McDonald's hastens development to take bite out of Yum Brands' customer base

Updated: 2007-09-12 05:22

McDonald's made some headway in June last year, when it announced a 20-year agreement with Sinopec, China's state-owned and largest petroleum retailer, to build drive-thru restaurants at Sinopec gas stations throughout the country.

The company opened its first drive-thru in 2005 and its first Sinopec location in January. Half of the new stores opened in 2008 will have drive-thrus. In comparison, Yum Brands has only opened about 10 drive-thru locations.

Deutsche Bank's West added McDonald's drive-thrus have reported sales 15 percent to 20 percent higher than non-drive-thru locations once it paid off start-up costs.

But most analysts still say cutting into Yum's lead is going to be far from easy.

West said McDonald's has historically stumbled in the country with management turnover, poor real estate decisions and a lack of "clarity" with its menu offerings.

Morningstar analyst John Owens said even though McDonald's is ramping up its store development and making a bigger play in the country, Yum may still have a far bigger advantage.

"Yum is actually widening its lead in China," Owens said. "They're still putting up new restaurants at a much faster clip than McDonald's is."

Rather than playing catch-up by developing more restaurants faster, Owens said McDonald's can do well by implementing the strategy that fueled its success in the U.S.

"Focus on being better, not on being bigger," he said.

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