McDonald’s repackages itself and branches out in China to lure Chinese young middle-class

January 16, 2011Jing GaoOne Comment, , , , , , , , , , ,

Yang Yang walked slowly down an aisle about six meters long. The wall on the side is embossed with several ice cream cones with doodles of English words on the wooden “cones.”  Rows of stylish armchairs and leather ice cream chairs sit at the end of the aisle. Cozy yellow light is shed onto the wall with grain and texture. She quietly stood beside two young people and patiently recommended coffee and cakes that are new on the menu.

A month ago, Yang Yang doffed her pink short-sleeved shirt and the skirt and donned an black apron and uniform with a silver tag that has her English name on it. She is not an employee at a newly-opened coffee shop, but a waitress at a McDonald’s restaurant in Guangzhou who’s been recently transferred from the meal counter service to the new-added McCafé section.

The store she works at changed to a new look in 2010. Nowadays, McDonald’s can’t wait to push forward its facelift project to the entire China. On December 15, 2010, the restaurant giant announced in Beijing that it is introducing LIM, the new European style in design. Up to the end of 2010, the number of McDonald’s restaurants in China that adopt LIM style reached 100. In 2013, 80% of stores will have a makeover.

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Servers brew coffee at a McCafe in Guangzhou, Guangdong

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LIM interior design at a restaurant in Beijing.

LIM, or Less Is More, is a trend in design that comes from Europe. It’s very different from traditional McDonald’s restaurants that stress fast-paced life, and has been adopted by over 800 restaurants in Europe and the United States.

“We wish to attract young people to stop, come in and in the end become loyal supporters for such a simple and happy lifestyle,” said Zeng Qishan, CEO of McDonald’s China. It seems the clown Uncle McDonald (Chinese way of addressing Ronald McDonald from a child’s perspective) who brings happiness to children all year round is now bidding farewell.

Repackaging

Since McDonald’s entry into Chinese market in 1990, they have been using the classic red and yellow in their advertising campaigns, which appeals to most kids and their parents.

Unlike in the United States where McDonald’s are often sued for marketing their junk food towards children and being the culprit for childhood obesity, in China, McDonald’s have been fixating on children from the very beginning, as American chips and burgers did not agree with Chinese adults, who were too conditioned for traditional Chinese diet and grudging paying for a fancy meal (McDonald’s used to be a luxury for the average Chinese until late 1990s.), but were willing nevertheless to indulge their only children with a taste of “American food” once in a while. Of course, today, product prices at McDonald’s are very accessible to Chinese city dwellers.

McDonald’s TV commercial in 1997

McDonald’s TV commercial in 2009
Caption:

Father: Tiantian, if you get a red floret for your English class, daddy will buy you a learning laptop.
Son(Tiantian): (silence)
Father: If you perform well in tomorrow’s music exam, daddy will buy you a violin.
Son: (Running)
Father: Ah, (I’m talking about) violin! Violin!
Father: Tiantian: If you make progress in your drawing class, daddy will give you …
Waitress: Happy weekend! This is for you. (Handing a kiddie cone to Tiantian.)
(Voice-over): Bring kids to McDonald’s at weekends, and they can enjoy free kiddie cones. Make some room for happiness.

20 years have passed. Generations of the “little customers” that McDonald’s has painstakingly catered to have grown up. McDonald’s now wants to deal with businessmen. Its main target demographic is the group aged 18 to 28.

“They may no longer like drinking soda, and would want coffee,” said Zhang Jiayin, Chief Markeing Office at McDonald’s China.

Thus, Coffee has the potential to be a breakthrough. Four months after Zeng Qishan became the CEO of McDonald’s China in February 2009, he introduced McCafé, which has become very mature in overseas markets, into China. In addition to the facelift plan, McDonald’s has staked out special coffee sections in its existing restaurants and pushed ahead with new refreshments to go with coffee.

In order to lead customers who have afternoon tea at Starbucks into their restaurants, 90 percent of McDonald’s outlets in Beijing, Shanghai, Guangzhou and Shenzhen also offer free 30-minute wifi connections beginning in April, 2010.

Its new slogan better bespeaks its ultimate goal. In China, on top of “I’m lovin’ it” is another Chinese phrase: “Make some room for happiness.” Less catchy as it is, it gives a more leisurely feel. “I’m lovin’ it” represents McDonald’s nature “snappiness”, but coffee needs one to savor it slowly.

The Chinese reads: MAKE SOME ROOM FOR HAPPINESS

Branching out

In the U.S., McDonald’s usually owns the property of a franchise and also acts as the landlord. It rents the property to the franchisee who would run the restaurant. As long as the restaurant stays in business, it can at least reap 40% of the restaurant profit from the realty.

But this business model does not work in China, as the country’s real estate prices are constantly on the rise. It obviously doesn’t make sense to sign a long-term lease with a franchisee in which the price is fixed.

Therefore, McDonald’s has given up on its franchise model. So far, only six McDonald’s restaurants are franchised. The overwhelming majority are directly owned by the company.

Another inconvenient truth the company is faced with is, despite its No.1 position as a fast food chain in most parts of the world, in China, it is eclipsed by KFC in popularity. Until June 2010, KFC has over 3,000 outlets in China, whereas McDonald’s operates 1,100, or only one third as many.

The secret of KFC’s success is that it brings Chinese touches to its menu. Yum Brand, KFC’s parent company, even has research and development center in China. After KFC began to serve fried dough and preserved egg porridge that are typical food for Chinese breakfast, last year, they rolled out “Mapo Chicken Rice” and “Bacon Mushroon Chicken Rice.”

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KFC's Mapo Chicken Rice (left) and Bacon Mushroom Chicken Rice

By contrast, McDonald’s stubbornly adheres to its global standards. But it doesn’t admit its defeat. Since 2008, it has pumping capital aggressively into China. In 2010 alone, McDonald’s opened 165 restaurants in China, a record number in its history.

McDonald’s in 2007 partnered up with Sinopec, the second largest oil company in the People’s Republic of China, as it begins to take advantage of the country’s growing use of personal vehicles by opening numerous drive-thru restaurants at Sinopec’s gas stations along Chinese highways, almost all of which are toll roads. According to its plan, by 2013, the number of its outlets in China will have increased by 1,000, half of which are drive-thru.

It is also banking on China’s e-Commerce boom. An online McDonald’s store opened on February 11, 2010 on Taobao.com, China’s biggest online trading platform which edged Ebay out of the country. Coupons are available for downloads, and more important, according to Taobao Field Guide, the main event the online store features is a reverse auction prize promotion, where they offer expensive and trendy products such as digital cameras, laptops, iPods, Blackberries, Cosmetics and Swiss Army knives, and let people bid them down towards 16.5 yuan (US$2.5), the price of a Happy Meal. One can click once every five minutes in hopes of being the lucky one who hits the magic number.

“We don’t do it for profit. Rather, we want to spread the notion of extra value meals to more young Internet users,” said Zhang Jiayin.

However, can McDonald’s become a cultural icon of coolness in Chinese young hearts as Starbucks does? For Chinese petty bourgeois who dote on the quiet environment of Starbucks, noises made by teenagers who love Bic Mac will be a huge hurdle for the giant to overcome.

Source: South Metropolis Weekly Taobao Field Guide Youtube

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