McDonald’s to Sell Operating License in South Africa
In 1995, McDonald’s began opening fast-food restaurant locations in South Africa. Today, McDonald’s is still operating and has a portfolio of 123 locations around the country. I have tasted the food and I must say that it is much better than in the states.
Among top stories in business this week involve McDonald’s announcement that it is offering the sale of operating licensing rights of its’ South African locations. The exact term is a Potential Development License. Information disclosing more certain terms will be enclosed in an offering memorandum for those who are qualified with operating experience and are significantly capitalized. The perception I have gained from the newspaper and magazine publications on the matter is that an interested party must be a leader in the financial markets and hold a great deal of liquid cash as well as access to financing. The problem for McDonald’s is finding a qualified candidate won’t be easy. South Africa is just now realizing the recession that the United States has been experiencing for the last two years. Further, the South African government does not appear to have the financial capacity or enabled constituency to invest in a stimulus plan to assist businesses and investors. This has led some to scratch their head as to who will jump at the offer. Don’t freight, there are always naive opportunists.
One may ask why McDonald’s has made this decision in the first place? Well, McDonald’s has stated that they do not have the financial capacity to operate in the South African market but nevertheless desire expansion. Thus, they are looking to seek a partner to operate and develop the business. This is a load of crap. McDonald’s is looking for local investors to operate and expand the business in rough times so that it can focus on core domestic assets (keeping shareholders happy) and still retain ownership rights and brand equity. If fact, McDonald’s retains ALL ownership rights. This includes (but limited to) the brand, corporate identity and all existing real estate property holdings. This means the prospective operator/investor pays all operating and expansion expenses in addition to business licenses and increasing importing costs while McDonald’s only pays existing real estate taxes which will continue to decrease due to diminishing real property market conditions. This is not a local phenomenon. McDonald’s has already executed similar strategy in Latin American countries such as Mexico, Argentina, Brazil and Venezuela as well as 13 others around the globe.
The plain fact is local South African market competitors are able to hold the ranks with the leading US fast-food Goliath and McDonald’s does not have a monopoly impact (yet). Wimpy and Steers burger restaurants have more than triple the number of locations as McDonald’s (400 and 476 respectively). Further, several articles have argued that South African’s culturally desire a flame-broiled burger, something that McDonald’s does not offer. Do you blame them? Interestingly, none of the three take the fast-food market leader spot. Kentucky Fried Chicken is the king of the hill. In fact, there are only a few countries where chicken outsells burgers in the fast-food category. South Africa is one of them. Boy, I love fried chicken!
In 1995, McDonald’s began opening fast-food restaurant locations in South Africa. Today, McDonald’s is still operating and has a portfolio of 123 locations around the country. I have tasted the food and I must say that it is much better than in the states.
Among top stories in business this week involve McDonald’s announcement that it is offering the sale of operating licensing rights of its’ South African locations. The exact term is a Potential Development License. Information disclosing more certain terms will be enclosed in an offering memorandum for those who are qualified with operating experience and are significantly capitalized. The perception I have gained from the newspaper and magazine publications on the matter is that an interested party must be a leader in the financial markets and hold a great deal of liquid cash as well as access to financing. The problem for McDonald’s is finding a qualified candidate won’t be easy. South Africa is just now realizing the recession that the United States has been experiencing for the last two years. Further, the South African government does not appear to have the financial capacity or enabled constituency to invest in a stimulus plan to assist businesses and investors. This has led some to scratch their head as to who will jump at the offer. Don’t freight, there are always naive opportunists.
One may ask why McDonald’s has made this decision in the first place? Well, McDonald’s has stated that they do not have the financial capacity to operate in the South African market but nevertheless desire expansion. Thus, they are looking to seek a partner to operate and develop the business. This is a load of crap. McDonald’s is looking for local investors to operate and expand the business in rough times so that it can focus on core domestic assets (keeping shareholders happy) and still retain ownership rights and brand equity. If fact, McDonald’s retains ALL ownership rights. This includes (but limited to) the brand, corporate identity and all existing real estate property holdings. This means the prospective operator/investor pays all operating and expansion expenses in addition to business licenses and increasing importing costs while McDonald’s only pays existing real estate taxes which will continue to decrease due to diminishing real property market conditions. This is not a local phenomenon. McDonald’s has already executed similar strategy in Latin American countries such as Mexico, Argentina, Brazil and Venezuela as well as 13 others around the globe.
The plain fact is local South African market competitors are able to hold the ranks with the leading US fast-food Goliath and McDonald’s does not have a monopoly impact (yet). Wimpy and Steers burger restaurants have more than triple the number of locations as McDonald’s (400 and 476 respectively). Further, several articles have argued that South African’s culturally desire a flame-broiled burger, something that McDonald’s does not offer. Do you blame them? Interestingly, none of the three take the fast-food market leader spot. Kentucky Fried Chicken is the king of the hill. In fact, there are only a few countries where chicken outsells burgers in the fast-food category. South Africa is one of them. Boy, I love fried chicken!
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