In addition to the conventional franchise model in mature markets like the U.S., we also implement what we call a "developmental licensee" model. In certain provinces where we don't have the capacity to reach out for many years, we are looking for licensee partners who have strong financial backgrounds and strong business experience. China had seven conventional licensees and two developmental licensees as of 2011. It's still a very low percentage and over a very short time that will change. The pace of franchising in China depends largely on finding the right partners.
We are now seeing slower economic growth in China. What is McDonald's doing to cope with these challenges?
A key winning strategy has always been our focus on value and affordability. We have launched different types of value meals packages -- breakfast, lunch or snacks costing from $1 to $3. We want to be affordable so Chinese consumers can come here often and not just as a treat. On the other hand, we strive to provide convenience -- our stores are in the most convenient locations and we are open 24 hours. Not only do we invite more people to come to us, we also go to them through our delivery services.
Many of your restaurants here in Shanghai seem to have new looks. What's behind the image makeover?
We are reinventing ourselves to adapt to the changing constituency. By the end of 2013, about 80% of our restaurants will undergo reimaging. The design will vary by areas. In business districts with many young professionals, we have kiosks for coffee and pastries. In areas with young families, we reserve places for kids to play or host parties. We also offer customer-friendly amenities like free Wi-Fi and McCafes. We want to stay relevant to the younger population and make them stay longer.
With the high inflation rate and rising labor costs in China, how does McDonald's keep its prices down?
This is not just a McDonald's issue. It's affecting everyone. Fortunately, we are able to use our supply chain to get long-term predictability pricing. As a result, we have managed to keep our material cost lower than the market rate. We are also focusing on productivity and efficiency.
With the opening of new franchised stores, how do you guarantee the safety of your food chain?
We have spent twenty years building a wholesome supply chain system and our stringent standards covers the overall process, from the farm to the restaurant. About 95% of our ingredients are produced here under our safety protocol and standards. We try to communicate with the government and food authorities here and we are transparent to the public so they understand the kinds of effort we have made. We have extensive training and stringent standards for franchisees.
