McDonalds has stepped up its game in Korea by adding an alcoholic beverage to a menu of premium burgers. This move is designed to attract young Koreans who enjoy premium food and enjoy eating out with friends.
Even though McDonalds needs no introduction, a brief overview is helpful and goes toward truly understanding the size and scale of the business.
Founded in 1940, McDonald’s is the world’s leading food service retailer with over 36,000 locations in over 100 countries. The company is run under one of three management systems – either as a franchise, an affiliate, or the corporation itself. In 2015, the company had a revenue of over US$25 billion worldwide with a net profit margin of 19%. Growth has been huge, shown by a 7.4% revenue growth since 2005.
Why is McDonalds Entering the Alcohol Business?
McDonald’s brand and products seem to be more welcome in the West, and the company has had difficulty capturing the hearts of customers in Asia. This can be seen in the company’s financial statements, which clearly segments its markets into 4 regions: The United States, International Lead Markets, High Growth Markets, and Foundational Markets.
Even though McDonalds operates in more than 100 countries, 80% of its consolidated income comes from the United States and International Lead Markets. In the “high growth market category,” 8 countries are “unpenetrated markets”, meaning there is more potential for expansion. South Korea is one of them, but McDonalds is still seeing sales decline. The new menu is part of a reinvention strategy.
McDonald’s has experimented with new menus to combat a decline in sales with moderate success. In the United States, the fast food giant’s all-day breakfast menu drove up sales by nearly 6%. In Sydney, it has transformed a few of its McCafe outlets into more high end branches, naming them “The Corner”.
It will be no different in Korea, as the company has decided to make some major changes to its menu by adding an alcoholic beverage. However, this is not the first time that McDonald’s has changed its menu to better adapt to the Korean market.
Just a few weeks ago, the fast food chain transformed itself into a higher-end restaurant with the addition of its “Signature Burger”. This will allow customers to mix and match to decide on the burger of their choice with an in-store touch kiosk. This is in response to customers’ demand for a higher quality service experience.
Beer is Coming to McDonalds in Korea
The company is adding beer to its menu to combat declining sales stemming from an increase in competition. The rationale behind adding beer to the menu is the fact that many South Korean working adults are fond of eating out late with alcoholic beverages after work.
With a legal drinking age of 19 in South Korea, McDonald’s has considered that it might lose younger customers. But this is a risk they are willing to take, especially since 90% of its South Korean customers are above the age of 20. Therefore, adding an alcohol beverage should make it a better place for young people.
According to some analysts, if McDonald’s first store serving beer turns out to be a success, there should be more stores following the trend popping up throughout Seoul – and possibly the world.