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McDonald’s Corporation (MCD), Burger King Worldwide Inc (BKW): It’s Time for Africa

World Bank has predicted 2.5% economic growth for South Africa in 2013 and 4.9% growth for sub-Saharan Africa. This compares with 2.2% estimated overall global growth this year. According to a 2010-McKinsey report, household expenditures may increase as much as 63% through the decade to attain a size of $1.4 trillion by 2020.

No wonder Africa is the hottest destination for all consumer facing sectors. According to Ernst & Young, Africa is expected to see foreign direct investment of $150 billion by 2015 compared to $84 billion in 2010.

Although Africa, like any other emerging market, has its set of challenges like supply issues and a lack of appropriate infrastructure, it looks like Burger King Worldwide Inc (NYSE:BKW) has chosen its new market well.

Burger King has company

Burger King Worldwide Inc (NYSE:BKW) is not the first western fast food chain to discover Africa. KFC arrived in South Africa 42 years back and currently has 600 restaurants in the country and 900 all over the continent.

Yum! Brands, Inc. (NYSE:YUM)’s International division, which includes its operations in all countries other than China, the US, India and some smaller countries in the Indian sub-continent, has had a 10-year compound annual growth rate of 12% in operating profits.

It is impossible to talk about fast food in the international arena and not mention McDonald’s Corporation (NYSE:MCD). Mickey D’s reached South Africa about 18 years back and operates 170 restaurants in the country. As everywhere else, it enjoys good popularity for its signature Big Mac burgers, which sell for 22.95 rand, a little lesser than the 23.90 rand that Burger King is charging for Whoppers.

Barring China, Australia, and Japan, the other countries in the company’s Asia/Pacific, Middle East and Africa (APMEA) segment account for approximately 13% of total revenue.

Last word

Burger King Worldwide Inc (NYSE:BKW) is doing the right thing by looking for more presence in emerging countries. South Africa and sub-Saharan Africa are good places to set up business due to their tremendous growth opportunities. Although it will face competition from McDonald’s and KFC, the market is still large enough to accommodate all. Good growth in the emerging markets can act as an added catalyst for the stock on a long-term basis.

The article It’s Time for Africa originally appeared on Fool.com and is written by Eshna De.

Eshna De has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and McDonald’s. The Motley Fool owns shares of McDonald’s. Eshna 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.

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