McDonald's China is embroiled in a controversy over expired ingredients.
Recently, according to a survey by the New Beijing News, both McDonald's Zhengzhou Excellent Agricultural Union Restaurant and McDonald's Jinan University Restaurant have issues with tampering with food shelf life labels, using expired ingredients, selling food beyond its shelf life, and cutting corners on ingredients. McDonald's Zhengzhou Excellent Agricultural Union Restaurant also has situations where the quality of fried oil exceeds the standard.
McDonald's stated that it is actively cooperating with local market regulatory authorities for investigation and verification. Any violation of operating standards will not be tolerated and will be dealt with seriously. From this statement, it can be seen that McDonald's is still in the "verification" stage regarding whether its stores use "expired ingredients".
Previously, McDonald's China set a goal of breaking through 10000 restaurants by 2028.
For this company, how to solve the management problems caused by rapid expansion may be the key to solving the problem.
Joining in the disaster?
It should be noted that one of the stores involved in this incident was a franchise restaurant.
According to the business license, the operator of McDonald's Zhengzhou Zhuoyue Agricultural Union Restaurant is Henan Mailejia Restaurant Food Co., Ltd. According to the data from the National Enterprise Credit Information Publicity System, Henan Mailejia's sole shareholder, Henan Cai's Catering Management Co., Ltd. The shareholders of Cai's Catering are natural persons Cai Fangxin (holding 99.9174% of the shares) and Cao Xiaoting (holding 0.0826% of the shares).
In addition, in 2021, Cai Fangxin has pledged the equity of Cai's Catering to McDonald's China (Golden Arch). The total amount of equity pledge is 120.9 million yuan.
This at least proves that there is economic pressure on the operators of McDonald's Zhengzhou Excellent Agricultural Union Restaurant, and also indicates that franchisees have a strong relationship with McDonald's China.
According to the aforementioned investigation by the Beijing News, when asked why the relevant raw materials were not disposed of according to regulations, an employee of the Excellent Agricultural Union Restaurant asked in response, "Are you the boss? Are you throwing them away?"
Another employee explained that the store conducts weekly and monthly inventory checks on inventory and sales. If there are too many discarded ingredients, it can lead to differences in the two data. If the difference is significant, the store leader cannot explain it.
The non-standard delivery of food by employees resulted in the inability to sell ingredients before expiration. At the same time, the store manager tacitly allowed this behavior of modifying labels to occur in order to reduce the difference between outbound and sales volume. The two, which were supposed to be the relationship between supervision and being supervised, ultimately formed a conspiracy.
In fact, currently, McDonald's has stopped franchising externally. Currently, the remaining franchisees are mostly legacy issues.
"We currently have some markets that are operated through local franchising, such as Yunnan Province, Inner Mongolia, and other places where local enterprises operate. There is no plan to increase, but the current situation will continue." In August 2023, Zhang Jiayin, CEO of McDonald's China, told 21st Century Business Herald reporters.
But the other store, McDonald's Jinan University Restaurant, is purely direct operated. In McDonald's internal food safety announcement, the restaurant's comprehensive rating for the previous year was the highest level A.
According to the aforementioned investigation, under the guidance of the on duty manager, employees of Jinan University Store almost always choose to tamper with the expiration date of ingredients instead of abandoning them when they encounter them.
This may be related to McDonald's incentive model.
A person close to McDonald's told 21st Century Business Herald reporters that the company gives its stores a revenue plan every year, and receives bonuses based on the percentage achieved. Under normal circumstances, stores that benefit from the business district can receive this portion of the bonus. Most of the store's bonuses come from the overall market growth. When profits are particularly good, the general manager of the management team receives a dividend of 2000 yuan and the store manager receives a dividend of 5000 to 6000 yuan.
McDonald's employees also claim that the average employee's salary is calculated based on hourly wages. The bonus portion of the monthly salary of the store management (above manager level) is linked to the achievement rate of revenue. The company sets goals for the store, and the bonus coefficient is automatically calculated based on the achievement rate. The employee also emphasized that the company does not impose any mandatory regulations on the store's achievement level.
On May 14th, 21st Century Business Herald reporters found during visits to multiple stores in Beijing that the stores conduct three rounds of food safety inspections every day.
The store staff emphasized that this frequency of safety inspections is normal and there is no use of expired ingredients. Even on Fridays and weekends, there may be a shortage of raw materials.
Continue to expand
And McDonald's rapid expansion has clearly increased the difficulty of management.
Under the goal of Wandian Restaurant, the brand's store scale is soaring. According to data from Zhaimen Meal Eye, as of May 15th, McDonald's had 6743 stores in China and 988 new stores opened in 2023. As a comparison, during the same period, KFC had 10799 stores in China and 3785 new stores opened in 2023.
How to manage the expansion of stores is a big problem. "Our primary consideration when expanding is talent, especially store managers, so we will take it slow," a senior executive from an international catering brand in China admitted to 21st Century Business Herald reporters.
At least judging from the controversy over expired ingredients, McDonald's seems to be unprepared.
On the other hand, under market changes, management difficulties are also increasing.
Now is an era of pursuing cost-effectiveness. According to the financial reports, in the first quarter of 2024, KFC's customer price dropped by 6% year on year, Pizzahut's customer price dropped by 12% year on year, and Taier's pickled Chinese cabbage fish/Counseling hotpot/Jiumaoju's customer price dropped by 2.7%/4.1%/3.4% compared with the first half of last year. In 2023, the average customer price of Hai Di Lao has dropped to below 100 yuan (99.1 yuan). Hefu Lo mein revealed that the overall decline of products was about 30%.
"In the past, we almost did not hesitate to price our products at 345 yuan. Now we will take market factors into consideration when pricing," Li Xuelin, the founder of Hefu Lo mein, told the 21st Century Business Herald.
From a more macro perspective, a similar trend is also observed. According to data from the National Bureau of Statistics, the growth rate of per capita disposable income in the first quarter was 6.2%, while the growth rate of per capita consumption expenditure reached 8.3% in the first quarter, exceeding the growth rate of income.
This indicates that an increasing portion of income is being used for consumption, reflecting an increase in public willingness to consume. The underlying message also includes that continuing to increase consumption is becoming more difficult.
Looking back at McDonald's, it requires a higher level of decision-making for store managers to balance growth and profits. And under the goal of reaching ten thousand stores, the absolute number of store managers is also not low, which further increases the difficulty of training.
Some consumers claim to click cancel within 5 minutes after purchasing delivery products at McDonald's stores. The result is that the system displays delivery directly from communicating with the store without any explanation. "I can accept that the order has been made but cannot be cancelled, but I cannot accept rejection without any feedback," he said.
This situation may indirectly reflect McDonald's store's emphasis on revenue. In the long run, there may be damage to the McDonald's brand, as the significant premium for this company comes from consumer sentiment.
Currently, McDonald's China is in a period of power redistribution.
At the end of 2023, McDonald's Global announced the acquisition of 28% of Carlyle's shares in McDonald's China. After the completion of the acquisition, McDonald's global shareholding increased from 20% to 48%.
After the aforementioned equity changes, "Golden Arches" will usher in a new equity structure: CITIC Capital, as the main body of the CITIC consortium, accounts for 52%, remains the controlling shareholder, and McDonald's globally accounts for 48%. Objectively, the equity gap between the two has become relatively limited.
Under various changes, McDonald's China may further adjust.