McDonald's Pushing McMuffins and Coffee in China

   Date:2007/05/25     Source:
McDonald's Corp., whose recent focus on breakfast has invigorated its U.S. business, is now banking that Egg McMuffins and coffee will be a hit in China.


Tim Fenton, head of McDonald's Asia-Pacific unit, said in a telephone interview on Tuesday that breakfast is a "long-term strategy" in China, where the first meal of the day is more likely to include rice porridge with pork or mushrooms than eggs or hashbrowns.

 McDonald's breakfast push is one way the world's biggest restaurant chain is looking not only to boost profits -- breakfast products are cheaper to make than burgers -- but also to stand out from Yum Brands Inc. (YUM.N: Quote, Profile, Research, whose KFC business is the largest fast-food chain in China, Fenton said.

About 80 percent of Chinese consumers eat breakfast, Fenton said, and 68 percent of that group eat breakfast away from home. Breakfast sales doubled in China in the first quarter, in part because the menu is now available in more restaurants. Fenton said he is optimistic that there is plenty of room for further growth.

"It's got huge upside potential," he said.

KFC has a small breakfast business in China, and the head of Yum's Chinese business, Sam Su, told Reuters last year that morning sales are a good opportunity to capture more sales.

McDonald's had been selling breakfast at some of its restaurants in China for about 14 years, but took the menu into all of its 800 restaurants there late last year.

Now, breakfast makes up about 7 percent of overall sales in China. That's still below the roughly 30 percent of such sales enjoy in the United States, but Fenton said he is looking to markets like Hong Kong and Singapore, where breakfast makes up about 19 percent to 20 percent of sales, as a model for China.

"I don't see any reason why in China we wouldn't be able to replicate that," Fenton said.

McDonald's breakfast offerings in China are nearly identical to those in the United States -- Egg and Sausage McMuffins, hotcakes, hashbrowns and an egg sandwich on a hamburger bun called the McEgg.

Fenton said the company wanted to focus on its primary breakfast menu before introducing anything that more closely resembles a traditional Chinese breakfast.

He added the chain needed to introduce some lower-priced breakfast products, such as the rice porridge it sells in Malaysia and Singapore.

McDonald's does plan to bring one major new element of its U.S. breakfast menu to China -- premium coffee. Though Chinese consumers drink more tea than coffee, a test of espresso-style drinks is in place in a few McDonald's in China, Fenton said.

The company also plans to build McCafes, the company's coffee shops that are popular overseas, in China at some point, Fenton said.

In the first quarter, McDonald's breakfast menu in China helped push profit margins up in that market by 3.8 percentage points over the previous year, Fenton said.

At McDonald's China restaurants open at least 13 months, sales rose 9.5 percent in the first quarter, Fenton said. Some of that is thanks to the new breakfast push, though more 24-hour restaurants and a lower-priced menu similar to the U.S.'s "Dollar Menu" have also helped boost business.

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