McDonald's to Expand in China

McDonald's is the latest U.S. company to announce expansion plans in China.
By Miriam Reimer ,

OAK BROOK, Ill. (

TheStreet

) --

McDonald's

(MCD) - Get Report

said Wednesday it will expand in China with 200 new stores.

McDonald's said it plans to grow its presence in China by 40% next year, opening 200 new stores in the country over the next three years.

>> 10 Restaurant Stock Winners of 2010

The Golden Arches said its investment will include opening new restaurants and updating existing stores. Among the new store openings, about half will be drive-through locations, McDonald's said.

McDonald's shares were flat in early-afternoon trading Wednesday, trading around $77.10.

McDonald's currently operates more than 1,200 restaurants in China. Restaurant sector peers

Starbucks

(SBUX) - Get Report

and

Yum! Brands

(YUM) - Get Report

have also recently discussed growth of their brands in the emerging market.

>>VIDEO: How Hot Is Starbucks?: China Watch Mail Bag

Analysts from Barclays Capital reiterated an overweight rating on McDonald's shares. The equity research firm has an $86 price target on the

fast-food stock.

McDonald's Asia President Tim Fenton alluded in November to the company's plans to have more than 2,000 restaurants in China within the next four years.

>> McDonald's Raises Prices in China

At the time

McDonald's had just announced price increases at its China locations, charging customers in the Middle Kingdom higher prices for its burgers, drinks and other menu items in an effort to offset higher costs.

The increase "is because of higher raw material prices and we've adjusted our prices accordingly," Sophia Luan, spokeswoman for McDonald's China, told

Dow Jones

at the time.

China's inflation pushed up to a two-year high at 4.4% in October, leading to higher input costs for the fast-food chain. Premier en Jiabao said in a state television appearance at the time that China's cabinet was working to mitigate excessive inflation.

International fast-food rival

Yum! Brands

, which operates fast-food chains under the KFC, Pizza Hut and Taco Bell brands, said comps grew 6% in China in its recent quarter. In the U.S., comps grew 8% at Pizza Hut and 3% at Taco Bell. Comps at KFC fell 8%.

"We continue to make progress at all three divisions and are especially pleased with the continued strong results from our China business," said CEO David Novak. "The combination of high-return, new-unit development, same-store-sales growth and increasing margins drove operating profit growth of 23% in China for the quarter."

Starbucks

is not only looking to

expand in China, the coffee shop chain now plans to grow coffee beans in the country.

"Starbucks, for the first time in our 40-year history, is going to start growing coffee," CEO Howard Schultz said while on a recent trip to Beijing. "We're going to actually plant trees and grow coffee in China, in the Yunnan Province," he said, according to a

CNN

report.

>> Starbucks to Grow Coffee in China

Shultz called the move "a comprehensive strategic commitment to doing business in China, in a way that's locally relevant."

Starbucks said earlier that week it planned to open 500 stores this fiscal year, 400 of which would be outside the U.S. It didn't specify how many of those stores would be in China but said the country would be its biggest growth market over the next two years and that Middle Kingdom consumers can expect to choose from over 1,000 Starbucks locations in the country in the "near future," according to the company's China chief, Jinlong Wang.

-- Written by Miriam Marcus Reimer in New York.

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