Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Fighting to Feed the Chinese Dragon, McDonald’s Vs. Yum!

Companies / Investing 2010 Jul 30, 2010 - 05:44 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleJason Simpkins writes: Speed kills. And in the fast food industry, it's imperative.

The speed of service and the ability to quickly adapt menus, packaging and advertising are what makes a market leader. And right now, the speed at which fast food companies make the transition into foreign markets, particularly China, is what matters most of all.

The industry's two biggest players, McDonald's Corp. (NYSE: MCD) and Yum! Brands Inc. (NYSE: YUM) - the parent company of KFC, Pizza Hut, and Taco Bell - know that.

McDonald's saw its second-quarter profit surge 12%, to $1.23 billion, or $1.13 a share, on strong global demand. Same-store sales grew 5.2% in Europe and 4.6% in Asia, the Middle East, and Africa.

China alone accounts for nearly a quarter of McDonald's revenue from the Asia Pacific, Middle East and Africa region, and its share is growing, Tim Fenton, the president of McDonald's Asia Pacific, Middle East and Africa operations told the Wall Street Journal.

"China is our fastest-growing [market] from the income standpoint and from the revenue standpoint," said Fenton. "The informal eating-out industry in China is about $300 billion right now, and it will grow about 10% this year."

Yum's China sales rose 4% in the second quarter, while U.S. sales were flat.

"A key driver of our overall growth continues to be new unit development in China and [the international division]," said Chief Executive Officer David Novak. "We continue to expect to open about 1,400 international units this year and remain the industry's leading international new developer."

McDonald's already has about 1,100 outlets in China and the company expects to boost that number to 2,000 by the end of 2013. The Golden Arches opened just under 150 outlets in the country last year, and expects to open 150 to 175 outlets in China this year.

However, Yum - which opens one new KFC in mainland China almost every day - has more than 3,500 restaurants in 650 Chinese cities. In the second quarter alone, the company opened 59 restaurants in China, bringing the total for this year to 155 outlets.

Yum's goal: To eventually open at least 20,000 fast food outlets in mainland China.

"Yum!'s is an amazing story about how they conquered China so much earlier than their main rivals," RJ Hottovy, an analyst at Morningstar, told The Independent. "Part of the reason is that they built up their supply chain and their distribution system quickly, and that is giving them a real competitive advantage. When you are setting up restaurants in new territories it is often difficult to procure packaging and to develop good relationships with suppliers, but Yum! now has a nice little edge."

Yum opened its first KFC in China in 1987 - three years before McDonald's broke soil on the Mainland.

"At the time that Yum! was accelerating in China, McDonald's was working on a turnaround in the U.S., but since that has been completed, it has turned its attention to international expansion in a big way and is planning to double its presence in China, so the competition for Yum! is going to be increasing," said Hottovy.

Indeed, McDonald's has shown a chameleon-like ability to adapt. The company stumbled in Europe when it first made the trek overseas. It soon found that foreign diners were less accustomed to the U.S.-style, quick-serve drive-through model, so it replaced the restaurant's 1970s nuances with a more congenial atmosphere and focused more on the sit-down dining experience.

The company's signature red and yellow signs and plastic and vinyl interiors were replaced with more art deco scaffolding, leather couches, wood tables, and wall paintings. It also offers Internet access and rental iPods to many of its contemporary European customers.

McDonald's spent more than $800 million remodeling 1,280 restaurants across Europe.

The brand position is different in different parts of the world," Denis Hennequin, who heads McDonald's European operations and spearheaded the re-imaging campaign, told BusinessWeek. "In Europe it's more about the experience."

In the United States, about 70% of sales come from drive-throughs.

McDonald's also has tailored its menu to regional tastes. The restaurant first started serving beer in Germany in the 1980s and then in Canada. Customers can order pasta freshly cooked to order in Rome, porridge in the United Kingdom, and a deep-fried patty of beef ragout in the Netherlands.

In China, the Chicken McNuggets come with the traditional BBQ, Sweet & Sour, and Honey Mustard sauces, but there's also a chili garlic sauce. There is also a seasonal Chinese New Year meal available, which includes a Grilled Chicken Burger and curly fries, as well as a horoscope of the twelve zodiac animals of Chinese astrology and traditional "red" packets, or gift bags, for gift giving.

The Big 'N' Tasty is sold as the 'Big 'N' Beefy' in the Chinese market and is topped with cheese, cucumber and mild-spicy Thousand Island dressing. Pies come in two standard flavours - Pineapple and Taro.

McDonald's also delivers 24 hours to anywhere that is within 3 miles (5 kilometers) of a restaurant. Deliveries are usually carried on electric scooters or bicycles.

Yum also boasts menus specifically tailored to Chinese tastes. KFC's localized menu includes congee or Chinese-style porridge for breakfast; Beijing Chicken Roll (à la Beijing Duck) served with scallion and seafood sauce, and Spicy Diced Chicken resembling a popular Sichuan-style dish.

In his book, "KFC in China: Secret Recipe for Success," Warren Liu, a former vice president of business development and a member of Tricon Greater China Executive Committee, said KFC has an advantage because most Chinese people prefer pork, followed by chicken; whereas beef lags behind. Tricon was the predecessor to KFC China's parent company YUM! Brands.

"KFC's leadership position in the Chinese restaurant industry is KFC's to lose," says Liu.

But don't be too quick to dismiss the Golden Arches.

"McDonald's, with its well-known brand, its advertising and its scale, will be a major player [in China]. But there's room for both," said Hottovy. "This is all about the rise of the middle-income consumer in China that is fuelling the growth, the story that we hear so much about."

It's also about adaptability, says Liu.

"A strategy that works well in a stable and mature market economy would most likely not work well in China, given the diversity of its people, geography, the heritage of a rich and complex culture, and a rapidly and continuously changing business environment since China's economic reforms commenced in 1978," he wrote in his book.

"Only the most perceptive and swiftest-moving companies will rise to the top, and stay on top," said Liu. "The speed with which to come up with the best ideas, to make the optimal decisions, and to execute those decisions once they are made. Over time, speed contributes to the accumulation of a competitive advantage in a fast-paced and rapidly-changing market environment."

Those being left behind: Burger King Holdings Inc. (NYSE: BKC) and Wendy's Arby's Group Inc. (NYSE: WEN).

Burger King - which should be forced to relinquish its self-appointed crown on principle - has more than 1,200 restaurants outside the United States, but just 33 in China. Wendy's has none.

So the choice comes down to McDonald's and Yum. But it's quite literally a matter of taste.

McDonald's continues to hold the edge in U.S. sales. U.S. same-store sales surged 5.2% in second quarter and U.S. revenue rose 2% to $2.08 billion. Operating income climbed 7% to $895.1 million. Total revenue rose 5% to $5.92 billion.

Yum's U.S. same-store sales actually fell 1% in the second quarter, dragged down by KFC's 7% decline. The company's total revenue came in at $2.57 billion.

Money Morning Contributing Editor Horacio Marquez recommended McDonald's in a Feb. 23 "Buy, Sell or Hold" column, saying the company is "the unparalleled leader in the arena of quick service and value dining."

"This very difficult environment is sending a lot of consumers scrambling for cheaper alternatives in dining. That is where McDonald's distinguishes itself," said Marquez. "McDonald's is maintaining operating margins in excess of 25% and a net margin of 18%. This provides the firm a rock-solid cash flow, which, together with a very low level of debt, puts the company in the ideal situation to face these times."

Still, Yum has a much larger foothold in China, where operating profit rose 33% to $139 million. And analysts who are more concerned with the potential growth prospects that the Red Dragon offers find Yum more appealing.

"We like the stock particularly in the second half," David Palmer, UBS AG's (NYSE: UBS) senior restaurant analyst told CNBC. "The key metrics for this company are its same store sales and China, which has become its more profitable division. If they do well, the stock will go higher."

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules