Hunger for cars drives China's drive-thru growth

Financial Times
17-Nov-2006
By Geoff Dyer in Shanghai

Lunchtime at McDonald's new 'drive-thru' restaurant in Shanghai and most of the cars rolling through are sleek, shiny models driven by busy professional types.

But a few of the customers are less conventional. A couple of taxis turn up to buy spicy chicken wings with fries. And one man drives up on a motorbike.

Cars have an aspirational quality in most developing countries, and in China some people want the perceived perks of membership even before they can afford to join the club.

Just over a decade ago, owning a private car was still frowned upon in China, but the launch of McDonald's drive-thrus is the latest phase in the rapid spread of US-style car culture.

The fast-food group opened its first drive-thru in China just last year – 30 years after their introduction in the US – but was so impressed with the result that half its new restaurants in the country are to follow the format in a bet that rising car use will help it catch up with rival KFC, which has more than twice as many Chinese outlets.

"We were amazed at how quickly people caught on," says Jeffrey Schwartz, chief executive of McDonald's in China.

As with many other industries, China has become one of the driving forces in the car sector. Industry executives are congregating in Beijing this weekend for the country's annual motor show to chart their assault on a market growing at 25 per cent a year.

Levels of car ownership are still low at less than 2 per cent of the population. But the scale of the country means that China is likely to overtake Japan this year to become the second-biggest car market in the world. And executives see no signs of car sales slowing any time soon.

The car boom is having an impact well beyond the carmakers' bottom-lines. It also marks a dramatic shift in the way people are leading their lives in a country still associated in many minds with the bicycle.

Twenty years ago, many city residents worked at a state-owned company and lived in a nearby flat provided by their employer. They would bike to work and rarely leave their immediate neighbourhood.

Today, the centres of the many Chinese cities are still densely populated and cramped by bicycles and cars vying for space. But Beijing and Shanghai now have vast suburban areas filled with gated complexes of high-rise flats that look down on wide highways.

Even though both cities are planning extensive metro networks, a car is becoming a necessity.

"I used to come out to some of these neighbourhoods and look around and think – this place is just made for drive-thrus," says Mr Schwartz.

The spread of car ownership has prompted many spin-offs. At the magazine rack of most newsagents, around a quarter of the space is taken up by car magazines with titles such as Auto Society, the King of Cars and Modern Car. The magazines love to focus on the cars of famous movie stars and run lavish articles about long road trips celebrating the new-found freedom and independence of drivers.

"For some Chinese, they feel that they are more in control of things if they are driving," says Xie Xialing, a sociologist at Fudan University in Shanghai.

Mr Xie is one of a number of Chinese who sees the car boom as a mirror image of the growing social divide in China. Drivers in China show little respect for each other or pedestrians, he says. "These Chinese drivers often behave as if they were incredibly superior."

Not everyone is convinced about prospects for drive-thrus. KFC has opened four outlets so equipped, but it says the market is not ready for an aggressive expansion. Retailers such as Carrefour and Wal-Mart (NYSE: WMT - News) say it is essential to find store locations near to public transport because few shoppers are willing or able to drive.

But McDonald's is making a further bet on China's car culture. The government is constructing an enormous highway network modelled on Eisenhower's interstate system from the 1950s; at 25,500 miles long, it is just over a half the size of that in the US. McDonald's has signed a deal with Sinopec, the company that runs about 70 per cent of the country's petrol stations, which gives the burger chain the right to put a restaurant in any of Sinopec's 7,000 locations.

Company executives admit this will be a long-term project. The idea of the road trip is still a new one. Outside the main east-coast cities, most new highways are often empty.

Companies: Sinopec Corp ;Wal-Mart Stores Inc ;McDonald's Corp ;Carrefour SA ;Wal-Mart Stores Inc ;McDonalds Corp ;

Ticker Symbols: fr:CA; us:MCD; hk:386; us:WMT; NYSE:WMT; NYSE:MCD;

Industries: Limited-Service Eating Places; Food Services & Drinking Places; Transportation Equipment Mfg; Motor Vehicle Mfg; Limited-Service Restaurants; Accommodation & Food Services;

Subjects: Company News;

Countries: China;

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