McDonald's franchises in China may need up to five years before they break even, according to the Shanghai-based First Financial Daily.
Chinese investors interested in taking up a new McDonald's franchise must pay an initial fee of 2 million yuan (US$320,000) and must also pay for the building itself, equipment and other additional costs, including monthly franchising operations and advertising fees. An outlet may need to operate for five years before it starts to see a profit, based on the current sales of a typical McDonald's restaurant and the increasing cost of running a business in the country, analysts say.
The US fast food giant is continuing to expand its China network, with new franchises licensed in Hunan province last September, and the Jiangsu Rongjin Group obtaining franchise rights last October. McDonald's has also opened more outlets in Fujian and Sichuan provinces, according to sources familiar with the business.
McDonald's is one of the world's highest-grossing fast food chains and derives its profits from other channels in addition to its burgers, selling franchising and property as well as renting out its outlets. The company reported operating revenue of US$9.9 billion in 2011. Total business from its restaurants, franchising fees and rents accounted for 32%, 23% and 45% of operating revenue, respectively.
However, the company has failed to successfully apply its standard business model in China. Rival KFC beat McDonald's into China and has held the lead in terms of revenue and expanding its franchises over the past 20 years.
McDonald's hopes to expand its network in mainland China from 1,500 to 2,000 restaurants by the end of 2013 and 20%-30% of its restaurants will be franchise outlets by 2015. According to analysts, McDonald's should work more closely with agents within China to better understand the local market.
Source: http://www.chinabevnews.com/2013/03/mcdonalds-franchises-in-china-need-5.html
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