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MCDONALD’S TO BOOST ASIA SPENDING, ‘CAPITALIZING’ ON RECESSION

Posted by Gilmour Poincaree on November 19, 2008

Last Updated: November 18, 2008 19:49 EST

by Bernard Lo and Frank Longid

Nov. 19 (Bloomberg) – McDonald’s Corp., the world’s largest restaurant company, will increase Raul Vasquez/Bloomberg Newsinvestment in Asia next year to boost customer numbers as the recession forces people to cut living expenses.

“People are trading down and we’re capitalizing on that,” Tim Fenton, McDonald’s president for Asia, the Middle East and Africa, said yesterday in a Bloomberg TV interview in Hong Kong. The company’s quick-service restaurants are staying open longer as people take shorter breaks, “trying to squeeze more hours into their days,” he added.

McDonald’s aims to grab market share as the world slips into recession by maintaining store openings at more than one per day in the region next year, said Fenton, a 35-year veteran at the Oak Brook, Illinois-based company. Slowing growth has led China to pump 4 trillion yuan ($586 billion) into its economy while South Korea pledged to spend an extra 14 trillion won ($9.7 billion) next year to prevent its first recession in a decade.

“It will serve McDonald’s well to take advantage of the weaker market,” said Janna Sampson, co-chief investment officer at Oakbrook Investments LLC. Increasing market share during a slowdown benefits “companies that have the cash flow to do that, and McDonald’s is one of those with extremely strong cash flow,” she said in a phone interview today.

Lisle, Illinois-based Oakbrook manages $1.2 billion including 317,200 McDonald’s shares, Sampson said.

China Focus

McDonald’s, rival Yum! Brands Inc. and other foreign consumer companies such as PepsiCo Inc., Best Buy Co. and Wal- Mart Stores Inc. are focusing on emerging markets such as China, which saw retail sales rise 22 percent in October, close to the fastest pace in nine years.

Fenton plans to increase spending on new stores and refurbishments in Asia, the Middle East and Africa by at least 20 percent to $360 million. That compares with last year’s capital- expenditure growth of 7 percent.

The company plans 475 store openings in the region this year and “about the same number” in 2009, or 40-45 percent of the worldwide total, Fenton said in a separate interview. McDonald’s earned 18 percent of third-quarter sales in Asia, the Middle East and Africa, compared with 43 percent in Europe and 33 percent in the U.S.

Same-store sales in China, where McDonald’s opened its 1,000th branch Nov. 14, grew about 10 percent in the first 10 months, compared with 10.2 percent for all of last year, Fenton said. Sales including new stores are growing 20 percent in China.

Global sales at restaurants open at least 13 months climbed 8.2 percent, paced by Europe’s gain of 9.8 percent compared with a year earlier. U.S. same-store sales increased 5.3 percent.

About 175 of next year’s new restaurants will be in China, where the company trails Yum! Brands in number of outlets. Yum, the owner of the Pizza Hut, Taco Bell and KFC chains, has more than 2,800 restaurants in China and plans to have 3,000 by the end of the year.

McDonald’s has about 32,000 restaurants globally, Fenton said. Yum has 35,000 outlets worldwide.

To contact the reporter on this story: Frank Longid in Hong Kong

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘BLOOMBERG’

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