Starbucks Corporation (SBUX), McDonald’s Corporation (MCD): 2 American Restaurants Set to Conquer China

How many stores could China support?

In the United States, McDonald’s Corporation (NYSE:MCD) has one location for every 17 thousand consumers. Assuming McDonald’s Corporation (NYSE:MCD) an penetrate China at a third of the rate it has in the United States, the company could build 30,000 locations in the Middle Kingdom.

That’s a long growth runway!

In addition, McDonald’s Corporation (NYSE:MCD) recently announced that it shifting towards a franchise business model in China. Today, nearly all McDonald’s Corporation (NYSE:MCD) locations are company owned. But by 2015, management is aiming to have between 20%-25% of its Chinese stores franchised.

What does this mean for investors?

A less capital intensive expansion. That frees up funds for shareholder friendly activities like dividends and share buybacks.

Foolish bottom line

But aggressive expansion comes with risk. China is notoriously challenging to operate in and fortunes can change quickly.

Yum! Brands, Inc. (NYSE:YUM) illustrates this problem perfectly.

In January, the company reported a 41% plunge in China same store sales after it was announced that its KFC brand chicken contained high levels of antibiotics. It may take years for the company to repair its reputation.

Yum! Brands, Inc. (NYSE:YUM)’s Chinese comp sales fell another 29% in April following Avian flu fears. That’s particularly alarming for investors because China now accounts for 50.6% of the company’s revenues.

This highlights the importance of execution. Slip-ups can derail growth plans with devastating consequences for shareholders.

But if Starbucks and McDonald’s can pull it off, China represents an incredibly huge addressable market. That means at least a decade of double-digit earnings and dividend growth for shareholders.

The article 2 American Restaurants Set to Conquer China originally appeared on Fool.com.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Starbucks. The Motley Fool owns shares of McDonald’s and Starbucks. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.