McDonald's Corp plans to add at least 100 stores a year in China -- and its first drive-through location there this year -- to tap the country's growing middle class.
McDonald's, the world's largest restaurant company, may expand faster in China if arrangements with suppliers allow, chief executive Jim Skinner told reporters yesterday after a shareholders meeting at its headquarters in Oak Brook, Illinois.
The company is speeding the pace of expansion in China as it tries to catch Yum Brands Inc, operator of the Taco Bell, Pizza Hut and KFC chains. Skinner, 60, expects to have 1,000 restaurants there by 2008, when Beijing hosts the Olympics.
"McDonald's is trying to position themselves as a China play," said Herb Achey, an analyst at New York-based US Trust, which owned almost 2.5 million McDonald's shares on Dec. 31 among more than US$100 billion in assets. "They look across the way and see Yum Brands and say, `Hey we are here, too.'"
Louisville, Kentucky-based Yum has more than 1,250 locations in China after tripling its outlets there in the past five years.
McDonald's has more than 660 restaurants in the country, the world's fastest-growing economy and the most populous nation, with 1.3 billion people.
Last month, McDonald's comparable-store sales in the region encompassing Asia, the Pacific, the Middle East and Africa rose 1.6 percent, helped by results in Australia, Japan and Taiwan and hurt by weakness in China, the company said on May 9. It was the 17th gain in the region in the last 18 months.
McDonald's same-store sales dropped in China after Yum in March removed five chicken dishes from its KFC restaurants there because spice blends were tainted with Sudan 1, a dye that's been linked to cancer.
Yum said its China division's sales in the second quarter will fall as much as 5 percent and operating profit will be as much as US$25 million below expectations after pulling the items from the menu. They've since been put back on sale.
Rising incomes and the movement of rural people to cities such as Beijing will spur McDonald's growth in China, chief financial officer Matthew Paull told reporters.
Fifteen to 20 percent of China's population "can afford us on a regular basis," Paull said. "Their middle class is growing very, very quickly."
The McDonald's location with drive-through service, to be located in Shenzhen in southern China, will open "this fall," president Mike Roberts told shareholders.
McDonald's wants to take advantage of rising car ownership among China's growing middle class, Roberts told reporters after the shareholders meeting. The number of automobiles in China is expected to increase to more than 100 million in the next three years from 25 million today, he said.
Restaurant sales in China increased 17 percent in the first quarter as rising incomes encouraged more people to eat out, according to a statement on the Web site of the nation's commerce ministry last month.
Restaurant sales reached 206.3 billion yuan (US$24.9 billion) in the first quarter, 30.3 billion yuan higher than a year earlier.
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