(Picture source: Panoramic Vision)
Economic Observer reporter Chen Yifan Beijing Wangfujing Street - the intersection of the century-old commercial pedestrian street, the McDonald's store opened in 1992, was once the largest single McDonald's store on the earth . In 2019, it is still an eye-catching landmark on this street, but "Ronald McDonald" is no longer so conspicuous.
Compared with 30 years ago, there were curious people lining up from the long counter to the door, waiting for a taste. Now when we push open the door of this restaurant, the dining area is still full of people, but the huge coffee counter and can be passed through The machine for scanning QR codes to pay for self-ordering occupies the main part of the first floor. The color of its decoration has also changed from the previous red to "Sunshine Yellow" (SunshineYellow). "McDonald's" has always been regarded as a representative label of American popular culture. In China, it is becoming a more localized " golden arches ".
launched a full range of "gold" and "gold" flavored Spring Festival limited menus in January 2019, and invited Rocket Girl 101 Yang Chaoyue and Deyun Club young cross-talk actor Zhang Yunlei to star in the commercial. With multiple marketing activities with the theme of "Golden Arches", McDonald's transformation into Golden Arches is further accelerating.
CITIC Group , a state-owned enterprise founded in the early days of China's reform and opening up, successfully obtained the operating rights of this American catering brand in mainland China and Hong Kong in 2017. The new company established through strategic cooperation between CITIC, Carlyle, and McDonald's will become the main franchisee of McDonald's in mainland China and Hong Kong, and will rename the Chinese company. For a time, McDonald's China changed its name to "Golden Arches", sparking public opinion.
If we count from the signing of the contract in January 2017, this transaction has been more than two years. Although this period of time is not long enough, it is enough for us to evaluate the early gains of this transaction: how a group with a major financial position trying to expand the proportion of profits in the consumer field realizes its strategic intentions; a state-owned company whose main business is in competitive fields How do holding companies compete? Whether the change in the nature of mixed-owned companies from wholly foreign-owned to state-owned will cause changes in the operations of the company.
At present, McDonald's China's "current operating conditions are still good," Li Weihua said that their power transfer, cultural integration, and cooperation between McDonald's Global, McDonald's China and franchisees "are still good," "at least for now. See that’s it”. Li Weihua is the director of the Franchise Research Center of China University of Political Science and Law and the earliest proposer of the concept of "franchising" in China.
Shareholders ensure that the company can do the right things, and management ensures that the company does the right things. This is a summary of the cooperation between CITIC and McDonald's. The board of directors makes market-oriented decisions and then fully delegates authority to the management for day-to-day operations.
"The biggest difference in strategic outlook is that it is now oriented by opportunities and market potential, rather than by how much profit there is." When McDonald's China CEO Zhang Jiayin told the Economic Observer about this acquisition and McDonald's "golden This is the summary of the transformation of "Arch".
Behind this acquisition, a trend is quietly happening in China's business world.
Behind the need for local help for foreign investment is the major change in the Chinese market. Major growth opportunities have begun to sink in third-tier and fourth-tier cities and below, and the consumer market has become more and more complex.
First- and second-tier cities are the main consumers, while lower-tier cities are catching up in consumption growth. Based on this, McDonald's China, which has opened a new era of localization, also announced that it will accelerate the pace of layout in third- and fourth-tier cities.
In February 2019, following the acquisition of McDonald's China, CITIC completed another acquisition of a foreign company - CITIC Capital announced that CITIC Capital Asia Food Holdings Co., Ltd., wholly owned by its investment fund, had completed the acquisition from Ajinomoto Co., Ltd. Taota brand’s global business. “With China’s development today, many foreign-funded enterprises need further development in their business in China and require external help.Zhang Yichen, chairman and CEO of CITIC Capital and chairman of the new McDonald's China, told the Economic Observer reporter that McDonald's is not withdrawing as a multinational company, but hopes to find a long-term partner to help them develop their business better in China. "
Chang Zhenming's decision
At the end of March 2016, McDonald's publicly announced that it would introduce strategic investors to the markets in mainland China, Hong Kong, and South Korea. This is the real beginning of this strategic cooperation for localization transformation.
This is also one of the major events that happened to CITIC in 2016. Looking back at CITIC Group’s annual report for the first half of 2016, the financial sector still contributed the majority of its revenue. Back in 2016, when he learned that McDonald's China was looking for a long-term strategic partner for franchises in China, Zhang Yichen went to report to CITIC Group and told Chang Zhenming about it.
At that time, Chang Zhenming believed that first of all, from an investment perspective, this was a good thing for CITIC. After that, he asked Zhang Yichen a question, "How much do you estimate it will cost?" Zhang Yichen said, "The preliminary estimate is about 2 billion U.S. dollars." "What is the global market value of McDonald's?" Chang Zhenming asked. "100 billion US dollars." Zhang Yichen said. "China only accounts for 2%-3% of the world's total, which is too low. It is worth investing in! OK, you go and talk." Chang Zhenming said.
As a result, CITIC officially started the process of acquiring McDonald's China.
After CITIC initiated the acquisition of McDonald's China, it was discovered that Capital Agriculture Group, a subsidiary of CITIC Agricultural Fund, had a stake in the acquisition.
Shounong was McDonald's China's partner in Beijing and Guangdong at that time. Therefore, CITIC communicated with Shounong. Since they were both the same company, CITIC had already invested in Shounong. The two parties reached a consensus that CITIC would acquire McDonald's China. The timing of the
transaction shows how quickly consensus can be reached. Half a year later, the contract was signed on January 9, 2017, and the delivery was officially completed on July 31, 2017. Before the closing, CITIC participated in some McDonald's briefing sessions to help gain an in-depth understanding of McDonald's business conditions.
In 1979, China International Trust and Investment Corporation was founded by former national leader Rong Yiren. It was the predecessor of CITIC Group. In 2002, it carried out institutional reforms and changed its name to China CITIC Group Corporation.
CITIC is an extremely unique platform. The business is also quite special. Many state-owned enterprises are located in monopoly fields, but CITIC competes in market-oriented fields.
In 2014, CITIC Group injected most of its assets into CITIC Pacific and achieved listing.
After the listing of CITIC Limited, the group's strategic orientation has undergone significant changes. One change is that after the group went public, CITIC sought a more balanced development strategy between industry and finance. In recent years, non-financial business profits have increased significantly.
In terms of the new economy, the consumer sector is an important concern.
CITIC is no stranger to consumers. Banks in the financial industry, securities outlets, and CITIC bookstores, etc., are all channels for extensive contact with consumers.
For CITIC, which is seeking consumer business, McDonald's appears at the right time.
Investing in the franchise model is a safer investment method with more chances of success. McDonald's, in particular, has built a highly successful franchise model and established a strong brand in the minds of consumers.
CITIC's agricultural sector, which is focused on development, will also create synergies; its strength in retail banking; and partnerships with real estate and Internet companies, McDonald's is the starting point that can integrate these channels and capabilities. "As an investment in the consumer field, McDonald's is strategically the right choice. McDonald's is definitely one of the most influential brands in the consumer field." Zhang Yichen said, "Many branches within CITIC Group have cooperation with McDonald's. Both parties The synergy effect is very strong, and the synergy department of the group We also often contact McDonald's. For example, one of the main sources of customers for CITIC's Youxiang+ is also its cooperation with McDonald's.
Zhang Jiayin participated in the entire transaction process. "This is a natural process and there is no controversy."
McDonald's has stipulated five conditions for the bidding of Chinese franchisees: the first is financial strength; the second is resources that can complement McDonald's advantages, such as real estate resources, supply chain resources and government resources; the third is Compliance and honest management, as well as the same values; the fourth is to delve deeply into China's corporate history and culture, which means that this Chinese partner is not just an investor; the fifth is government relations and the understanding of China's policies understand.
Under such standards, the McDonald's team and Morgan Stanley began to screen companies that bid and submitted plans. After rounds of convergence and discussion, CITIC stood out from the many bidding companies.
Just as McDonald's hopes in the five major standards for franchisees, CITIC Group is an enterprise rooted in China.
CITIC is China's largest comprehensive enterprise group with a diversified business portfolio. This diversified development has given CITIC a unique competitive advantage in terms of scale, business network, financial strength and international influence, especially in retail banking business. Strengths in the field and partnerships with real estate and Internet companies will bring very valuable professional experience to the operation.
But that doesn't mean there aren't disagreements. Similar topics have to be brought to the table.
In terms of horizontal competition, what should we do with businesses that conflict with McDonald's? For example, CITIC Bookstore and Coffee; are CITIC or CITIC Capital allowed to invest in other chain companies; are CITIC or CITIC Capital allowed to operate catering companies? In the
supply chain, is it possible for CITIC's agricultural sector to become a supplier? How to reach agreement on
strategic planning? "CITIC Capital itself is a diversified mixed-ownership enterprise. CITIC adopts market-oriented management of McDonald's, and the company is mainly managed by the board of directors. The shareholder structure of the new company is also an international shareholder structure." Zhang Yichen said.
Zhang Jiayin said that McDonald's China and McDonald's Global have not issued regulations on this transaction that "McDonald's China shall not be listed in the future", but she also said that McDonald's currently has no plans to list its Chinese part.
In addition to its strong strength, an important advantage of CITIC as a comprehensive enterprise is that it has accumulated rich cross-border business data over the years, including various related information on customers, industries and economic trends. This series of characteristics also made this acquisition natural and logical.
CITIC Limited, CITIC Capital and Carlyle Group issued an announcement on January 9, 2017, announcing the acquisition of McDonald’s China. The acquisition was completed on July 31, 2017. CITIC Group became McDonald's largest franchise company outside the United States, operating and managing approximately 2,500 McDonald's restaurants in mainland China and approximately 240 McDonald's restaurants in Hong Kong.
CITIC Limited, CITIC Capital, Carlyle Group and McDonald's hold 52%, 28% and 20% of the shares respectively. The target group has obtained the franchise rights of McDonald's in mainland China and Hong Kong for a period of 20 years. After the acquisition is completed, the target company's board of directors will be composed of representatives from CITIC, CITIC Capital, Carlyle and McDonald's. McDonald's existing management team will remain unchanged.
Another related party in this transaction is the Carlyle Group, a company founded in 1987 in Washington, DC..
Yang Xiangdong is the managing director of Carlyle Group and chairman of the Asia Pacific region. Yang Xiangdong will serve as vice chairman of the board of directors of the new McDonald's China.
Objectively, having the opportunity to establish a long-term cooperative relationship with a local partner that has a special status, strength and influence in China will be of huge benefit to Carlyle Investments in realizing its strategy in China. In a press release after the transaction was successful, Yang Xiangdong said that Carlyle and CITIC have a rich and good history of cooperation and experience.
This material stated that for Carlyle, this investment gives it the opportunity to cooperate with a globally renowned brand that has a huge market share and growth potential in China. Carlyle has extensive investment and operating experience in the global consumer and retail sectors and has the ability to drive further growth of the new company's business.
"English and email"
For the original McDonald's China team, including Zhang Jiayin, the addition of CITIC with a state-owned background did not bring them any disharmony in corporate culture. "There have been no major adjustments to our original management team. There are no so-called red-headed documents as everyone imagines. We also use English and email every day, and communication is very smooth." Zhang Jiayin said. In her opinion, this may be directly related to the fact that CITIC has been rooted in Hong Kong for a long time and the company's scale has become international. "The most important factor in this investment is the recognition of cultural concepts." Zhang Yichen said, "Such a big change in equity has occurred, but the management has been very stable so far, which is rare."
CITIC has designed a two-tier decision-making mechanism , major issues, such as changes in equity, investment or restructuring of major capital projects, require CITIC Group’s participation and approval. In terms of operations, including operational strategies, compensation systems, etc., are determined at the board of directors level. The board of directors mainly focuses on market-oriented decision-making; the company's daily operations are fully authorized to the management. "CITIC Capital itself is a diversified mixed-ownership enterprise. CITIC adopts market-oriented management of McDonald's, and the company must be managed by the board of directors. The shareholder structure of the new company is also an international shareholder structure." Zhang Yichen said, As for the party's centralized leadership, it is reflected in gathering party members. There will be some party organizations in specific stores. "We hold board meetings regularly. Because McDonald's is a very mature company, sales data will be updated every day. There will also be regular monthly reports summarizing the company's operations for the month." Zhang Yichen said, "This communication can be done at any time, such as sending a WeChat , make a phone call. This is no different from other companies of CITIC Capital Management. Daily things are managed by the management. We will not interfere too much in daily work, and I will not sit at McDonald's to work. "So far. So far, the decision-making system has been working very smoothly." Zhang Jiayin said. Management makes sure the company does things right, and shareholders make sure the company does the right things. This is a summary of how CITIC and McDonald’s work together.
On the other hand, thanks to the addition of CITIC as a new partner, McDonald's Global has relatively delegated power to McDonald's China operations, reducing communication costs. CITIC has also used its own resource network to provide many conveniences for the development of McDonald's China.
"For example, last year we planned to launch the Porridge King series. They (McDonald's Global) trusted CITIC and felt that since the Chinese want to try it, let's do it." Zhang Jiayin smiled when talking about McDonald's previous localization attempts. Since the launch of the Porridge King upgrade, McDonald's has included Western-style breakfast and Chinese-style breakfast, and has also launched a series of popular products such as the Star Chef series of high-end burgers. These products have incorporated localized practices. Zhang Jiayin said, "In the past, they may have been more conservative. , believes that every product should be close to the Western style, from appearance to taste, it will tend to be American-style, but now the appearance is foreign-style, and the taste itself is more authentic. "
These localized innovative practices have also reduced communication costs, and there is no need to spend too much time and effort explaining to McDonald's global why they are doing these things." Previously, McDonald's China's decisions First, you need to make a PPT, and then you need to exchange emails and constantly revise it, but now the decision-making is very fast,” Zhang Jiayin said.
Today’s McDonald’s China holds a board of directors meeting every three months. In addition to regular content, the management will also share the current market situation and economic trends with shareholders, “For example, what has happened in the Chinese consumer market recently and what are the strategic priorities. , where is the progress, etc., all through transparent and efficient communication methods," Zhang Jiayin said.
"Chemical reaction"
speed is the keyword of McDonald's today. In the past, McDonald's China opened more than 200 restaurants every year, which may have reached its limit. After CITIC joined, "Our goal in 2019 is to open about 450 stores, which is faster than the original plan." Zhang Yichen said. The second change in
is innovation.McDonald's China can be more bold in making innovations that cater to the local market. Zhang Jiayin, who has been working at McDonald's China for 19 years, can personally experience the changes in China's consumer market. These changes have given rise to digitalization, mobile payment, takeout, etc., which are important for McDonald's China. McDonald's is also a new species globally.
for example digitize. "Although digitalization seems to be similar to everyone in the market field, it is difficult to achieve at McDonald's around the world." Zhang Jiayin said.
It is not an easy task to uniformly replace digital equipment in thousands of restaurants across the country. This means a large-scale adjustment of the company and the store: the restaurant must be redesigned and the counter must be changed; this physical change also means that McDonald's employees must re-familiarize themselves with all these adjustments. From ordering, distribution, to store inventory management, this has put forward new demands for the integration of McDonald's China's information system, financial system and supply chain system.
The benefits of digitalization are also obvious. McDonald's provides digital services through self-service ordering, online payment, etc., and its takeout business has grown rapidly. At the same time, the efficiency of understanding consumers through data insights has also been greatly improved. "Our number of members now exceeds 70 million. It is not easy to reach such a scale in a very short period of time; as well as the proportion of our entire food delivery service, etc., these were relatively conservative in the past." Zhang Jiayin said. "The joining of CITIC is a shareholder empowerment for McDonald's." Zhang Jiayin told the Economic Observer.
McDonald's China is not looking for a catering partner, but a strategic partner who can complement each other's strengths and empower McDonald's China.
This method of empowering large shareholders coincides with the theory of Zhu Hengyuan, a professor at the School of Economics and Management of Tsinghua University. The position of the equity market is more important. “After selecting a specific shareholder, the resources attached to it are locked, and the attached resources allow it to We will further lock in our competitive advantages in the product market and even push forward faster,” he once told the Economic Observer. Soon after
CITIC joined, it promoted cooperation between McDonald's China and some real estate companies, such as Sunac , Evergrande, and Country Garden .
On August 14, 2017, McDonald's China and Evergrande Real Estate concluded a long-term strategic cooperation agreement to jointly accelerate the national business layout of both parties. According to the agreement, Evergrande will give priority to McDonald's sites across the country, and McDonald's will also leverage its brand effect to strengthen the commercial supporting facilities for Evergrande's real estate projects. Chang Zhenming, chairman of CITIC Co., Ltd., said publicly: "This strategic cooperation between McDonald's China and Evergrande Real Estate will promote the rapid layout of McDonald's restaurants in the north and south of the country and accelerate its entry into third- and fourth-tier cities. McDonald's huge consumer group will also provide Evergrande’s commercial facilities and development projects bring more customer flow and attraction.”
On January 19, 2018, McDonald’s China and Sunac signed a long-term strategic cooperation agreement. McDonald's and Sunac have comprehensively cooperated in the latter's eight major regions across the country in complexes, community commerce, office buildings, cultural tourism and other sectors. Sunac will provide priority site selection rights for McDonald's restaurants in its nationwide community and cultural tourism projects.
Take Country Garden as an example. In the year when CITIC acquired McDonald’s China, Country Garden released its 2017 financial report, which showed that 58% of its sales came from third- and fourth-tier cities. This is also in line with McDonald’s China’s strategy of developing into third- and fourth-tier cities. direction.
focuses on the strategic direction of developing into third- and fourth-tier cities, which also drives swings in the supply chain.
In August 2018, as McDonald’s “Queen Logistics Supplier”, HAVI America and SF Holding jointly established the new HAVI. According to an internal letter from Haluk Ilk Demirci, President of Xavi Logistics in June of that year: "We still hope to continue to promote business growth. This requires us to find different operating methods and expand to more regions in China faster." On January 30, 2019, in McDonald's 201 During the fourth quarter and annual performance earnings investor meeting, McDonald's global CEO Steve Easterbrook said, "We will continue to learn from China, the most developed delivery market, to help us deploy development New delivery markets, especially those related to restaurant operations."
" At present, after CITIC acquired McDonald's China, McDonald's China's current operating conditions are good, indicating that the power transfer and cultural integration between them are smooth; McDonald's Global, McDonald's China and franchisees cooperate well. The transformation of McDonald's China team is very successful, at least so far. "Li Weihua said.
In the 2015 financial report, McDonald's global franchise restaurant revenue accounted for approximately one-third of total revenue; in 2018, of McDonald's more than 37,000 restaurants worldwide, franchise restaurants accounted for more than 90%.
Now, McDonald's China is running under the "Vision 2022" plan.
McDonald's China. It is proposed that starting from 2018, the average annual sales growth rate in the next five years will be maintained at double digits. It is expected that by the end of 2022, the number of McDonald's restaurants in mainland China will increase from 2,500 to 4,500, and the speed of opening new restaurants will increase from 2017. It will gradually increase from about 250 stores per year to about 500 stores per year in 2022. “The overall development in China is still accelerating. Last year, we opened 423 stores, setting a record high in store openings. " Zhang Yichen said.
The new McDonald's has also made adjustments in the restaurant layout and image. It has weakened the image of Ronald McDonald and focused on the brand's iconic sunshine yellow element. Take McDonald's Beijing Wangfujing Restaurant as an example. This is McDonald's Beijing's third restaurant. One restaurant, one of McDonald's largest in China at the time, has been quietly withdrawn The original red and yellow main color decoration layout was replaced by a modern and simple design based on sunshine yellow.
"We have discussed this adjustment with McDonald's globally for a long time. Ronald McDonald has been the image representative for more than 60 years, and it is very important for the long-term development of the brand." Say, we value the McDonald's brand more than just a character. "Zhang Jiayin told the Economic Observer that as for what to do after the 20-year franchise period, Zhang Jiayin said, "We haven't experienced 20 years yet, but although McDonald's franchise is promised to be 20 years, what I hope in my heart is for a lifetime. This is also the beauty of franchising.
Commenting on this acquisition, Xu Baoli said that central enterprises and local state-owned enterprises not only develop domestically through acquisitions, but now they have also gone global, especially focusing on acquisitions of target companies in developed countries to make up for shortcomings in corporate development. . Expanding oneself through acquisitions and mergers is a new stage in the development of a country’s economy and enterprises, and it is also a manifestation of its strength reaching a certain level. “Compared with the previous infrastructure construction, in the future, Chinese enterprises will use acquisitions and mergers to develop themselves. . "Xu Baoli said, Xu Baoli is a researcher at the Research Center of the State-owned Assets Supervision and Administration Commission.
"In fact, the most successful factor in this investment is the recognition of cultural concepts. "Evaluating this acquisition, Zhang Yichen said, "To be honest, for a large multinational company with such a strong own culture, in a market as large as China, there are not many partners that can really find matching partners and bring real resources. In addition, corporate management has high requirements for internationalization and marketization of partners in management. "
He recalled that in October last year, McDonald's global CEO Steve Easterbrook came to China. He accompanied Steve to visit some restaurants in China. Steve told him privately that he did not expect that the entire transition would It will be so smooth. “The cultural fit between the two parties is very high, which is a rare thing. "
(This article includes the case library of the Economic Observer's Management and Innovation Case Research Institute, and is abridged; for the full text, please see the "Bottom-upDesigner Official Account")
