McDonald’s in China
... each commanding the undivided affection and economic support of two parents and four grandparents. This has important social implications. The rise of singletons that are selfish, maladjusted, and spoiled beyond repair creates huge opportunities for companies to develop products targeting parents and kids. It is not unusual to see grandparents treating their "little emperors and empresses" to Happy Meals in McDonald's. Working-class Beijing residents save up to take their kids to McDonald's and hover over them as they munch. Parents wanted their children to "connect" with the world outside of China. The emergence of a "singleton" subculture also indicated that children have become consumers. Now children have money on their own to spend and to choose what they want. McDonald’s aim most of their promotional efforts at children who in turn put pressure on their parents to take them. 7 The Marketing Mix of McDonald’s in China McDonald's’ successful strategy all over the world is to become as much a part of local culture as possible. Around the world, McDonald's traditionally operates with local partners or local management. McDonald's purchases form local suppliers. McDonald's constructs its restaurants using local architects, contractors, labor and –where possible—local materials. McDonald's hires local personnel for all positions within the restaurants and contributes a portion of its success to communities. 11 The process of localization is a two-way avenue, involving changes in the local culture as well as modifications of the company's standard mode of operation. Products Adapt the elements of Chinese culture into the fast food line While fast food fans are embracing burgers and fries, some argues that fast food simply does not compare to the traditional Chinese culture of food that features color, fragrance, flavor and variety. McDonald's and KFC restaurants were almost empty during the traditional celebrations of Spring Festival and Mid-autumn Festival while Chinese restaurants were heaved and bustled. The only way out was to combine the two different cultures. Fast food restaurants have been learning to absorb elements of Chinese culture. By working hard at its western meals blended with Chinese flavors, consumers felt their traditions were being respected. While KFC promoted Traditional Peking Chicken Roll throughout its 1,200 outlets in China, McDonald's introduced Chinese style menu to tailor to local needs, including red bean sundaes, pies, seafood soup, and chips which are served with barbecue spices. McDonald's even promoted rice triangle wraps in some outlets in mainland and Taiwan. However, it failed to cater Taiwanese with rice items due to inconsistent with McDonald's’ Western food images and competing with street vendor. 8 Thus, it is important to understand thoroughly local consumer insight and culture while designing products that combine with local taste. McDonald's’ localization efforts make it become so prominent in a cultural zone dominated by rice, noodles, fish, and pork. With foreign brands usually costing more, Chinese consumers expect better quality and more choices. McKids enter China’s kiddy clothes and toy market MacDonald's opened its first McKids retail store in Shanghai in 2004. It appears that burger giant to be branching out of fast food, in a bid to preempt China's increasing children's consumer market as well. 12 McDonald's multi-category McKids retail line features casual contemporary apparel, footwear, toys, videos, books and other products for kids. McKids products were first sold in China and then in North America, Japan, Mexico, Australia, Korea, Taiwan. Price Price is probably the most important element of marketing mix when considering doing business in developing countries. The pricing strategy which is decided must reflect the income and buying power of local consumers. While a per-capita income in United States is 37,800 U.S. dollars, 13 a per-capita income average in China is only about 1,000 U.S. dollars. This number indicates that McDonald's has to cut prices to win customers in a country where annual disposable income is relatively lower than developed countries. Thus, the price of most combo meals is 19.50 yuan (2.4 U.S. dollars) in China, compare to around 6 U.S. dollars in United States. In addition to reducing the price of products, McDonald's also introduced a promotional campaign in an attempt to gain market share from its rivals. It offered a range of 19 popular items for less than 5 yuan (60 cents) each in 2004. The program was continued for approximately nine months and achieved its predicted goal. McDonald's is able to price its products at a low price for two reasons. McDonald's can negotiate the cost for product materials due to the size of corporation, which can lead to economic of scale. They can also be able to sustain their low prices since the cost of labor in China is much lower than in developed countries. Low-pricing strategy is particularly practical when products are in the introductory stage. Chinese people are very price sensitive, and McDonald's is still seen as an upper–class brand in China. Offering less expensive products enable companies to build higher market share in a short term. With the products are accepted and favored by consumers, prices may be increased by appropriately modifying products. Place Opening stores in major cities in China McDonald's opened its first restaurant in Shenzhen, the city on the border of Hong Kong. Two years later, it opened its largest restaurant in the world in Beijing, a 700-seat affair that became a symbol for locals, tourists and peasants coming in from the provinces. Beijing has a population of 10.3 millions, and thousands of other Chinese transmit into the city each day on business or tour. McDonald's tended to be placed in urban locations which have a high density of residents. Locating McDonald's in urban cities where mass media are more developed can help in terms of promotions. Western fast food outlets have sprung up all over Beijing in the past few years, as they have done in most other large Chinese cities. Urban middle-class and local yuppies were packed with each McDonald's. The existing of other American food chains such as Starbucks, KFC, Haagen-Dazs, and Pizza Hut also help the fast food industry to matur in China’s emerging cities. Franchise is the key approach to expand Franchising is the main way to fulfill retailers’ desire for rapid expansion. There is no exception for McDonalds'. McDonalds has more than 33,000 restaurants around the globe, 65 percent of which are operating as franchises. In the United States, 85 per cent of the stores are franchised. 14 In 2003, McDonald's granted its first franchise in northern city of Tianjin. And China's first commercial-franchise laws were adopted. 4 Franchising in China will improve McDonald's’ return on assets, and that translates into higher margins and profits. The pace to develop franchisees is slow at the beginning, and the boost to overall profit is gradual. However, it will soon become amazingly faster and may help McDonald's gain on competitors. Long term it will be positive, because expanding the size of a company facilitates McDonald's to build the strong brand. Franchising will also allow McDonald's to reach more consumers by opening more outlets, particularly in remote cities. Whereas it is essential for McDonald's to realize that China is not a single market, but many different regional markets with different dialects and subculture. Franchises will raise McDonald's’ profit considerably in China-- the world's most populous nation. By increasing more new stores and lifting sales at existing outlets, McDonald' may beat competitors to increase its market share in China. In partnership with local producers and suppliers McDonald's place strategy also includes having distribution between its suppliers and its outlets. McDonald's goes out of its way to find local suppliers whenever it enters a new market. It operates outlets with Chinese partners, including Beijing Sanyuan Foods, which is controlled by Beijing Enterprises Holdings, an investment arm of the city government, and Shanghai Hualian. 15 Another example from McDonald's China website is that the company nurtures its own network of russet-potato growers to provide french fries of the required length. 16 Chinese people emphasizes on “Guanxi”—the Chinese business practice of relying on local relationships. Incorporating with local businesses may not only help McDonald's to lower their operational cost, but also improve agricultural trades in China. Fast food companies need to look carefully at their Chinese partners. Making sure there is some way they can take their profits out of China. Promotion Global brand advertising target young people: “i’m lovin’ it” Figure 4, 5 The "I'm Lovin' it" designed for McDonald's by Chinese-led creative direction. The challenges that fat food chains’ managers face are that running great restaurants, product lines and using good advertising. Companies have to present their brand continually in a fresh perspective with excellent advertising, good facilities and great operations with people. McDonald's is currently trying to widen its global appeal and target young people. It had rolled out a localized version of its global marketing campaign in China. The regional campaign replaced pop singer in United States with a local pop star-- Wang Leehom and features a special hand signal. Wang Leehom was singing a Mandarin version of the McDonald's jingle and appeared in the advertising spots. The campaign was also running in Chinese print, interactive and ambient media and includes events such as body-painted street artists. 17 McDonald's’ young appeal is overwhelming successful. Chinese men even propose to girlfriends at McDonald's, and the restaurants are a popular location for company parties. Appealing children by “Birthday Party” and “Happy Children’s Meal” McDonald's could not have succeeded in East Asia without appealing to new generations of consumers -- children and their parents. Impressive advertising and attracting promotions have done to plead kids to march up to the counter, slap down their money in McDonald's. The fast-food industry responded to an opportunity presented by the collapse of Confucian family system in China. McDonald's opened in early 1990’ when changes in family values were matched by a continued economic growth. The startup date also coincided with a public "fever" for all things American -- sports, clothing, films, food, and so on. 11 The fast-food industry helped initiate a consumer revolution by encouraging children to choose their own food. McDonald's and other fast food chains promoted the birthday party with cake, candles, and silly hats in mainstream advertising, which aimed straightly at kids. The China and Hong Kong’s McDonald's became a convenient and popular place for family celebrations, due to most people in these cities live in tiny, overcrowded apartments. Along with the birthday party is happy children’s meal with innovative toys sold within the combos. Toys are usually blended with latest movies or local culture. For example, Snoopy promotion grabbed Hong Kong. Adults and children lined up for hours every day to collect 28 versions of small Snoopy dolls. Each dressed a different country, including China. The same mechanism was executed in the next year during Spring Festival. People were waiting to get into a McDonald's in an upscale Hong Kong mall. The hook: a chance to buy Hello Kitty, which was dressing Chinese traditional apparels. 18 Figure 6 McDonalds Hello Kitty, 1999 Figure 7 McDonalds Hello Kitty, 1999 Using a Chinese national hero Yao Ming as a celebrity Young people everywhere are always fans for sports and idols. Yao Ming, a Chinese nationwide idol who has become a sports superstar in the U.S. playing for the Houston Rockets, was selected as a celebrity of McDonald's. He appeared in two Big Mac spots running in China, Hong Kong and Taiwan. The Chinese are intensely proud of Yao due to nationalism. Yoa was named China’s number one celebrity in a survey published June, 2004 by the US-based Forbes business magazine. 19 Yao Ming's iconic status, genuine, hard working and passionate personality make him the perfect candidate to interpret the attitude of the Big Mac. Advertising titled a Chinese proverb `Big Taste of The Big Mac'' to link Yao Ming with the Big Mac in his homeland. It appealed for lead a healthy lifestyle featured popular Chinese spokesperson. Chinese diving Olympian Guo was also enlisted alongside Yao Ming as the Chinese presenters by McDonald’s in 2005. 20 Customers in developing countries like China will have favorable attitudes toward a global brand while the celebrity in advertising shares the same race with them. They feel companies respect their culture and are willing to spend money on that brand. It is vital for McDonald’s to involve with local customers in 86 percent world. Global brands like McDonald’s, need to learn how audiences will interpret and respond to advertising in different countries. Celebrating Chinese festivals by promotion and Chinese traditional design Culture plays a crucial role in the restaurant field. Fast food restaurants need to make their corporate culture to be understood or accepted in different countries. Another example of Western McDonald's to blend with Oriental culture is to celebrate Chinese traditional festivals. McDonald's has a team in China that is self-sufficient and local. They know what the Chinese customer loves. They develop the Chinese fast-food concept. During the 2004 Spring Festival, McDonald's on Beijing's Wangfujing Street attracted many people with a traditional Chinese look, decorating their interiors with paper-cuts of the Chinese character Fu (福Happiness), magpies and twin fishes, all auspicious symbols. McDonald's also designed a special promotion to celebrate holidays with Chinese customers during Spring Festival. Sponsoring China’s sports events In addition to global brand advertising, McDonald's was also about to involve sports events to target young people. It will sponsor the 2006 winter games in Turin, Italy; the 2010 winter Games in Vancouver, Canada; and the 2012 summer games, as well as the Olympics in Beijing. 3 In a developing market like China, McDonald's places greater emphasis on raising its brand image and local relevance. While mainstream media may not reach most of Chinese customers due to lack of well-developed infrastructure, sponsoring events may be a cost-effective approach to build positive brand images. Despite some poorest people in China still can not afford McDonald's’ pricy meals, they will become wealthy and eat at McDonald' as their income growing predictably. Thus, building friendly brand image and strong brand loyalty is a key task at present stage. McDonald's’ needs to find every opportunity to connect with consumers, either by advertising or event marketing. The ultimate goal is to make the brand part of the fabric of urban China. Potential Issues in the Future Issue 1: Obesity issue to be argued While some argued that fast food promotes obesity and disease in developed countries, fast food eaters are booming in developing countries. McDonalds is at least somewhat responsible for Americans’ obesity epidemic as well as accelerating rates of other chronic diseases. The products sold by McDonalds are high in calories and high in refined sugars. These food characteristics are undoubtedly harming consumers’ health. While McDonalds is not forcing anyone to eat their foods, they are in fact heavily advertising these foods without labeling of nutrition information to warn consumers of possible health threats. McDonald's wants to expand in China—the biggest market in the world. While fast food diet continues to invade Chinese culture, China will face the same influential diseases now seen epidemic in Western countries. Every country or region experiences potential disease as it starts consuming fast food. The ubiquity of fast food restaurants and their calorie dense offering are a significant contributor to the obesity crisis. The documentary film—“Super Size Me” is an authentic reflection of fast food culture. Health issues are still unresolved on the fast food industry. McDonald's needs to develop a solution for such a disputable obesity issue. Particularly it enters developing world where medical resources are limited. Issue 2: Seniors and retirees occupy McDonald’s Family revolution, this one caused by the graying of the population. In 1998, 10 percent of China's people were over 60; by 2020, the figure is expected to rise to approximately 16 percent. In 2025, there will be 274 million people over 60 in China. 11 The locus of consumer power will soon shift generations as the parents of today's little emperors retire. They cannot expect their children to support them. The Confucian norms that guided earlier generations are away from China’s new generations. Future seniors and retirees in China are likely to be a vociferous, aggressive lot who will demand more public resources. In Asia’s populous cities like Hong Kong and Beijing, it is not unusual to see seniors and after-school students turning fast food restaurants into leisure centers. During the midmorning hours, the restaurants are packed with white-haired retirees who stay even longer, drinking refilled cups of tea or coffee and reading newspapers. Most of them sit alone, eating their breakfast slowly. Both retirees and students are attracted by the spacious tables, clean environment, and air-conditioning which is contrasting to their crowded homes. In Beijing, or Shanghai, local residents have converted private property into public space like McDonald's. Here, fast food is not for express purpose, but for leisure instead. In the near future, McDonald's’ will earn fewer profits while the number of customers decrease due to seats were occupied by seniors and retirees who have little consumption. China is a society that respects elders and seniors, which is greater significance when serving more than 50 year-old customers. How McDonald' make up their lost profits caused by graying population is still an open question. Suggestion Suggestion 1: Promoting a balanced and active life style McDonald's had unveiled an aggressively positive global marketing campaign in March, 2005 to promote eating right and staying active. Its health-related advertisements incorporate and expand on McDonald's global tagline, "I'm lovin' it," to "It's wha...