CITIC Capital seeks to increase McDonald's China stake

The position has been listed for sale on the China Beijing Equity Exchange – a government-controlled trading platform used for equity transfers involving state-owned enterprises (SOEs) – with a reserve price of RMB2.17 billion ($314 million). This implies an equity valuation for the entire business of approximately $1.4 billion. CITIC Group will retain a 10% stake.

In 2017, an entity established by CITIC Group, CITIC Capital and The Carlyle Group paid $2.08 billion, including equity and debt, for the master franchise rights to McDonald’s in mainland China and Hong Kong for a term of 20 years. CITIC Group took 32%, CITIC Capital 20% and Carlyle 28%, with McDonald's receiving 20%. CITIC Group was responsible for up to $665.6 million of the $2.08 billion total.

McDonald’s was keen to franchise out most of its restaurants in mainland China, of which 65% were directly owned at the time of sale. The company had previously struggled with franchising in China. In 2012, it introduced a system comprising small-scale franchises for existing stores at local level and provincial level development agreements with minimum store opening requirements. By 2017, about 600-700 of its 2,500 stores were franchised out and the provincial businesses were underperforming.

D.J. Luo, a managing director at CITIC Capital, told AVCJ last year that the franchisees struggled because they were not sufficiently financially committed, young and inexperienced, or unwilling to devote the time required to make it work. The new owners agreed to open more directly owned stores and pursue aggressive expansion. A target was set of 2,200 new store openings by 2022.

They also engaged in lengthy discussions with McDonald’s about menu localization – congee is now a breakfast staple alongside the fast food chain’s globally ubiquitous muffins – and changed the strategy for online delivery. McDonald’s had already started working with delivery platforms Meituan-Dianping and Ele.me. CITIC Capital encouraged the company to collaborate with Tencent Holdings as well, which led to the launch of a WeChat mini-app within three months.

The delivery share of overall orders has risen from sub-10% to over 20%, the mini-app has more than 100 million users, and McDonald’s has nearly 100 million members in its loyalty program.

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• Topics
• Greater China
• Consumer
• Expansion
• China
• CITIC Capital