Industry News | November 8, 2006

On the APMEA Trail with McDonald's: Day Two

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SHANGHAI—Driving volume and reducing costs is the simple solution to McDonald's (China) Company Ltd. less-than-stellar sales margins, Tim Fenton, president of McDonald's APMEA told reporters at McDonald's China press event Wednesday afternoon. What that means in practical terms for the Shanghai-based leadership team charged with boosting store volumes in mainland China is a strategy focused on opening drive-thru units, promoting beef, and rolling out breakfast.

The drive-thru is a new notion to China. McDonald's was the first to introduce the concept in 2005. Since then the chain has opened five additional units and plans to include a drive-thru loop in approximately half of the 100 stores scheduled to open in 2007. Among the six existing stores, drive-thrus account for 20 to 40 percent of sales.

Interestingly, the Chinese drive-thru does not rely on a speaker-based system as in the U.S. and Europe. Instead customers place orders directly with a crewmember who then relays the information to the kitchen. Payment is accepted at a second window, and a third delivers food. Order accuracy and speed-of-service numbers are on par with U.S. stores. However, the set-up is a temporary one. Once the Chinese consumer becomes familiar with the drive-thru concept, China will switch to a more traditional system, Schwartz says.

The push to open drive-thrus is driven by the belief that the freestanding units that house them act as "destination restaurants," attracting customers who spend more and stay longer thanks to amenities like computers bars, patio seating, playgrounds, and party rooms. At units that feature drive-thrus, overall sales volumes are 25 to 50 percent higher, while the average check is 20 to 35 percent higher.

KFC owns the quick-service chicken segment in China. McDonald’s plans to do the same with beef by heavily promoting the protein through partnerships with the Chinese government. Those partnerships include programs touting beef's nutritional benefits. Two new sandwiches, the four-patty Mega Mac and new Brazilian Quarter Pounder, were also introduced. Each is targeted toward both men and women.

The final piece of Schwartz's plan to drive volume is the rollout of breakfast systemwide. Currently less than half of McDonald's China's 777 units serve the meal. Among those that do, breakfast accounts for 4 to 6 percent, a figure both Fenton and Schwartz say is in line with initial breakfast sales at McDonalds U.S.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.