Alibaba Group Holding Ltd (BABA), McDonald’s (MCD), competition in China

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McDonald’s Corporation’s stellar race in China faces increased competition from a start-up backed by Alibaba Group Holding Ltd. Meituan Waimai, which operates through a mobile app, has partnered with thousands of outlets – large and small – across China, providing diners with access to numerous menus through a single app.

As more diners around the country prefer to order, Meituan Waimai is winning over customers with heavily discounted dishes and home delivery. The startup’s motorcycle couriers can be seen roaming most major Chinese cities.

They receive orders on their apps and group them together based on the order address and the outlet from which the food is ordered. Delivery should be completed in less than an hour, with the average courier processing up to five orders in 60 minutes.

McDonald’s dominance is waning

For years, McDonald’s Corporation has beaten its rivals by shipping burgers to homes and offices through its own armies of bicycle couriers.

Nathan Snyder of CLSA believes that Western fast food chains have gained a foothold in China for two main reasons. “Because they were foreigners and they delivered. It’s no longer an advantage, ”he said, referring to Alibaba Group Holding Ltd’s entry into food delivery.

McDonald’s Corporation realizes the looming threat. “The delivery market is becoming competitive,” a spokeswoman said, adding that the company was looking for opportunities in the online platform space.

Industry watchers say growing local businesses are hurting Western fast food chains like McDonald’s, which are struggling to regain some of the ground they lost to local rivals.

McDonald’s does not disclose its sales figures in China. On an earnings call last week, the company said same-store sales remained in the red. In the three months to June, they were down almost 3% from last year.

Problems at home

The outlook at home isn’t very bright either, as more diners flock to fast-paced casual chains like Panera and Chipotle. McDonald’s is in the midst of an effort to bring growth to the fast food giant. New CEO Steve Easterbrook wants to transform into a “modern, progressive burger company”.

Easterbrook said that in the future, McDonald’s Corporation will focus more on change the main menu. New products will be launched, but will not be the basis for change.

Beyond food, another big challenge is the increase in the wage bill. In April, the company announced it would grant an increase to 90,000 employees. This would only apply to workers in wholly owned outlets. On the call, CFO Kevin Ozan said second-quarter labor costs were due to higher minimum wages in some states.

McDonald’s Corporation has been in trouble for some time now, and those issues led to Don Thompson’s removal as CEO in January. Will Easterbrook’s plans work? Surely Alibaba Group Holding Ltd does not facilitate this task.

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