Top businessman takes over McDonald's South Africa

AP News
Posted: Mar 17, 2011 2:49 PM
Top businessman takes over McDonald's South Africa

One of South Africa's most prominent and politically connected businessmen is taking over McDonald's restaurants in the country, McDonald's said Thursday.

Analysts said that in turning to a businessman McDonald's said was "familiar with local dynamics and market conditions," the global giant may be acknowledging problems with its business in South Africa.

The announcement did not say how much Cyril Ramaphosa is paying for a 20-year master franchise agreement to run all 145 McDonald's restaurants in South Africa. The statement said that unlike a conventional franchisee, Ramaphosa would own all the assets, including owning or leasing the real estate. Customers won't notice any change, McDonald's said.

Ramaphosa is a former union leader who was African National Congress general secretary during the constitutional negotiations that ended apartheid in 1994. He went on to found an investment empire with interests that include a power plant, a Coca-Cola bottler and mines. He remains a leading figure in the governing ANC.

Chris Gilmour, an analyst at South Africa's Absa Asset Management who follows the fast food business, said McDonald's has struggled since opening its first South African restaurant in Johannesburg in 1995. One sign of trouble came last year, when South Africa was the first African country to host the World Cup, soccer's premier international event.

McDonald's was a World Cup sponsor, but did not serve food at the stadiums or fan parks.

R.J. Hottovy, a Chicago-based analyst for Morningstar, said McDonald's was strong internationally, but has struggled in some markets, such as Japan. Hottovy said it was not uncommon for companies to turn to local expertise when business overseas doesn't meet expectations. He said McDonald's lags in South Africa behind KFC, a U.S. company that has been here longer, and the local Nando's chain.

"My suspicion is that the company hadn't gained the kind of traction that it wanted," Hottovy said.

In Thursday's statement, McDonald's South Africa Managing Director Greg Solomon said: "McDonald's South Africa is a strong and robust business, and we're confident in its future with Mr. Ramaphosa as its new owner."

Ramaphosa said he was honored at the opportunity, and would "focus on satisfying our customers, developing our people and maximizing business opportunities."

Gilmour, the South African analyst, said he believed McDonald's had stumbled in South Africa by underestimating the hold local fast food chains had on the market, and by opening restaurants that were too large and expensive for potential franchise holders to operate.

He also questioned whether McDonald's fare suited South African palates.

"It doesn't matter what operator you get on board, if there's a fundamental disconnect," Gilmour said.