McDonalds in Chinese Market - Case Study Example

Research: McDonalds in China Market This research looks at one of the American fast food restaurants; McDonalds. This paper looks at the status of this American fast food giant in the Chinese market. The research will involve use of secondary data to fulfill the objectives of the research. It will involve identification of secondary sources such as journals and publications to help analyze how McDonalds is fairing in China. This research intends to look at the McDonalds status in the Chinese market since its entry into this market in terms of competition, mode of operation, marketing strategies and cultural adaptation. This will be done from study of existing literature concerning McDonalds and its Chinese market and outlets. Aim The aim of the research is to study McDonalds in the Chinese market Objectives To analyze how the McDonalds food restaurant entered the Chinese market To determine the competition that McDonalds experience in the Chinese market To determine the modes of operations used by McDonalds in its Chinese market To determine the cultural adaptations that McDonalds has done in the Chinese market To determine the marketing and advertising strategies that has been used by McDonalds in its Chinese market To predict the future of McDonalds with respect to the Chinese market Introduction McDonalds is one of the biggest fast food restaurants in the world. The fats food stores giant has been operating in several countries worldwide and in most cases it has outsmarted its competitors to remain the number one fast food shop worldwide. The fast food giant entered the Chinese market in the 1990 and has been operational since then. There has therefore been the need to study and analyze its operation in China market in order to predict the future of the restaurant in China. Articles and journals have been selected for use in this research to help achieve the objectives of the study. Literature Review McDonalds Corporation is an American world’s largest fast food chain that specializes in serving of hamburger in over a hundred countries globally. The fast food giant has its head quarters in Illinois in the United States of America. The fast food giant was founded by businessman Ray Kroc. McDonalds has three modes of operations in its various countries of operations. The McDonalds restaurants are either operated by the corporation itself, as an affiliate or as a franchise. McDonald’s main products include hamburger, French fries, breakfast items, chicken burger, milkshakes and soft drinks. The fast food restaurant has heavily standardized its menus in its various outlets worldwide .In some scenarios however, the fast food giant has altered its menu or expanded it in order to meet the needs of the local clients especially in the Middle East. McDonalds made an entry into the china market in the year 1990.The fast food group of restaurants had an increasing and promising growth rate in its fast three years of operation. However, in the subsequent years the growth rate of the fast food restaurants was lower compared to the growth rate between the year 1990 and 1993.This was due to a number of factors such as competition, cultural differences and market characteristics of the Chinese market. However the fast food giant still has a huge client base and has had an increase in number of stores in the last two years in the Chinese market. Methodology This research is purely based on secondary sources of data. It involved identification of relevant literature that can be used to get sufficient information to facilitate achieving the objectives of the study. Journals, reviews and the McDonalds website were used as the sources of data or information to be used in the research. After the study and review of the selected sources of data, the information was thoroughly analyzed with the aims and objectives of the research in mind. Discussing the found data and making recommendation was done at the final stage of the research. The employment of secondary research methodology in this task was because secondary research has several advantages. Secondary research is cost effective compared to primary research. Secondary research also facilitates quick access to data and allows finding of information that had already been collected thus saving time and cost. The disadvantage of this methodology that was used in this research is that it did not allow for collection of first hand data and the discussion, analysis and conclusion made was purely based on data that was found from the selected resource materials that included journals and websites. Findings, Analysis and Discussion From the study and review of the resource materials available, it was clear that the understanding of the state of McDonalds in the Chinese market can be depicted and analyzed in terms of competition, mode of operation, marketing strategies and cultural adaptation. Entry into the Chinese market and Modes of operation McDonalds entered the Chinese market in the year 1990.When it entered the market, there was already another American fast food seller, Kentucky Fried Chicken(KFC) already operating in the market.KFC had entered the Chinese market in 1987 (Yagalla, 2013).During the entry period ,McDonalds shops were all run by the McDonalds Cooperation. The corporation operated its own restaurants. This was because it believed that the high operating costs in the Chinese market would give the franchises much of a profit margin. Furthermore, this was because China had very few regulations about franchising. The fast food giant found KFC already established in the market and they had to play second to it. In 2010, McDonalds changed its modes of operation and started recruiting more franchises. This was done in order to get more market share in China and to expand to other areas in China. McDonalds served a standardized menu during its initial years of operation in the China market. It was purely beef products that were common in all the other McDonalds shops in the world. Currently, McDonalds has not only recruited more franchise partners but also opened the McDrive shops that are popular in other regions in the world. The McDrive allow the clients to access McDonalds’ services from their cars without having to get out of the car. The customers order for what he or she wants though a microphone and picks it from the next window. These kinds of shops are popular in gas stations. McDonalds has partnered with gas stations such as Petro China and this has led to the opening of McDrives in various Petro China Filling and service stations. Competition When McDonalds entered the China market in 1990, another American fast food giant was already operating in China. Kentucky Fried Chicken popularly known as KFC had already penetrated the Chinese fast food market (Yagalla, 2013). During its initial three year in the market, McDonalds was growing and expanding at a rate higher than that of KFC. However, a year later, KFC was able to regain its position in the Chinese market .Currently McDonalds still receives major competition from the KFC. Even the two fast food giants originally had two different turfs outside China; the dynamics of the Chinese market forced the two to face each other head on. McDonalds is known for beef products while KFC is known for chicken products. However, because beef is not popular among the Chinese who prefer eating chicken, McDonalds had to venture partly into the chicken products. This has resulted into stiff competition between KFC and McDonalds with KFC having a competitive edge over McDonalds (Mellor, 2011). McDonalds’ Marketing and Advertisement Due to the stiff competition that McDonalds is experiencing in China especially from its main rival KFC, the fast food giant has employed great marketing tactics and advertising skills in order to keep up with KFC in the fast food market. McDonalds advertising has shown rebirth of the shop as it tires to expand its market share. McDonalds has used advertisements that show more sensory appearance and this has enabled them have a comprehensive marketing advantage. McDonalds have relied on customer research and feed back in order to help them come with strategic marketing tactics. An example is the beef experience advertisement that was done by the shop in 2013.The marketing tool and channels that have been used by McDonalds have also been designed to keep up with the lifestyle changes of the Chinese consumer. As a marketing tool, the McDonalds restaurants have changed their traditional menu that was mainly consisting of beef to contain products that are popular with the Chinese consumer such as Asian flavored chicken. They have filled chicken products in their menu in order to promote their services and to increase their Chinese market share. McDonalds have also redesigned their restaurants in order to promote their services. There has been setting up of stores strategically across China, establishment of McDrives and provision of customer benefit services such as free Wi-Fi in its shops. These have enabled the American food giant gain momentum in the Chinese market as it tries to catch up with KFC (Yagalla, 2013). Cultural Adaptation Patterns American culture is very much different from the Chinese culture. This has greatly influenced the operations of McDonalds in China. Culture can be defined as what a given society thinks, have or does in their everyday life. The culture of any given market is very influential in the operations of a business in that particular market. China has not been an exceptional case. The Chinese culture has made McDonalds rethink and redesign their operations and products in order to fit in the Chinese market. McDonalds is known to favour standardization rather than adaption. However, in the Chinese market, the culture of the Chinese people has made the fasts food giant to use adaptation in order to fully meet the need o ff the customers and to cut a niche for themselves in the Chinese market. Although McDonalds claimed that it will not alter its menu when it entered the china market in 1990, circumstances have forced them to introduce the Chinese food though they are only offered at specified times. Hamburger however, has remained the core and the most important McDonalds product even in the China market (Xinhua, 2013). Product Innovation McDonalds is well known for its beef products and its standardized menu throughout the world. Standardization is a principle in which a company uses same products in all its branches in various markets globally. McDonalds has used this in its menu that has been made up of beef products. In the initial stages of its operation in the Chinese market, this worked but due to the stiff competition from its rival fast food outlet KFC, McDonalds found the going tough in the China market. Therefore, they decided to alter their otherwise known to be fixed menu to include products that are popular in China. McDonalds has introduced more chicken products in its menu (Mellor, 2011). This is because chicken is more popular among the Chinese unlike the American market which prefer beef instead of chicken. McDonalds has introduced products such as hot drinks and honey ginger in its menu. All these changes in the menu have been done in order to adapt to the culture of the china market. Targeting Chinese values Chinese market is known to be heavily influenced by the values of the society at large. When McDonalds entered the Chinese market, it targeted all the market segments. However with time, the realized that this had been the same target of KFC which had entered the Chinese market in 1987.Mcdonalds therefore rethought its target market and targeted the family with children. This again changed when in 2003 McDonalds shifted their market target to the people from the age of 4 to 30 years. This was the reason for coming up with the slogan “young, fashionable and lively”. This is a statement that the Chinese youth can easily relate with. With the change of focus to the age bracket of 4-30 years, McDonalds has had to redesign its stores to attract the young people by means of psychological concepts such as sports and romance. In addition, this fast food giant has used celebrities that the young people can easily associate with to promote its product. An example is the appointment of NBA superstar Yao Ming to be the McDonalds ambassador in China (Pham, 2012). Chinese Eating Habits The eating habit of the Chinese people has also been a factor that has influenced the adaptation of McDonalds to suit the China market. Among the Chinese people, going to a restaurant is more than just having a dinner. The Chinese people go to restaurants to communicate with colleagues and to meet with friends. Therefore McDonalds has redesigned their shops and products in order to create an environment that allows the Chinese people come to the restaurants not only to eat but also to have meetings, catch up with friends and have a nice time with relatives (Kequiang, 2013). Car culture is also something that is fast being experienced in China. Cars have become part and parcel of the Chinese people and it is used for virtually everything. Due to this car culture, McDonalds has opened up more drive through shops that are popularly known as the McDrives. These kinds of shops allow the customers to access McDonalds’ services from the comfort of their cars. McDonalds has built most of its drive through shops in the rural areas. This has been done strategically to allow for expansion to these areas (Mellor, 2011). Chinese Customs McDonalds over the years has come to learn about the customs of the Chinese people. The Chinese people follow their customs to the later. McDonalds has taken this as an adaptation point. During spring festivals for example, the McDonalds shops are usually decorated using Chinese colours. Spring festival is the first day of Chinese New Year. McDonalds uses Chinese elements such as the china red and the corresponding animal sign of the year to decorate their restaurants. This helps in making the customers identify with the McDonalds shops. Translations and Language Difference McDonalds is an American brand and therefore language difference has impacted on its operation in the Chinese market. There has been the need to be careful with the translations that are done in order to make them easy to remember. McDonalds realized the nature of Chinese people and had this in mind when translating the names of their products and their menu. Chinese people prefer names that are propitious in nature or those that have funny pronunciations. McDonalds therefore has resorted to the use of less appealing but easy to understand menus. Some of the common easy translations that have been used by McDonalds in the Chinese market to promote its services are “hamburger containing eggs (猪肉蛋堡)” and “fried chicken pie (麦辣鸡腿堡)” (Mellor, 2011). Conclusion The purpose of this research was to look at McDonalds in the China market. After analysis of chosen resource materials ,it can be concluded that McDonalds has not had an easy time in the Chinese market and that it has not been able o dominate the fast food industry in China the way it has done in other countries. Lately however, McDonalds has kept up with the market and reinvented itself in order to cut its niche in the China market. McDonalds, though traditionally known to prefer standardization, has struck the right balance between standardization and adaptation. This has helped the fast food outlet to remain competitive and to attract more Chinese clients. Recommendations The main factor from the study that has made McDonalds play second fiddle to KFC in the China market is because of the Chinese culture. It is therefore recommended that McDonalds should adapt their menus and products to conform to the Chinese eating habits, customs and preference. With this, McDonalds will be able to gain extra mileage in the China market. References Kequiang, L, 2013, Chinese fast food firms are challenging McDonalds, KFC. [Online] (30/10/2013) Available at: http://www.china.org.cn/business/2013- 10/30/content_30444066.htm Accessed on 19/5/2014 Mellor, W, 2011, McDonald’s No Match for KFC in China as Colonel Rules Fast Food [Online] (updated 4 Feb. 2011) Available at: http://www.bloomberg.com/news/2011-01- 26/mcdonald-s-no-match-for-kfc-in-china-where-colonel-sanders-rules-fast-food.html [Accessed 19 May. 2014]. Pham, P, 2012, Mcdonalds’ aggressive plans for China. [Online](30/5/2012) Available at: Accessed on 19/5/2014 Xinhua, X, 2013, Mcdonalds stuck in development bottleneck in China. [Online](13/8/2013) Availableat: Accessed on 19/5/2014 Yagalla, M, 2013, Mcdonalds and KFC are going head to head [Online] (19/11/2013) Available at: Accessed on 19/5/2014 Read More