Yesterday Fast-food giant McDonald's announced in Shanghai that it would open around ten franchising outlets on the Chinese mainland by June 2006, the Shanghai Morning Post reported today.
From now on, individuals with funds of 2.5-3.2 million (US$300,000 -US$385,000) can apply for the franchising business. Companies with management teams and adequate funds can also apply for being appointed as McDonald's regional franchising agent.
To date, McDonald's boasts of having nearly 600 restaurants in China. As already mentioned, by June 2006, it plans to open about ten franchising outlets on the Chinese mainland. The total number of restaurants in China is expected to reach 1,000 by 2008, out of which 20 percent would be franchising outlets.
For its franchising projects, McDonald's will invest four million yuan in land development and architecture, earning its profits from rents, service charges and royalty fees, while franchisees bear the salaries for employees and management costs, but gain all the operational profits, said an industry analyst. During the cooperation period, franchisees can procure beef, potatoes and bread from McDonald's suppliers at the same price and quality, the analyst pointed out.
"We will establish certain offices in Beijing, Shanghai and Guangzhou next year to handle the franchising business," said Zhu Yuanhe, vice president with the McDonald's China Development Co, adding that qualified companies are expected to be their general agents that would develop a series of restaurants.
The royalty fees collected from franchisees will account for five percent of their business revenues, but the franchising fees will be lower than those for KFC outlets, Zhu said. Franchisees can recover their costs and begin to make profits within five years, but McDonald's will buy back those with poor management, he added.
Investors should be cautious about the hefty investments being made and a long period before they begin to gain returns, said an industry analyst.