Mc Donald’s Corporation in Emerging Markets

Mc Donald’s Mc Donald’s Corporation in Corporation in

Emerging MarketsEmerging MarketsAslı İzgiAslı İzgi

Cenker Kavaklı Cenker Kavaklı Esra TatlıEsra TatlıEmre ErEmre Er

STRATEGY IN 1990sSTRATEGY IN 1990s Political EnvironmentPolitical Environment

In 1990 USSR collapsed.In 1990 USSR collapsed. Two polar international system Two polar international system

switched to one.switched to one. US firms could have the chance to enter US firms could have the chance to enter

the ex soviet countries.the ex soviet countries.

STRATEGY IN 1990sSTRATEGY IN 1990s Economic EnvironmentEconomic Environment

The World in 1990s grew at a higher The World in 1990s grew at a higher rate.rate.

New emerging economies could have New emerging economies could have the funds to grow.the funds to grow.

STRATEGY IN 1990sSTRATEGY IN 1990s Growth StrategyGrowth Strategy

Mc Donalds determined an aggressive Mc Donalds determined an aggressive growth objective in 1990s.growth objective in 1990s.

As a result new stores are opened in As a result new stores are opened in risky emerging countries.risky emerging countries.

SYSYEM CHANGE SYSYEM CHANGE IN RUSSIAIN RUSSIA In 1987 ,Russia embarked on the path of ambitious economic In 1987 ,Russia embarked on the path of ambitious economic

reform under the USSR governmentreform under the USSR government.. Economic reform in foreign commerce, business permitted to Economic reform in foreign commerce, business permitted to

trade directly, ending the state's historic monopoly.trade directly, ending the state's historic monopoly. Prices were freed and sustainable attempts were made to Prices were freed and sustainable attempts were made to

reduce government spending, restrain growth in the money reduce government spending, restrain growth in the money supply, and stabilize the ruble.supply, and stabilize the ruble.

Political resistance in the parliament and conflict over Political resistance in the parliament and conflict over spending of the Central Bank undermined the effectiveness of spending of the Central Bank undermined the effectiveness of these measures, and the lack of clear direction on the these measures, and the lack of clear direction on the government's part continues to hamper reform. government's part continues to hamper reform.

SYSTEM CHANGE IN RUSSIASYSTEM CHANGE IN RUSSIA By early 1994, over 20 percent of all workers and 40 percent By early 1994, over 20 percent of all workers and 40 percent

of workers in manufacturing were employed in privatized of workers in manufacturing were employed in privatized companies.companies.

By June 30, 1994, 70 percent of all industrial enterprises in By June 30, 1994, 70 percent of all industrial enterprises in Russia were privatizedRussia were privatized..

TThe private and cooperative sector's share of employment is he private and cooperative sector's share of employment is rising.rising.

WWhen prices were freed in 1992, the concentration of hen prices were freed in 1992, the concentration of production in the hands of monopoly producers produced production in the hands of monopoly producers produced major price surges.major price surges.

FOOD SERVICE IN RUSSIAFOOD SERVICE IN RUSSIA The Russian restaurant market consists of several The Russian restaurant market consists of several

target markets, each of which is different in terms of target markets, each of which is different in terms of total food sales and the number of “players”:total food sales and the number of “players”: Fast food, which is divided into two separate segments: Fast food, which is divided into two separate segments:

street/mobile fastfood. (kiosks, stalls, carts, etc.) and walk-street/mobile fastfood. (kiosks, stalls, carts, etc.) and walk-in/sit-down fast-food outletsin/sit-down fast-food outlets

““Democratic” restaurants – moderately priced outletsDemocratic” restaurants – moderately priced outlets ““Boutique” restaurants – higher priced/exclusive outletsBoutique” restaurants – higher priced/exclusive outlets Coffee shopsCoffee shops

FOOD SERVICE IN RUSSIAFOOD SERVICE IN RUSSIA (cont.) (cont.)

Only McDonald’s, Rostik’s, Kroshka-Kartoshka, Only McDonald’s, Rostik’s, Kroshka-Kartoshka, KFC and Stardogs fitKFC and Stardogs fit the definition of QSR and serve the definition of QSR and serve potatoes in their restaurants.potatoes in their restaurants.

The Russian fast food sector developed very rapidly The Russian fast food sector developed very rapidly since thesince the financial crisis of 1998.financial crisis of 1998.

McDonald’s and Rostik’s are the most important McDonald’s and Rostik’s are the most important chains in Moscowchains in Moscow and other large cities.and other large cities.

McDonald’s in RussiaMcDonald’s in Russia

FFRANCHISINGRANCHISING All the restaurants in Russia are owned by All the restaurants in Russia are owned by

McDonald’s. At thisMcDonald’s. At this moment there are no franchise moment there are no franchise restaurantsrestaurants

Due to restrictions on capital transfer McDonald’s Due to restrictions on capital transfer McDonald’s RussiaRussia invested all its profits in the property in Russia invested all its profits in the property in Russia and establishedand established all the restaurants itselfall the restaurants itself

McDonald’s is planning to sell some of the McDonald’s is planning to sell some of the restaurants in therestaurants in the future and start franchising its future and start franchising its restaurantsrestaurants

SECTOR IN RUSSIASECTOR IN RUSSIA(SUPPLIERS)(SUPPLIERS)

Supply of materials has been a Supply of materials has been a problem for Mc Donalds in Russia problem for Mc Donalds in Russia because:because: There was lack of materials in the There was lack of materials in the

economy.economy. Some materials even did not exist in Some materials even did not exist in

Russia.Russia. Regulations prevented Mc Donald’s to Regulations prevented Mc Donald’s to

buy materials from the market freely.buy materials from the market freely.

SECTOR IN RUSSIASECTOR IN RUSSIA(SUPPLIERS)(SUPPLIERS)

Mc ComplexMc Complex is the food processing and distribution is the food processing and distribution

center of Mc Donalds in Russia. center of Mc Donalds in Russia. employs more than 500 people to employs more than 500 people to

supply local foods to the McDonalds in supply local foods to the McDonalds in Russian restaurants and 21 other Russian restaurants and 21 other countries including Belarus.countries including Belarus.

SECTOR IN RUSSIASECTOR IN RUSSIA(SUPPLIERS)(SUPPLIERS)

Potato suppliersPotato suppliers Over xxx% of raw ingredients needed for McDonald's RussianOver xxx% of raw ingredients needed for McDonald's Russian restaurants are restaurants are

purchased from more than 100 independent Russianpurchased from more than 100 independent Russian and C.I.S suppliers who and C.I.S suppliers who follow McDonald's strictly controlled qualityfollow McDonald's strictly controlled quality standards in their food processing standards in their food processing operations.operations.

The company informed us that their current supplier of all potatoThe company informed us that their current supplier of all potato products is products is McCain and that potatoes are coming from HollandMcCain and that potatoes are coming from Holland

Other product suppliers are:Other product suppliers are: "Pensensky Myasopticekombinat” "Pensensky Myasopticekombinat” is a supplier of high quality beefis a supplier of high quality beef

for McDonald’s in Russia.for McDonald’s in Russia. ““Moscowsky Kombinat ChleboproduktovMoscowsky Kombinat Chleboproduktov” is a supplier of flour for” is a supplier of flour for

McDonald’s.McDonald’s. Agricultural firm Agricultural firm “Belaya Dacha”“Belaya Dacha”

• • is a supplier of high quality vegetables for McDonald's in Russia. Theis a supplier of high quality vegetables for McDonald's in Russia. The cooperation between McDonald’s and “Belaya Dacha” began in 1990.cooperation between McDonald’s and “Belaya Dacha” began in 1990.

SECTOR IN RUSSIASECTOR IN RUSSIA(SUPPLIERS)(SUPPLIERS)

Decision making unitDecision making unit Mr. Pavel Karataev Mr. Pavel Karataev is responsible for buying potatoes.is responsible for buying potatoes.

Tel: (7-095) 755-6600Tel: (7-095) 755-6600 They use a central buying policy.They use a central buying policy. At the beginning of this year the head of McDonald’s in At the beginning of this year the head of McDonald’s in

RussiaRussia announced that at that moment the company was inannounced that at that moment the company was in negotiations with leading world producers of potatoes to negotiations with leading world producers of potatoes to startstart their own production in Russia.their own production in Russia.

A couple of week later McCain announced that they are A couple of week later McCain announced that they are planningplanning to open a potato processing plant in Nizhniy to open a potato processing plant in Nizhniy Novgorod.Novgorod.

McCain has also plans to open a plant in Tyumen RegionMcCain has also plans to open a plant in Tyumen Region

SECTOR IN RUSSIASECTOR IN RUSSIA(TRADE)(TRADE)

Finnished food producers’ trade with Russia has went Finnished food producers’ trade with Russia has went through profound changes since the collapse of the through profound changes since the collapse of the Soviet Union.Soviet Union.

Food trade in Russia after the collapse of the Soviet Food trade in Russia after the collapse of the Soviet Union – as well as many other things – can be Union – as well as many other things – can be divided into two parts separated by the financial crisis divided into two parts separated by the financial crisis of 1998.of 1998.

SECTOR IN RUSSIASECTOR IN RUSSIA (TRADE)(TRADE)

Before the 1998 financial crisis, level of imports of Before the 1998 financial crisis, level of imports of foreign foodstuffs was high in Russia due to strong foreign foodstuffs was high in Russia due to strong rouble and lack of local products of good quality.rouble and lack of local products of good quality.

The exports of Finnished foodstuffs to Russia have The exports of Finnished foodstuffs to Russia have been recovering in recent years, but no product been recovering in recent years, but no product category has reached its pre-crisis export level.category has reached its pre-crisis export level.

In some product categories (e.g. margarines and other In some product categories (e.g. margarines and other edible fats and meat products) the growth has been edible fats and meat products) the growth has been only marginal.only marginal.

SECTOR IN RUSSIASECTOR IN RUSSIA((RETAILINGRETAILING))

The majority of foodstuff retail is still The majority of foodstuff retail is still conducted via unorganised forms of conducted via unorganised forms of tradetrade..

The retail chains are trying to shorten The retail chains are trying to shorten the distribution chain, similarly to the distribution chain, similarly to what has been seen in the Western what has been seen in the Western countriescountries..

SECTOR IN RUSSIASECTOR IN RUSSIA((COMPETITORSCOMPETITORS))

In the food production sector the In the food production sector the competition is fierce, as large Russian competition is fierce, as large Russian and foreign producers want to ensure and foreign producers want to ensure their piece of the huge market.their piece of the huge market.

The largest international producers The largest international producers (e.g. Mars) are utilizing their size(e.g. Mars) are utilizing their size..

PERFORMANCE IN RUSSIAPERFORMANCE IN RUSSIA The position of the 3 international and 2 largest local The position of the 3 international and 2 largest local

QSR organisations in Russia are presented in the QSR organisations in Russia are presented in the table below:table below:

PERFORMANCE IN RUSSIAPERFORMANCE IN RUSSIA Financial performanceFinancial performance

Russia is now one of McDonald's fastest-growing markets, alongRussia is now one of McDonald's fastest-growing markets, along with with Western Europe and China.Western Europe and China.

Real estate analysts and industry experts conservatively value.Real estate analysts and industry experts conservatively value.

McDonald's 103 Russian restaurants, plus its land, McDonald's 103 Russian restaurants, plus its land, storagestorage warehouses and distribution centres at $xxx warehouses and distribution centres at $xxx million.million. Revenue in Russia in 2005 totalled $310 million.Revenue in Russia in 2005 totalled $310 million. McDonald's Corp sales rose 18 percent in Russia in 2004 but areMcDonald's Corp sales rose 18 percent in Russia in 2004 but are seen seen

slowing in 2005, the company's president for Europe, Russslowing in 2005, the company's president for Europe, Russ Smyth, Smyth, said.said.

PERFORMANCEPERFORMANCE IN RUSSIA IN RUSSIA McDonald’s was fifth most profitable market in McDonald’s was fifth most profitable market in

Europe afterEurope after Britain, France, Germany and Spain.Britain, France, Germany and Spain.

According to Michael Roberts, president and senior According to Michael Roberts, president and senior director ofdirector of McDonald's corporation, financial McDonald's corporation, financial indicators in Russia and otherindicators in Russia and other regions are not given to regions are not given to the public, since number of openedthe public, since number of opened restaurants in the restaurants in the country is comparatively small. But hecountry is comparatively small. But he noticed that noticed that according to some recent data, restaurants ofaccording to some recent data, restaurants of McDonald's in Russia are the one of the most McDonald's in Russia are the one of the most successful in thesuccessful in the world.world.

PERFORMANCEPERFORMANCE IN RUSSIA IN RUSSIA Today Mc Donalds has:Today Mc Donalds has:

17,000 employees17,000 employees 127 restaurants in 37 Russian cities127 restaurants in 37 Russian cities 500,000 customers daily500,000 customers daily more than $310 million annual sales. more than $310 million annual sales. 83% of Russian fast food market83% of Russian fast food market

PERFORMANCEPERFORMANCE IN RUSSIA IN RUSSIA Mc Donalds plans to open; Mc Donalds plans to open;

25 restaurants in 200525 restaurants in 2005 35 restaurants in 200635 restaurants in 2006 45 restaurants in 200745 restaurants in 2007

CHINACHINA In 1990 Mc Donalds entered to the In 1990 Mc Donalds entered to the

Chinese Market.Chinese Market. SectorSector

Catering industry grew 20% in 1990s in ChinaCatering industry grew 20% in 1990s in China Economic EnvironmentEconomic Environment

Despite the Asian financial crisis in 1997, Despite the Asian financial crisis in 1997, Chinese economy continued to grow.Chinese economy continued to grow.

Political EnvironmentPolitical Environment Chinese government considered the catering Chinese government considered the catering

industry as a new economic growth sector.industry as a new economic growth sector.

CHINACHINA Growth StrategyGrowth Strategy

In the first six months of 2001, 96 In the first six months of 2001, 96 restaurants are opened.restaurants are opened.

Between 2003 and 2013, 100 Between 2003 and 2013, 100 restaurants are opened each year in restaurants are opened each year in China.China.

STRATEGY CHANGE IN STRATEGY CHANGE IN 20012001

Economic Environment by 2001Economic Environment by 2001 Strong DollarStrong Dollar Developing countries in Asia and Latin Developing countries in Asia and Latin

America are in crisis.America are in crisis. New StrategyNew Strategy

Mc Donalds forced to close down 163 Mc Donalds forced to close down 163 unproductive stores.unproductive stores.

Stable economies are preferred for new Stable economies are preferred for new investments. 60% of new investments investments. 60% of new investments are made in USA, Canada and Europe.are made in USA, Canada and Europe.

EVALUATIONEVALUATION Political and economical factors affect Political and economical factors affect

the performance and strategies of a the performance and strategies of a multinational directly.multinational directly.

Mc Donald’s used the good conditions of Mc Donald’s used the good conditions of 1990s in order to grow at a higher rate.1990s in order to grow at a higher rate.

Mc Donald’s learned that investments on Mc Donald’s learned that investments on the risky economies should be avoided as the risky economies should be avoided as long as these ecomies proove long as these ecomies proove themselves.themselves.