plans to expand and renovate stores, but it’s food safety that’s most important to me.” McDonald’s China plans to double the number of its stores in China during the next five years, will bring new pressure to the brand’s supply chain, store management and food safety.

The independent new McDonald’s China was established on August 8, and the company’s major shareholder changed from McDonald’s America to CITIC Group. McDonald’s China also become the largest franchisee of McDonald’s outside the United States, operating and managing about 2,500 McDonald’s restaurants on the Chinese mainland, and about 240 in Hong Kong.

“Since the new company was formed, we have enjoyed greater autonomy. On store expansion, we proposed more demanding plans, which would not have been possible. There are three changes. Store expansion plans used to be enacted by the US headquarters, but now we can make expansion plans in line with our ability. Second, we get support from major shareholders like CITIC. In other words, we now have more friends. As you can see, just two months after the establishment of McDonald’s China, we have reached a strategic cooperation with real estate companies like Evergrande Group, Country Garden and China Overseas Group. Many of these couldn’t have been possible without the help of CITIC. Finally, we can quickly launch new dishes based on the demands of the Chinese market, assuming core products such as the Big Mac and fries remain unchanged.”

In the rapidly changing Chinese market, western fast food giants need the ability to react with urgency. Independence has become a trend. Under this trend, KFC parent company Yum! Brands and McDonald’s both have allowed their Chinese branches to develop independently.

So, what trends do fast-food giants pay attention to? “At the moment, the major four trends in the Chinese market are what McDonald’s China needs to pay close attention to,” Cheung said, “First, the consumption upgrade trend. We have also developed a coping strategy. We provide working meals priced at 17 yuan, and also star kitchen burgers priced more than 35 yuan to target consumption upgrades. The second trend is the informatization. The main customer base of McDonald’s is people born in the 1980s and 1990s who grew up in the information age. So, our restaurant needs to transform and reflect that. By the end of the year, 70 percent of McDonald’s stores will complete the smart information transformation, and by next year, 90 percent of the stores will as well. The third trend is convenience. With the rise of online ordering and other channels, McDonald’s also needs to comply with the era and bring convenience to customers. The last trend is big data, which can help it interact with consumers and provide more personalized services, including one-to-one marketing. These four trends are our vision for 2022.”

It is worth noting the expansion of McDonald’s China has focused on third- and fourth-tier cities in response to intensive competition in first- and second-tier markets and low market saturation in third- and fourth-tier markets. McDonald’s China announced Vision 2022 to accelerate its development in mainland China. It set a goal of double-digit average annual growth rate and accelerating the speed of opening new restaurants from 250 a year in 2017 to about 500 stores a year in 2022. About 45 percent of McDonald’s restaurants will be located in third- or fourth-tier cities.

China food industry analyst Zhu Danpeng said, “McDonald’s has dense store locations in first- and second-tier cities. It may sound like a good idea to establish more stores in third- or fourth-tier cities, but McDonald’s must know that many young people in those areas have moved to the eastern coastal cities. This is bound to result in low sales in stores located in third- or fourth-tier cities.”

Cheung said, “We have noticed that people in third- or fourth-tier cities have different lifestyles with people in first-tier cities. For example, in the first-tier cities, busy life is a topic. Therefore, in the first-tier cities, we make brunch a highlight. While in third- or fourth-tier cities, there are fewer white-collar workers. We need to give customers a place to sit down and chat. Therefore, stores in third- or fourth-tier cities have more home-like decoration. They also have more space to interact with children. The table turnover rate in third-or-fourth tiered cities is lower than that in first-tier cities. But it doesn’t matter that much since our focus is consumer experience.”

For Cheung, the most important thing is food safety. “Food safety is a top priority for McDonald’s China,” she said, “Strictly controlling food safety and quality is the first priority when we open a store. It is not difficult to run a restaurant, but if we want to have thousands of restaurants in China, or even 37,000 restaurants globally at the same level, the management system is key. The leading supply chain management system and strict food safety control system are indispensable.”

This article originally appeared in ebrun and was translated by Pandaily.