China Food

Why is McDonald’s price increase lower than CPI in China for many years?

With the gradual easing of the domestic epidemic situation, two distinct rejuvenation strategies have emerged in the catering industry: some catering enterprises began to raise prices and raise the overall prices; the other enterprises launched various preferential activities to stimulate consumers to “retaliate consumption”, which triggered a round of looting.

Western style fast food chain giant McDonald’s obviously chose the latter.

In the context of the catering industry’s collective fight against the impact of the epidemic, why McDonald’s can be so “willful”; why can the price increase be lower than the CPI (consumer price index) for many years in a row? What is the key to playing this “super value” card? Now, let’s take a look.

 

Play the super value card

 

The snack reps noted that in China, McDonald’s has recently launched not only all day, full category and full platform “sincere value-added” preferential activities, but also 0 yuan products, 4-day membership days per week, 88 member days for 28 consecutive days, and 28 day breakfast month. And last year’s online “heartwarming 1 + 1 = 12” is also very popular. Consumers can choose one product in the red and white areas for only 12 yuan.

Zhang Jiayin, chief executive officer of McDonald’s China, said: “we hope to establish McDonald’s genuine value-added mind in customers’ hearts through such long-term platforms as heartwarming matching, so as to let customers know that whenever they come to McDonald’s restaurants, they can have a choice of delicious and preferential prices. For seasonal sales promotion, we hope to bring exciting new products and services to customers, or give customers special services Other experiences. “

In her opinion, during the epidemic period, consumers paid more attention to their own health and safety, hoping to reduce interpersonal contact. “Due to the delay in school opening and working at home, many consumers have developed the habit of eating breakfast at home and have reduced breakfast in restaurants accordingly.”

In order to let consumers form the habit of eating breakfast in restaurants again, McDonald’s has continuously increased its investment in breakfast time. In addition to the 28 day “super value breakfast month” activity in June this year, it also launched the breakfast monthly card to release more discounts. In July, McDonald’s launched another breakfast option of 5 / 7 / 9 yuan, providing a high cost-effective breakfast with a ladder price.

In this regard, Zhang Jiayin pointed out that long-term value-added platforms, such as super value breakfast, super value lunch and super value dinner, can let consumers come to the restaurant to spend without pressure every day. At the same time, McDonald’s also has some limited time promotions, which can give consumers a sense of freshness. “Long term over value and short-term promotion are complementary.”

McDonald’s China’s strategy is “two-way value-added”. On the one hand, we will continue to provide consumers with delicious food at any time, anywhere and every day; on the other hand, we will also provide customers with higher quality choices through product innovation.

The McDonald’s team found that in China, many consumers like to calculate the most favorable way by themselves and like personalized discounts. Therefore, in addition to the traditional value-added platform, McDonald’s has also explored and learned new models through digital technology, “for example, the recently launched MAC card is a new form of discount that Chinese consumers like.” Zhang Jiayin said.

Supply chain confidence

 

As a matter of fact, McDonald’s can still provide such a large margin of preferential strategies when the whole catering industry is struggling, which has very high requirements for cost control and supply chain control.

It is understood that since entering the Chinese mainland market in 1990, McDonald’s has begun to explore and establish its own local supply chain system. At present, McDonald’s has well-known state-owned and private food enterprises in China, including shounong group, Sanyuan food, Shengnong group, Guangming dairy and Fengxiang food as suppliers. Nearly 90% of raw materials in China are purchased locally. McDonald’s has established a mature supply chain system by taking root in China.

Data shows that McDonald’s price increases over the years are lower than CPI. Take 2019 as an example, McDonald’s price increase in the Chinese market was 1.7%, compared with the CPI of 2.9% in that year, all of which benefited from the localization strategy of the catering giant’s supply chain.

This year, due to the impact of the epidemic, travel, import and export between countries are facing restrictions. Many governments and enterprises have begun to rethink their production and procurement modes and consider how to deal with “de globalization”. With the help of the localization supply chain established over the years, McDonald’s has greatly reduced this concern.

In addition, McDonald’s value transmission and cost control in production and logistics should not be underestimated. Taking potatoes as an example, McDonald’s currently adopts steam peeling and water cutting technology, which can save at least 5000 tons of potato raw materials every year. The potato skin can be composted after the moisture is removed, and the potato scrap left on the potato chip production line is used to make biogas, providing clean energy for the factory production.

In terms of logistics management, McDonald’s connects the corresponding distribution centers of bakeries and meat processing plants in some areas, and optimizes the whole logistics distribution link from the place of origin to the restaurant, which not only shortens the period of food distribution, but also ensures the freshness of food materials, and further controls the transportation cost.

In zhangjiayin’s view, McDonald’s is making use of its strong supply chain and operating system to create a sustainable “true value-added” platform, “hoping to accompany every Chinese consumer to live a good life together in difficult times.”

 

Rebound after epidemic

 

With the gradual stabilization of the epidemic situation, various industries are discussing and looking forward to the possible “retaliatory consumption” in the future. When consumers can and rest assured of spending abroad, there will be a “V” shaped growth in the overall situation of the industry, in which the price increase strategy may be able to make up for part of the losses caused by the epidemic.

However, unexpectedly, retaliatory consumption did not come as expected. Yu Yongding, member of the academic department of the Chinese Academy of Social Sciences, predicts that consumption will grow in the second two quarters of this year, but the growth rate of consumption will not exceed that of GDP, and there will be no retaliatory consumption in the second half of this year.

When consumers are still waiting for the recovery of economy and savings, another strategy of the catering industry in the post epidemic era – providing “super value concessions” just conforms to the current social consumption situation.

With the launch of McDonald’s “super value discount”, many consumers who have been staying at home for a long time due to the epidemic situation have rushed out one after another, and the miracle of long queues in front of McDonald’s stores in various cities soon appeared. At the same time, “go to McDonald’s” is frequently used by users on social media, triggering a rare consumption Carnival after the epidemic.

On the issue of whether the continuous introduction of super value concessions will bring pressure on the company’s finance, Huang Hongfei, chief financial officer of McDonald’s China, admitted: “the company’s short-term profits will certainly be affected because of its over value.” but in his opinion, if we can establish the mind of value-added in the minds of consumers, we can attract more consumers to patronize more frequently, “favorable prices promote scale and scale.” Create benefits. “

Zhangjiayin said that the continuous improvement of operation and supply chain efficiency is an important factor in McDonald’s sustainable cost control. “In finance, we should not only look at the initial loss, but also see the longer-term growth brought by the later stage.” She believes that by attracting more customers and consuming more frequently through over value, the single piece profit will give consumers profits, but the improvement of overall sales volume will form a certain scale advantage.

According to the data, as of June 2020, 96% of McDonald’s restaurants in the world have resumed operation, and the average performance is higher than 75% in April. In the latest quarter, McDonald’s reported sales of $3 billion 800 million, higher than previous analysts’ estimates.

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