In 1992, when the world's largest McDonald's opened up in China's capital city of Beijing. China's second outlet, the Beijing McDonald's was located on the city's busy shopping street, not far from the Communist headquarters. On its first day, the restaurant served about 40,000 customers. At its peak time, more than 500 people lined up outside, waiting anxiously to try a piece of Americana, with each set meal costing about 15 yuan ($3.50) - one sixth of a worker's monthly salary. The exotic name, han bao bao (hamburger), the elaborate packaging and the novel flavor of a Big Mac thrilled ordinary Chinese, who saw McDonald's as a symbol of the modern and wealthy America that their own country tried to emulate.
Since then, the golden arches have spread fast -- McDonald's now owns more than 1,400 restaurants in China, which is the company's third-largest market. In 2011, the company set a new record by opening 200 stores. It plans to open between 225 and 250 outlets in 2012.
In China, numerous scandals relating to food safety have undermined people's confidence in restaurant food. McDonald's has had its own safety crisis – and emerged virtually unscathed. In March, a McDonald's store in Beijing was accused of selling food beyond its expiration date. The incident caught the public by surprise, especially since the company had just aired a new ad campaign touting the importance of food safety and quality. McDonald's responded swiftly, launching an investigation and inviting the government media to scrutinize its food preparation process. Despite the incident, the world's largest fast food chain reported an impressive 7% net income rise in the first quarter of 2012 and a 5.5% comparable sales increase in the Asia/Pacific region.
Kenneth Chan, McDonald's China CEO, recently spoke with Fortune at a McDonald's store inside a Western-style shopping mall in Shanghai. Walking into the crowded restaurant felt like stepping into a hip European-style coffee house, with abstract wall paintings on beige, green and red backgrounds. Chan, 47, is a Singaporean native who started his career at McDonald's in 1993 and has been CEO in China since 2009.
FORTUNE: McDonald's (MCD) is now facing a formidable competitor -- KFC (YUM) has about 3,500 stores in China and has a larger market share. How do you plan to capture more of the market?
Chan: We are not looking to be the largest in terms of the number of outlets, but we want to be the best-quality, best-service restaurant. We hope to attract more and more customers to increase same store sales. In 2012, we'll increase our overall investment by 50% -- adding more drive-thrus, dessert kiosks and extended hours to help grow sales at existing stores. Not only do we invite customers to come in, we also reach out to them through our fast delivery services. We want to be available anytime and anywhere for our customers.
Opening new restaurants is another top priority. In addition to opening our own restaurants, we have stepped up our franchise programs. After all, McDonald's is a franchise company. At present, 80% of McDonald's worldwide are owned by franchisees; in China, only 36 restaurants were franchised by 2011. We are working hard on this.
