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Business Times - 17 Aug 2009

McDonald's beating expansion path even in downturn

It will open new outlets in Asia in sync with growth of respective markets


MCDONALD'S golden arches still shine with the recession resilience that most fast-food businesses have as a buffer against downturns. But, Tim Fenton, managing director of McDonald's Asia/Pacific, Middle East and Africa division, says that the burger giant will not be content to merely stay its ground, but is seeking greater growth.

'We'll be moving aggressively in China,' he said. McDonald's will open 150 to 200 restaurant there this year, and just as many in each following year for the foreseeable future, the Hong Kong-based Mr Fenton told BT in a recent interview.

In other APMEA countries too, new outlets will be opened, 'in sync with the growth of the market in each location'.

Mr Fenton thinks that there is much latent potential to tap, and grow demand for burger and fries in the APMEA region. Expenditure in the informal eating-out category is about US$440 billion a year in Europe, US$450 billion a year in US, but US$740 billion a year for APMEA, he said.

'This is also the fastest-growing dollar out there, particularly due to the emerging economies like China and India,' said Mr Fenton. Informal dining spend is growing at close to 10 per cent in APMEA, compared to 3 per cent in the US and one per cent in Europe, he said.

But within Asia, not to speak of APMEA, markets and consumers do differ greatly, he said. For example, Hong Kong and Singapore, alike in many ways, have rather different profiles in McDonald's books. 'Our penetration rate in Hong Kong is the highest worldwide,' Mr Fenton said. Some 95 per cent of people there eat at McDonald's once a month, compared with 45 per cent in the US, and around 40 per cent here in Singapore.

The business model that McDonald's operates in each market thus also evolves with changing circumstances, he said.

Singapore's McDonald's began as a joint venture, but has since been bought back by the parent company and is now wholly owned. In the Middle East, outlets are run under developmental licences, while franchises remain the backbone of the McDonald's system, making up 70 per cent of its restaurants worldwide.

From Cape Town to Sydney, Dubai to Shanghai however, even while menus are tailored to local tastes, there remains a core offer of value which McDonald's sticks to which has helped to ensure growth in a recession, Mr Fenton said.

'Recession or not, people have still got to eat, and we offer affordable, great- tasting food. Of course, we'd prefer to be doing business in a more robust economy, anyone would. But we've still done well, all things considered.'

In its latest sales report, McDonald's said that same- store sales in the APMEA region rose 2.1 per cent in July, and 4.5 per cent for the first seven months of this year, compared to 2008.

'One challenge for us, is to have people development always stay ahead of restaurant development,' Mr Fenton said.

He thinks McDonald's strength lies in its ability to attract, develop and retain talent. In fact, Mr Fenton had been in Singapore for McDonald's first APMEA Women Leaders' Network conference, one of its employee training and development efforts.

'What's unique about McDonald's, is that you can take a 16-year-old kid and have them start out in a restaurant as a waiter and some years down the line have that same person being interviewed by a reporter, as head of the APMEA division,' said Mr Fenton, recounting his own story.

About 60 per cent of the company's senior management worldwide started their McDonald's career in a restaurant outlet, he said. About 40 per cent of owner operators and licensees started out as cooks in the kitchens.

'We've got restaurants that are incubators of talent, and it's a business that is infectious. My story's not unique. McDonald's is a business that you love, there's no just liking it.'