McDonald's, which will grant four franchisee licenses in China this year, said it does not expect to issue more such permits in the world's fastest-growing major economy "in the near future."
"We're taking it very, very slowly," the company's vice president for China, Gary Rosen said. "The franchise business requires a lot of effort and right now, we have other priorities in China." The company will open at least 100 new stores in the country annually and half of them will be wholly owned drive-through outlets, he said.
The world's largest restaurant chain will transfer store operations this year to four Chinese women who have been trained over the past 18 months, Rosen said. Of 879 McDonald's restaurants in China only one is franchised, while rival Yum! Brands has more than 1,700 KFC restaurants in the country, with about 37 franchised.
Elsewhere, McDonald's is transferring store operations to franchisees at a faster pace, under pressure from an activist investor, Bill Ackman, to increase the chain's share price. The Oak Brook, Illinois, chain plans to reduce the percentage of restaurants it owns, the company's chief executive officer, Jim Skinner said in November.
"McDonald's is very cautious about franchising in China as it wants to ensure its brand quality," said Chen Lei, a Shanghai-based analyst at BOCI Research. "Though the franchise model enables chain stores to expand quickly and less costly, it's a challenge to management control."
No other potential franchisees in China are being trained as such licenses are not a priority, a McDonald's China spokeswoman, Stephanie Wang said. McDonald's issued its first franchisee license in China three years ago in northern Tianjin, near Beijing.
The fast-food chain owned 9,405 restaurants globally as of Sept. 30, or 29 percent of a total 32,065 outlets. The remaining units are run by franchisees and independent operators who use their own money to fund the businesses and pay McDonald's royalties.
In the region comprising the Asia Pacific, Middle East and Africa, McDonald's has 2,616 franchised stores of a total of 7,822 outlets. In the United States, 11,007 of 13,774 stores are franchised. In Europe, 3,756 of 6,403 are franchised, and in Latin America, 477 of 1,656 are franchised.
"We're a franchise company and the long-term vision is franchising in China," Rosen said. "But we want to continue to refine McDonald's China before we set up a franchising model." About 65 percent of McDonald's China outlets are wholly owned, with the remainder operated through joint ventures, Rosen said.
The Louisville, Kentucky-based Yum, which also operates Taco Bell and Pizza Hut restaurants in China, had 1.5 percent of the nation's 1 trillion yuan, or $125 billion, restaurant sales last year, the largest market share among food operators.
To increase sales, the strategy in China for McDonald's has been to focus on selling beef and to open more 24- hour restaurants.
"So many times, people say, 'Are you localizing and will you develop Chinese food?'" Rosen said. "But we realized Chinese consumers do not want us to be another Chinese restaurant. We're a hamburger company."
Another strategy is to increase the number of 24-hour outlets from 240 currently in China, as "people don't stop moving around at 11 o'clock at night," Rosen said. The company's fourth-quarter net income more than doubled to $1.24 billion, the biggest increase in two years.
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