SEOUL – A regulatory filing by South Korea’s CJ group states the food and entertainment firm submitted a letter of intent to buy McDonald’s Corp.’s South Korean restaurants, according to published reports. Details of the bid were not disclosed.
McDonald’s announced in March the company was looking for “strategic partners” in Asia to help the company accelerate growth in Asia through franchise agreements in China, Hong Kong and South Korea where 70 percent of McDonald’s restaurants are company owned. Selling the units would further the company’s ambitions to be come about 95 percent franchised over the long term.
“In the past five quarters we've refranchised about 700 restaurants, including over 200 in the first quarter this year,” Kevin Ozan, CFO, said during an April 22 earnings call with analysts. “The large majority of these were sold to existing conventional franchisees. As part of the forensic review of our ownership structures and strategic allocation of resources around the world, during the first quarter we also initiated new refranchising activities in several markets in Asia and Europe.”
Ozan explained that, collectively, China, South Korean and Hong Kong collectively operate almost 2,900 restaurants.
“Given the relatively higher restaurant expansion and franchising potential in these markets, our intent is to identify strategic partners with skills and expertise that will enhance our competitive advantages and bring additional capital resources to further invest in and grow the business,” he said. “We remain optimistic about the future of our McDonald's brand in Asia, with plans to add at least 1,500 restaurants across China, Hong Kong, and Korea over the next five years.”
The “right strategic partners” would have complementary skills and expertise, and sufficient capital to unlock growth in Asia to the tune of about 250 restaurant openings per year which is the run rate of McDonald’s units in China.
“We want to find the right strategic partner that meets and most likely exceeds that,” Steve Easterbrook, CEO, said during the analysts call.
Ozan said that “if someone else can use their resources to grow the business we will participate in that growth through an increased royalty and effectively reduce G&A and capital that right now we’re spending related to those countries.”
CJ Group is a leading food manufacturer in South Korea. The company operates numerous businesses, from food to films. The company’s food-related businesses include the manufacture of fresh and processed meats, ready-to-eat meals, colorings, flavorings, food additives and beverages, among other food manufacturing segments.