Ren Jianxin founded Bluestar in 1984 with a few small cleaning contracts, including one to rinse out the teapots at several state firms. Now his chemical cleaning company handles somewhat more complex jobs, including cleaning a 400km oil pipeline and China’s spacecraft.
One of Bluestar’s pivotal moments came in 1995, when it went public. Before its IPO, Ren had to shed more than 10,000 workers from the payroll. His solution? He established Malan Noodle, a beef noodle (or lamian) chain, providing jobs for many of the redundant workers.
Later Bluestar would defeat its foreign competitors in the Chinese market and then become part of ChemChina, a state giant which – with Ren as chairman – has launched China’s biggest foreign takeover (an ongoing $43 billion bid for Swiss seed provider Syngenta, see WiC313).
Malan Noodle has also transformed into the biggest lamian firm in the country (for background on the dish, see WiC199) and is one of the relatively few local restaurant chains to succeed in standardising a traditional Chinese dish in the manner of an American fast food firm.
Ren’s success with Malan Noodle may explain some of ChemChina’s rumoured interest in McDonald’s China operation, with Bloomberg reporting last week that Ren and New Hope Group have teamed up as one of the bidders for the American fast food giant’s franchise rights.
The US firm is trying to revamp its operating model in Asia. McDonald’s owns most of its outlets in North Asia but the Big Mac seller aims to put 95% of its outlets in the region under local ownership. The mainland Chinese franchise rights (reportedly they are on offer for 20 years) could fetch around $2 billion, Bloomberg believes.
New Hope is a food-to-property conglomerate founded by billionaire Liu Yonghao and his brothers. It now employs nearly 70,000 people with annual sales of close to Rmb75 billion ($11.4 billion).
But ChemChina and its bidding partner will need to overcome formidable rivals to get their hands on McDonald’s China business. ThePaper.cn reported this week that Sanpower, the acquisitive owner of the House of Fraser, is another of the interested buyers from China. Sanpower’s bidding partner is Beijing Tourism Group, a state firm which also owns Quanjude, a venerable restaurant chain famed for its Peking duck (Quanjude was established in 1864, see WiC308).
According to Reuters, McDonald’s has received six bids for its planned sale, including one from its China partner Beijing Capital Agribusiness Group. Global private equity firms such as Bain and Carlyle are also sniffing around, with a view to teaming up with Chinese bidders, the newswire said. McDonald’s has stipulated that private equity firms have to be minority partners in any bidding consortium, however, which may discourage some buyout funds from participating.
Nor is it only McDonald’s that is in play. There have also been reports that China’s sovereign wealth fund China Investment Corp may form a consortium to buy a controlling stake in Yum Brands’ China unit, which is also planning an IPO. It has around 6,900 mainland China-based restaurants – mostly KFCs – and is valued at about $10 billion, Reuters reported in April.
The rise of Chinese food chains such as Malan Noodle has been creating more competition for foreign eateries like McDonald’s and KFC. As we discussed when Yum announced its plan to spin off its China unit, American fast food has also lost some of its appeal for younger Chinese (see WiC301).
“Foreign fast food chains have been in China for 30 years. After enjoying some explosive growth they are now facing new challenges,” ThePaper.cn opined. “The industry leaders will be much more sensitive to the pressure.”
The news website also noted that a series of food safety scandals in the fast food market (see WiC178) may have had an influence over McDonald’s and Yum’s decisions to divest from their China business. Citing a recent survey by the American Chamber of Commerce in Shanghai, it also noted that 19% of US firms are planning to reduce their investment in China this year. That compares with 16% last year and merely 4% in 2014. (Indeed, Walmart has been fine-tuning its approach too, announcing a deal this week to sell its Yihaodian website to JD.com. As part of the transaction, Walmart will get a 5% stake in JD.com, which is valued at $1.5 billion.)
Why are so many Chinese companies interested in doing a deal for McDonald’s China business, then? A Sanpower executive told ThePaper.cn that if it was successful in acquiring McDonald’s Chinese franchise, it could add a “new branding element” to its department store portfolio. This prompted a playful remark by a commentator on Sina Finance that Sanpower may soon be selling McPeking duck at a McDonald’s outlet inside a House of Fraser store in its Nanjing hometown. That sounds far fetched but buying a profitable business from McDonald’s or Yum Brands is still an attractive proposition for many Chinese firms. “The opportunity to cooperate with the global giants such as McDonald’s and Yum is still very valuable,” ThePaper.cn confirms. “They may have encountered bigger operational challenges and their financial results have been hampered. Yet Chinese firms still have a lot to learn from their skills and their management experience, while adding to the brand value of their own [business].”
China Business Journal agreed that Chinese restaurant chains still have much to learn about selling standardised fast food. It is also a sector that some see as ripe for consolidation: for instance, there are nearly 30,000 restaurants in China selling beef noodles, with combined revenues of Rmb50 billion.
Even the government of Lanzhou (where lamian was invented) is pushing for better industry standardisation, recently unveiling a cartoon image of a cow designed to represent the traditional dish across the country. The likes of Malan Noodle would definitely welcome a bigger slice of the market.
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