Betty

By Wally Griffith
CNBC
updated 8/15/2008 5:18:25 PM ET
*
* BEIJING — Two decades ago, McDonald's was largely unknown here, except as a symbol of the decadent west. But a capitalist revolution has swept through the People's Republic. And today mainland China, still officially Communist, is home to 800 McDonald's restaurants — with 200 more in Hong Kong.
Jeff Schwartz, CEO ofMcDonald's China, says that’s just the beginning.

“I just look at China's 1.3 billion population,” he said. “U.S. (population) 300 million, 13,000 restaurants. China (population) 1.3 billion and 800 restaurants. Easily we're talking 10,000 to 5,000 restaurants as it continues to develop. So the opportunity is endless.”

It may be endless, but it’s not effortless. That's why Schwartz and his boss,Tim Fenton, spend so much time in China — on the road, in the air and on the move. Fenton is CEO of McDonald's for Asia, the Middle East, and Africa. There's no one at McDonald’s with more experience moving into new markets.

“Mistakes we made in the past: you don't open just one store,” he said. “You get three or four or five deals done, build them consecutively, train the crew consecutivelyso you save on the money. So when a truck goes out from the distribution center, it's not carrying one store, it's carrying the products for three to five."

When McDonald’s first opened in China in 1990, these streets were clogged with bicycles. But prosperity has brought an explosion in car ownership. However many headaches that may mean for Chinese drivers, McDonald’s saw an opportunity —called drive-thru. The company opened the first drive-thru outlet in November, 2005 and Schwartz says it’s been “very, very successful.”
“(It’s a first) for anywhere at all in China,” he said. “Drive through was a brand new concept anywhere in China.

In fact, drive-through was such a new concept in 2005, that many Chinese didn't know how to use it.
“We have a lot of traffic, and I’m walkingaround, they pick up the food, and then they went and parked their car, they brought their bag of food and they went inside,” said Schwartz. “And I watched this happened several times, and I think we might have a problem here on how the Chinese use the drive thru.”
Which meant that Chinese crews not only had to learn how to run a drive-thru but had to teach their customers how to use one. But somecustomers don't catch on as fast as others. On a recent visit with Fenton, one BMW driver entered the drive-thru on the exit side.
McDonald’s is up to 26 drive-thrus in China — so far. But if most Chinese drivers still aren't familiar with the idea, that's about to change — dramatically.
In 2006, McDonald’s signed an agreement with the Chinese state oil company, Sinopec, granting it the right toopen McDonald’s stores at any of Sinopec’s new and existing gas stations – all 30,000 of them.
The very first one, opened in July, 2006, in a surprisingly run-down neighborhood outside Beijing.
“It's off the beaten path of Beijing, so it's a suburb coming out,” said Fenton. “It's a little grittier but it's like an oasis to me. I'm guessing we might be a little premature here, from the McDonald’sside, but with only upside potential.”
That, in a nutshell, has become a key part of McDonald’s expansion strategy in China: the willingness to bet on an area that may not be ready for a McDonald’s — yet. But with China, the world's fastest growing economy, McDonald’s is banking on neighborhoods like this being a good gamble.
“It's really not that difficult,” said Fenton. “You look at adeveloping area, and you see where it's going. You see the corners. You see the retail. You see the apartments and the condos coming in … we’ve done a lot of real estate. We've done it, like, 34,000 times.”
When the first of the new stores was set up, the surrounding buildings were half built with large undeveloped space behind it, said Schwartz.
“But you looked at the site layout and they said the...