Business Article Analysis
For this article analysis, “McDonald’s Scales Back Prices in China”, by Bettina Wassener, published in The New York Times on February 5, 2009 has been chosen. The article takes a look at the recent sharp decrease that McDonalds has brought about in its menu in China. The article weighs the odds and while doing so, between the lines it considers the fact that this may be a sign for the rest of the Asian countries to be wary of the US recession going global.
McDonalds began operations in China in 1990 and has reached a point where it has over 1,000 branches with a work force of over 60000 employees (Wassener 2009). In the year 2009 alone McDonalds plans on opening over 150 new branches.
Economists are speculating that the McDonald’s slashing of prices in China is proof of the global recession to have begun influencing the Asian economy. McDonalds decreased prices of combo meals by almost 33%. This measure, McDonalds claimed, was McDonalds’ contribution to the revival of the economy by stimulating demand in the restaurant and food consumption sector. Not only this, but McDonalds has launched “Loyalty Cards” for its customers that will allow customers to get a 20% discount
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It is necessary to highlight here that McDonalds is considered to be a western restaurant in China and many Chinese consumers still consider trips to McDonalds to be a luxury (Shinkle 2009). In this case, the slash in prices may also have been triggered by an aim to increase demand in the consumers.
McDonalds can bring about these price slashes since McDonalds is one of the few corporate giants who have found routes to gain benefit from the global recession. However it can be inferred that the price cuts have been influenced by the slowing down of the Chinese economy and declining stock price of MCD in NYSE which could be seen from the following figure:
|Market Cap:||65.78 b|
Figure 2: Stock Price of MCD
Source: QuoteMedia.com, 2009
Unemployment rates in China in the last year have gone high and similar measures are being exercised by other fast food retailers. McDonalds’ lead competition KFC has also begun promotions to give relief to consumers. The recession that originated in the United States has influenced the economies of countries around the world and the Asian economy is one of the few that are believed to have been hit the hardest as customer consumption trends changed significantly.
Chinese economy is expected to improve with measures such as these. It is already expected that the price inflation will decrease from its current 5.9% to around 2% (China Daily 2008). Competition in the Chinese fast food industry has steadily been gaining ground in the last few years as Pizza Hut, Big Mac and other multinational fast food names such as KFC have stepped into the Chinese market. In this situation, it would be rational for McDonalds to bring about a price decrease in order to invite customer demand. However, considering the recent closure of “Ronghua Chicken” in 2000, and the recent recession that has led to a change in consumption trends, it is logical to increase customer consumption as much as possible.
Figure 1: Comparison of MCD with its competitors
Source: (Wikinvest 2009)
Moreover, in October 2009, McDonalds’ stocks began to plummet and reached an all time low from October through November. As can be seen in the graph, it took McDonalds quite some time to regain its September standing once more. The plummeting of stocks was taken as a sign by McDonalds to bring about some or the other form of change that would allow McDonalds to make up for lost points in the stock market and soften the recessional blow.
In this scenario, China was the perfect option. Having only slightly suffered the blow and with an otherwise booming and rapidly developing economy, China was the perfect launch pad for McDonalds to regain consumers and to develop consumer loyalty (Jing 2009). McDonalds is already a renowned brand name in China, and this measure has allowed McDonalds to become more accessible to the everyday china man.
China Daily. Competition gearing up in China’s fast food industry. July 30, 2008. http://www.chinadaily.com.cn/bizchina/2008-06/30/content_6806904.htm (accessed February 10, 2009).
Jing, J. McDonald’s cuts prices by nearly 33%. February 5, 2009. http://www.shanghaidaily.com/sp/article/2009/200902/20090205/article_389919.htm (accessed February 10, 2009).
Shinkle, Kirk. McDonald’s Slashes Prices … In China – The Ticker. February 5, 2009. http://www.usnews.com/blogs/the-ticker/2009/02/05/mcdonalds-slashes-prices—-in-china.html (accessed February 10, 2009).
Wassener, B. McDonald’s Scales Back Prices in China – NY Times. February 5, 2009. http://www.nytimes.com/2009/02/06/business/worldbusiness/06mcdonalds.html?_r=1 (accessed February 10, 2009).
Figure 1: Wikinvest. Wendy’s International (WEN) . February 9, 2009. http://www.wikinvest.com/stock/Wendy%27s_International_(WEN) (accessed February 10, 2009).
Figure 2: McDonald’s Corp. (MCD) Stock. February 9, 2009. Originally from Quotemedia.com cited in http://seekingalpha.com/symbol/mcd (accessed February 10, 2009).