Why is the coffee industry in Singapore tied to McDonald's Korea sale?
McDonald's has sent sale teasers to more than ten potential buyers for its South Korean business, offering all shares held by McDonald's Singapore Investments plus domestic operating rights. The valuation is about 500 billion won, roughly RMB 2.53 billion, with preliminary bidding expected in October.
This is the second attempt since 2016, when talks with Maeil Dairies and Carlyle Group collapsed over price. McDonald's Korea leads the country's fast-food market by store count but posted an operating loss of 27.7 billion won in 2021, as delivery fees and raw material costs rose and prices were raised twice in half a year.
Amid continuously rising labor costs and fierce competition in the food delivery market, McDonald's is moving to divest its South Korean business. According to South Korean media, the US fast-food giant has sent sale teasers to more than ten potential buyers, offering all shares in McDonald's Korea held by McDonald's Singapore Investments and the domestic operating rights, with an estimated valuation of about 500 billion won (equivalent to RMB 2.53 billion), and preliminary bidding is expected to take place in October. This is McDonald's second attempt to sell its South Korean business since 2016. Although McDonald's leads in the number of stores in South Korea's fast-food market, it posted an operating loss of 27.7 billion won and a net loss of 34.9 billion won in 2021, as high delivery fees and rising raw material prices weighed on operations. To cope with surging costs, McDonald's Korea has raised prices twice within half a year, with the most recent increase covering 68 items and averaging 4.8%.
Facing rising labor costs and increasingly fierce competition in the delivery sector, US fast-food chain giant McDonald's is selecting more than ten interested parties from South Korean domestic private equity funds and mid-sized companies, planning to transfer management rights to its South Korean business, and will launch the first round of bidding next month.
According to a report today by South Korea's Maeil Business Newspaper, McDonald's is weighing the possibility of selling its South Korean business. Citing unnamed investment banking sources, the newspaper said McDonald's sent sale teasers to about ten potential acquirers last month, and preliminary bids are expected to be submitted in October.
The target of this transaction is 100% of the shares in McDonald's Korea held by McDonald's Singapore Investments and the domestic operating rights in the country. This is already the second time the US fast-food giant has tried to offload its South Korean business. In 2016, McDonald's held lengthy negotiations with Maeil Dairies and Carlyle Group, but because the asking price was too high and due to other factors, the buyers ultimately gave up, causing the sale plan to fall through.
According to a September 5 report by South Korea's Maeil Business Newspaper, the valuation of McDonald's South Korean business this time is 500 billion won (about RMB 2.53 billion), roughly comparable to the valuation level six years ago.
McDonald's was one of the first US fast-food brands to enter the South Korean market in 1986, and it is now also the fast-food chain brand with the largest number of stores in South Korea, holding a significant dominant advantage. Precisely because of this, some mid-sized companies interested in entering the food and beverage industry are considering joining the bidding. Considering that many McDonald's stores are located in bustling commercial districts, McDonald's Korea is treating the real estate value of its stores as an important selling point in this sale.
Although McDonald's currently holds a leading position in South Korea, its South Korean business recorded an operating loss of 27.7 billion won in 2021, a net loss of 34.9 billion won, and sales of 867.8 billion won. High delivery service fees, combined with sharply rising labor and raw material costs, have left McDonald's South Korean business mired in operating losses.
To ease cost pressure, McDonald's Korea announced price increases on August 19, raising the prices of 68 items including beverages and desserts, with an average increase of 4.8%. This is already McDonald's Korea's second price increase within half a year.
Image source: Internet
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The above content is compiled by CoffeeHunters, a coffee news website.
