McDonald's targets Asia's beef eaters with 20% spending boost

McDonald's Corp., the world's largest restaurant company, may boost investment in Asia by at least 20 percent this year as consumer spending recovers, moving into "beef eater" markets such as South Korea.

The seller of Big Macs will invest $415 million in Asia, the Middle East and Africa this year to add 520 restaurants, Tim Fenton, head of the chain's regional business, said in an interview in Hong Kong. Spending in the region was about $350 million in 2009, he said.

"McDonald's is really the only company with the best portfolio of markets around the world," Joel Silverstein, president of Hong Kong-based restaurant consultant East West Hospitality Group Ltd., said in phone interview. "In Asia, they are still growing."

Oak Brook-based McDonald's last year generated 19 percent of its sales from the region, an increase from 18 percent in 2008 and 15.8 percent in 2007. Sales from the Asia Pacific, Middle East and Africa increased 2.5 percent in 2009, compared with declines in the U.S. and Europe, as rising incomes in China drove consumer spending and diners in Japan and developed countries chose less-expensive meals.

McDonald's may "aggressively start expansion" in South Korea, where comparable sales growth has been "double-digit" in the past four years, Fenton said in the interview, which took place March 26. The company operates 227 outlets in the country.

"Korea is a big market for us: you've got 48 million people, a $30,000 average household income and beef eaters," Fenton said. McDonald's plans to invest $15 million in the country this year, and twice that in 2011, he said.

McDonald's rose 0.5 percent to $67.26 in New York trading on March 26, boosting its gain this year to 7.7 percent.

"Asia Pac is growing faster than any other area of the world, faster than the U.S., faster than Europe," said Fenton. "China is a numbers game too, look at the population, the evolution and the growth of the middle class."

The region's same-store or comparable sales, which strip out the effects of newly opened outlets, rose 10.5 percent in February, compared with 4.8 percent globally, Fenton said, declining to give a breakdown by country. China is the fastest- growing market globally for McDonald's, he said.

The restaurant chain operates 8,482 restaurants in the region. This year, the company plans to add as many as 175 in China, 100 in Japan, 65 in the Middle East, 40 in Australia, 17 in Malaysia and 14 in Korea and the rest in India and Africa, he said in the interview, which took place March 26.

McDonald's will add 200 outlets, the biggest addition on a global scale, in China next year, and aims to have 2,000 in the nation by 2015, Fenton said. The company, which opened its first restaurant in Shenzhen in 1990, now has 1,146 stores in the world's third-largest economy.

"It took us 19 years to get to 1,000 and it'll take us six more years to get to 2,000," Fenton said. In pursuit of this goal, it's accelerating its franchising program to add to the six independently owned restaurants it now has there, he said.

In China, the chain is "recruiting and building up our inventory" of franchisees, Fenton said, declining to specify the scale of the expansion. Still, McDonald's may have trouble finding investors for its franchises, Silverstein said.

"China is not a proven market where franchising can make any sense yet," Silverstein said. "If they were making huge returns on investment, they wouldn't need to franchise."

McDonald's will be "doing a little bit more" this year to will diversify its menu to appeal more to local palates by adding spicier sauces in its burgers, Fenton said. The core offerings remain unchanged, unlike the restaurants of KFC Corp., owned by Yum! Brands Inc., which serve congee and egg tarts.

"We're never going to get away from the core because people come to the Golden Arches for familiarity," he said. "Our customers have told us to be McDonald's."

The cost of opening new stores has been steady even as property prices rebound in some parts of the region, Fenton said. McDonald's has been able to take over some locations abandoned by retailers, he said.

"As a tenant, landlords like us: we pay on time, we're a cash business, we're usually in it for 20 years with options to extend," Fenton said. "We're good tenants."