Abstract

The case is about the tryst of US-based fast food retailers with the world’s second largest economy – China. McDonald’s entered China in 1990 with its first restaurant in Shenzhen. In China, McDonald’s became a symbol of the modern lifestyle. Though it remained largely American in terms of menu, services, and management, the company brought in variations in its products and ingredients to suit the Chinese palate and culture. Chinese consumers considered dining at McDonald’s to be a classy and upmarket affair. For McDonald’s, other than its home market, the US, China was the largest growth market. After two decades, the story was different. Customers who were initially attracted to McDonald’s owing to its American menu and clean ambience, did not find it novel any more and they started demanding healthy food. Their restaurant preferences also changed and well-to-do consumers started to move to gourmet upmarket restaurants. At around the same time, McDonald’s faced problems in several other markets, with sales in the US and several global markets witnessing a decline. Steve Easterbrook, who became the CEO in early 2015, announced a turnaround plan. As a part of the turnaround plan, the company wanted to franchise all the 2200 restaurants in China. Citic Group and Carlyle acquired the franchise. Analysts said McDonald’s decision to exit one of the world’s largest fast food markets was a sign that the dominance of Western companies in the Chinese market was coming to an end.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Evaluate the importance of the Chinese market to multinational retailers and the key challenges faced by MNCs in such a key growth market
• Outline the growth of retailing in China, especially fast food retailing
• Recognize the challenges faced by international food retailers in China
• Understand why international retailers that witnessed huge success in other countries failed to crack the Chinese market even after several decades
• Derive some management lessons for managers of international players operating in China or planning to enter China

Keywords

McDonald’s, China, Franchise, Exit, Growth Markets, Exit Strategy, MNC Retailers in China, Growth Drivers, Porter’s Five Forces, Competition