McDonald’s Lays Out Big Growth Plans For Russia And Europe

McDonald’s (NYSE:MCD) has partnered with Rosinter to franchise restaurants in Russia. This will be the first time McDonald’s expands in the country through franchising. The company currently has 314 restaurants in the country and plans to add 45-50 each year. ^[1] McDonald’s competes with Yum! Brands (NYSE:YUM), Subway, Starbucks (NASDAQ:SBUX), Wendy’s (NYSE:WEN), Chipotle Mexican Grill (NYSE:CMG), among many others.

We have a Trefis price estimate of $99 for McDonald’s, which is about 2% above the current market price.

See our complete analysis for MCD stock here

More than 80% of McDonald’s restaurants are franchised worldwide, but in countries such as China and Russia, there is a paucity of franchisers who lack the stature of McDonald’s and hence the company primarily operates through company-operated stores. Moreover, lax legal systems in these countries means the company has to be extra cautious about legal agreements with the franchisers. In China too, the company has indicated its intention to expand through franchising. Currently, only 36 out of its 1,400 restaurants in China are franchised. ^[2]

Franchising is a low investment, high margin business compared to company-operated stores. Apart from McDonald’s, most big fast food players such as Burger King and Subway are looking to expand into Russia with consumers spending more due to rising incomes.

Europe to Follow U.S.’s Suit?

In our recent article, we talked about how McDonald’s continues to attract an even greater number of consumers in the U.S. by continually expanding the menu and refurbishing the existing restaurants, in order to make them appear more upscale and offer customers a better overall dining experience. Until Q1 2012, 80% of the company’s restaurants in Europe had their interiors and 50% had exteriors already reimaged. Moreover, McCafe will be extended to 150 more restaurants.

Overall, McDonald’s expects to incur an expense of $2.8 billion on capital expenditure in 2012 with half of the amount being used for renovating its restaurants around the world.

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1. McDonald’s in franchising deal with Russia’s Rosinter, April 10, 2012 [↩]
2. McDonald’s plans to expand franchising in China, reuters.com [↩]