Fast food chain to propel digitalization for growth, eyeing 10,000 stores by 2028

McDonald's China said it is on track to open a total of 10,000 stores by 2028, propelled by deeper localization in its expansion, digitalization and supply chains, said its top executive.

On the sixth anniversary of McDonald's China's partnership with CITIC Ltd, CITIC Capital Partners and The Carlyle Group, with McDonald's maintaining 20 percent of the Chinese unit, the company has thrived with store numbers doubling, covering more lower-tier cities, offering wider digital services and creating more local delicacies to better serve Chinese consumers, McDonald's China said.

Phyllis Cheung, CEO of McDonald's China, said in an interview with China Daily that the company has more than doubled its 2,000 outlets in five years to over 5,400 restaurants currently. This year alone, the firm will open more than 900 new stores.

"The company has invented new store formats including the M2go shops, which offer contactless pickup lockers just by scanning a code. The format is designed to fit face-paced lifestyles in urban China, where more than 70 percent of our business is delivery and takeaways," Cheung said.

McDonald's China has also launched breakfast stalls in subway stations in Beijing. Drive-through restaurants — totaling more than 660 — are also a driving force for the company's expansion in China, Cheung added.

The growth in China in the first half of the year in terms of revenue is above pre-COVID levels, driven mostly by same-store growth and expansion.

"We are confident in the second half, which is relying on consumption stimulus including product innovations, competitive prices and expansion in both offline and online platforms," she said.

The limited-service restaurant chain market in China, which combines fast-food and 100 percent home delivery and takeaway outlets, has increased from 378.9 billion yuan ($52.54 billion) in 2018 to 430.6 billion yuan in 2022 and is forecast to exceed 705 billion yuan in 2027, according to a report by market research organization Euromonitor International.

McDonald's still lags behind KFC in terms of market share but has expanded its scale quickly in recent years following the partnership, according to the report.

"The key of localization for international catering or fast-food restaurants lies in a China-focused digital ecology that fits Chinese consumers' digital habits, as companies are required to constantly improve their internal operational efficiency, offering more convenience and a fluid and nimble user experience," said Jason Yu, general manager of Kantar Worldpanel China.

"So far, domestic catering players, such as Heytea, are faster and more flexible in digital innovations and customized services."

McDonald's China said that thanks to digitalization, developed and operated entirely by its China team of about 200 engineers, nine out of 10 orders are placed from digital devices — 80 percent from mobile phones and 10 percent from restaurant ordering screens. "It means that only 10 percent of our orders are placed face-to-face," said Cheung. Its mobile application, with more than 260 million registered members, is rated 4.9 out of 5 points.

In regards to the supply chain, Cheung said more than 90 percent of its food materials are now acquired and produced locally. A total of 14 logistics centers are under operation compared to only seven centers five years ago. For example, chickens are now supplied by Sunner and Tyson Foodstuffs China. Demand for cheese, which nearly doubled in the past years due to the popularity of the Angus Beef Burger, is supplied by Sanyuan Dairy in Beijing and a dairy producer in Shanghai.