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McDonald's to Continue to Expand in Asia

Restaurants: Chain would spend $1.5 billion and build more than 2,000 eateries in the region.

April 10, 1998| From Bloomberg News

McDonald's Corp. said it will follow through with plans to invest $1.5 billion in the Asia-Pacific region in the next three years, expressing confidence that it can weather Asia's economic problems while building markets to offset weak U.S. sales.

The fast-food operator reiterated plans to build more than 2,000 Asia-Pacific restaurants in the region, which would double its presence in many markets. It now has more than 4,500 restaurants in 17 countries in the region, including 2,400 in Japan.

McDonald's shifted its focus overseas and curtailed its U.S. expansion last year, after franchise owners complained that new stores were eating into their sales. Although weakened currencies and other economic problems have hurt its business in Asia, Oak Brook, Ill.-based McDonald's sees the situation as temporary.

"We are adjusting our business to put ourselves in a position to ride out the storm," said James Cantalupo, president and chief executive of McDonald's International.

McDonald's already has changed menus and supply sources, raised prices and reduced planned openings in some Southeast Asia markets to ease the impact, Cantalupo said.

Last year, McDonald's built 2,110 restaurants, with about 85% of them outside the U.S. The company had 23,380 restaurants worldwide at the end of 1997, with 12,380 in the U.S.

That was a marked change from its previous strategy of concentrating on U.S. growth. Franchise owners complained that many of the new stores were cannibalizing the sales and profits at their own established restaurants.

In its annual report released Wednesday, Chairman and Chief Executive Michael Quinlan acknowledged the U.S. expansion "hurt our relationship with some franchisees, and we opened some less-than-perfect sites."

"To top it off, at the same time, our competition improved and lowered prices," Quinlan wrote.

Sales in the Asia-Pacific region last year accounted for $5.62 billion of McDonald's $33.62 billion in total sales, or about 16%.

McDonald's shares jumped $1.19 to $62.19 on the New York Stock Exchange.

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