china

Did 'American French Fry Brother' Soften McDonald's China Price Increases?

Posted by Abe Sauer on May 16, 2012 10:03 AM

McDonald's is basking in the glow in the halo effect glow of some tremendously good PR in China. A young American working in Nanjing recently purchased some french fries for a homeless elderly woman — and proceeded to sit and share them with her. Faster than you could say "I'd like to buy the world some friends," the incident became the talk of the Chinese social web.

While the brand itself was not a proactive participant in the act of charity, thousands of mentions of "American French Fry Brother" came along with a mention of McDonald's. It was a bit of good fortune for the chain in China just before the new China Daily headline: "McDonald's raises prices again."

The price increases amount to 1 yuan ($0.16, or about 17 percent) on four staple menu items. The painful part of the announcement was the "again" portion. This is McDonald's second price increase in China this year. In early 2012, the Golden Arches upped local prices on the Big Mac, soft drinks and desserts by 0.5 to 2 yuan.

McDonald's had held off on both the first and second price hikes as long as possible after one hike last summer.  KFC, the brand's greatest Mainland rival, raised prices twice last autumn and once again (marginally) in January. In the first months of this year, rivals chains including Japanese rice bowl purveyor Yoshinoya and Starbucks, boosted prices. KFC stated that it would hold the line and not raise prices any more in 2012.

China Daily created a handy chart to compare the menu price increases at McDonald's and KFC:

McDonald's, which marked its 20th anniversary in China last year, is on a fast-track growth plan to have 2,000 restaurants across the country by the end of 2013. To achieve this, it plans to boost investment in China by a whopping 50 percent in 2012, adding everything from speciality locations — 24-hour stores, expanding the McCafe concept, drive-thru locations — and plans to "reimage" or make over a full 80% of its restaurants by the close of 2013.

It's also running more targeted marketing, such as this recent campaign targeting "manly men":

A day after the state media announced McD's latest price increase, it ran another, happier, story about McDonald's plan to hire an additional 70,000 employees, doubling its workforce.

The price hike came days after the McDonald's China CEO, Kenneth Chan, told Fortune that he's keeping costs in check by using "our supply chain to get long-term predictability pricing [and] as a result, we have managed to keep our material cost lower than the market rate. We are also focusing on productivity and efficiency." Alas, there is only so much efficiency to be squeezed out.

That so many others blinked and raises prices first is probably why McDonald's price hike garnered little griping from consumers on microblogs like Weibo. In fact, Weibo users seem more focused on the Coca-Cola London 2012 Olympic Games collectible cups promotion the chain is currently running.

One reason why the price increase may have passed without concern from online users is that a top trending topic last week was "a tomato costs more than an egg." If eggs really do become that much cheaper than tomatoes, maybe McDonald's can focus more on selling McMuffins. As Chan told Fortune, "In China today, breakfast constitutes 8 percent to 10 percent of our sales. It could easily double in the next few years."

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