RETAIL: McDonald’s Speeds Drive Into High-Tech Burgers

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Bottom line: McDonald’s could see a strong rebound in China over the next few years, as consumers give the chain a second look following an overhaul that includes the roll out of a high-tech burger customization program.

McDonald’s expands China high-tech burger program

Chinese consumers are welcoming a McDonald’s (NYSE: MCD) high-tech program for customized hamburgers, with word that the world’s largest burger chain will aggressively expand the concept in China this year. I have yet to visit one of the new stores in the program, but admit I’m intrigued by the concept that allows customers to personalize their burgers at computer kiosks inside stores before having them delivered to their tables.

That kind of curiosity and novelty factor could be key to jump-starting McDonald’s China business, which has stalled over the last few years as customers flock to a wide range of other alternatives more suited to local tastes. Both McDonald’s and crosstown rival KFC (NYSE: YUM), which is in the process of spinning off its China unit into a separate company, have suffered from slowdowns to their China operations in recent years for similar reasons.

Each is now taking steps to try to revive its fortunes, including efforts to make themselves more upscale by offering pricier items like fresh-ground coffee. Both are also trying to incorporate more high-tech elements into their stores to encourage a younger generation of computer-savvy consumers to return. One effort on that front saw McDonald’s pilot the burger customization program at several stores in Beijing and Shanghai during the second half of last year. (previous post)

That program has apparently done quite well, and now McDonald”s says it plans to roll out the concept to 150 of its  China stores this year. (English article) Since originally announcing the initiative last summer, McDonald’s has expanded the concept to include 11 stores in the cities of Beijing, Shanghai, Guangzhou and Shenzhen.

In addition to allowing burger customization, the service also de-emphasizes the fast-food feeling by providing table service rather than requiring customers to order and then pick up their food at traditional fast-food counters. A company official said the “Create Your Taste” program has received very positive feedback from customers, who like not only the customized burgers but also the high-tech ordering experience and table service.

Positive Results

Announcement of the aggressive expansion comes as McDonald’s and KFC are both starting to finally see some positive results from their recent revival efforts in China. McDonald’s latest financial results show that its same-store sales in China rose 4 percent in the fourth quarter, marking the second straight increase after 4 quarters of declines. Likewise, KFC has also recently returned to same-store sales growth in China after more than a year of declines.

In addition to the high-tech concept stores, McDonald’s has also been rolling out more of its higher-end McCafes in its China stores, which feature pricier coffee and desserts. It’s also aggressively expanding its franchising model in the market, in a bid to make China look more like the US where the vast majority of its stores are operated by franchisees. By comparison, both KFC and McDonald’s traditionally owned and operated most of their China stores due to concerns about quality control and lack of suitable local partners.

I’m not really a regular visitor to either McDonald’s or KFC here in China, partly due to my age but also because the stores lost their attraction for me long ago since I could buy similar or better products elsewhere in more attractive and comfortable environments.

I don’t know if I’ll go back to McDonald’s or KFC anytime soon, though have to admit that many of the steps they are taking now might convince me to take a second look. Many Chinese consumers may be similarly willing to give these 2 chains a second chance following their recent overhauls, meaning both could continue to experience a steady rebound over the next 2-3 years.

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