McDonald’s Corp’s announcement last week that it planned to franchise its Taiwanese stores suggests that companies in the fast-food industry need to continuously seek to secure a more competitive position in the market, although in the end it comes down to health concerns and consumers’ palates.
This is a major strategy change for the US company, as well as shocking news for its 16,000 employees.
Taiwanese will still have Big Macs and Chicken McNuggets, but one implication of the decision to franchise stores is that Taiwan is no longer a priority for the US company, which entered the market more than three decades ago.
McDonald’s was the first foreign fast-food chain to enter the Taiwanese market. Via a joint venture with Taiwan’s Quanta Foods Ltd, McDonald’s opened its first restaurant on Taipei’s Minsheng E Road in 1984, introducing Taiwanese to its burgers and fries. Since then, Western fast-food chains have mushroomed in the nation and consequently changed the lifestyles and eating habits of Taiwanese.
In 1994, McDonald’s purchased Quanta Foods’ stake in the venture and made the Taiwanese operation a wholly-owned subsidiary of the US company. The fast-food giant operates 413 restaurants in Taiwan, including 350 company-owned stores.
Now, the company wants all of its local restaurants to be operated by franchisees as part of a global overhaul seeking to cut operating costs and boost sales and profits.
McDonald’s sales have been declining in the US for two consecutive years. Sales in China, Hong Kong and Japan also tumbled last year over food safety and sanitation concerns. Overall, the US company aims to franchise up to 3,500 restaurants worldwide by the end of 2018 in the hope that franchisees or licensees will operate 90 percent of its restaurants.
McDonald’s on Thursday said it would not withdraw from Taiwan, but rather change its local operation to a “developmental licensee” structure, which would allow local ownership while still developing the brand. Time will tell if the fast-food giant’s new strategy can help it effectively reposition itself in a rapidly changing market.
McDonald’s has introduced Taiwan to a part of American culture and modern restaurant management skills. It also wowed domestic retail business with its production efficiency, standardized products and open kitchens, but now the company is facing growing competition not only from other fast-food chains, but also local convenience stores and breakfast store chains.
As past success is no guarantee of lasting greatness, will McDonald’s be able to provide new value to customers under the Golden Arches, and what will that be?
The decision by McDonald’s to sell its local restaurants is not the end of the world. Approximately 81 percent of its restaurants worldwide are owned and operated by local franchisees or licensees.
However, the company’s announcement does have another implication for Taiwan: There are growing difficulties facing the fast-food chain in achieving considerable sales growth at a time when growth in consumer spending is slowing. Moreover, there are challenges to its operations from rising demand for healthier food, a higher minimum wage, surging property prices and difficulties in finding sites for new restaurants.
These are not just problems for McDonald’s, but the entire fast-food industry.
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