McDonald’s selling China and Hong Kong stake for US$2.1 Billion

When organisations become extremely huge, they sometimes start losing out to smaller and faster competitors. It’s the same even if it’s the world’s most famous fast food restaurant, McDonald’s. These days, it is no longer just facing competition from fellow fast food restaurants but also increasingly local food which is also growing extremely fast. I can safely say that given a choice, I would choose a Japanese restaurant over McDonald’s. For many Malaysians, a nasi lemak with chicken rendang would beat a burger on most days. What about you?
Perhaps two major reasons why it continues to do well is also because it is a toy seller too, plus the fact that kids somehow likes the M sign. I still remember the Snoopy craze in Malaysia when I was much younger. In ebay Australia today, (refer to image) the bid for a full set of 16 Snoopy figurines starts from AUD50. (RM164). At its home in the U.S, McDonald’s faces slowing sales. It is said to be facing lots of competition which are moving faster than it. This meant that it has to consolidate itself and come back stronger. One way it is doing this is to sell its businesses to new shareholders which will help it expand faster. In China and Hong Kong, it is selling a controlling stake of 80 percent to Chinese state-backed conglomerate Citic Ltd., Citic Capital Holdings and U.S. private-equity firm Carlyle Group LP. The new investors would be looking to open up to 1,500 new restaurants within the next five years in smaller Chinese cities. Full article in Bloomberg here.  
I learnt two things from this McDonald’s deal. Competition is always present, even for seemingly strong businesses. Just look at the property market today. Are there fewer developers even during the current market slowdown? Actually, there are more new developers. I think this is good for property buyers. Second thing I learnt is this, when it’s a good business with good potential, there would be buyers for it. This is no different from buying a good property. Even during a slowdown, a great property at a great location with a good price would be snapped up fast. I remember my conversation withy ex CFO a year ago. He said, if the landed homes in Desa Parkcity falls by 10 percent, he would buy another unit immediately. Sorry, there’s the third thing too. McDonald’s would still be around for a very long time yet. Time for Prosperity Burger tomorrow. Cheers.
written on 11 Jan 2017
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