How This Fast Food Chain Is Eating McDonald's Lunch in Asia

McDonalds in China
McDonalds in China

McDonald's (MCD) has always been the worldwide giant of Western-style fast food. As of December 2011, the company had 33,510 restaurants in 119 countries.

Whenever and wherever the classic American burger joint has shown up, the Golden Arches have dominated -- until now.

The most popular Western-style, fast-food company in China right now is Yum! Brands (YUM), the owner and operator of fast-food stalwarts Taco Bell, Pizza Hut, and KFC. In fact, Yum!'s operations in China dwarf its longtime rival: It has more than 4,000 outlets there, versus McDonald's 1,400.

China Is Just the Appetizer

With a population of more than 1.2 billion, the next potential growth market for Western fast food is India. There, too, Yum! has Big Mac-sized aspirations.

Yum Brands KFC in China
Yum Brands KFC in China

"We're going to share what we have learnt in China," Yum! Chairman and CEO David Novak was recently quoted as saying in the Financial Times, "because we think that the model can be adapted in [other] emerging markets."

Yum! made it its mission to tailor menus to local tastes in China and will undoubtedly employ this strategy in India, as well. (In addition to the brand's classic fried chicken, menu options at its KFCs in China include beef, seafood, rice dishes, fresh vegetables, and soups. Pizza Hut offers menu items similarly skewed toward Chinese tastes.)

But the piece de resistance of Yum!'s plan should sound very familiar to a certain hamburger-loving clown.

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Thanks for the Great Idea, McDonald's

Drive down most highways in the U.S. or through most small towns, or walk through most big cities, and you'll notice that McDonald's restaurants typically have the best visibility and are almost always the easiest to access.

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In part because it's been around for so long, McDonald's has always gotten the jump on the prime locations for its restaurants. This is especially clear in the U.S.

This focus on grabbing the best real estate for its outlets has been a winning corporate strategy for McDonald's -- so effective that Yum! used it to great success in China, and is now applying the same strategy to win the fast-food battle in India.

"What we're doing in India is we're getting flagship locations just like we [did] in China," Novak told the Financial Times.
Right now McDonald's has just 160 outlets in India. Yum! boasts more than 200 KFCs already, with a total of 550 expected by 2015. There are currently 160 Pizza Huts open, and Taco Bell is just starting to get ramped up.

%Gallery-142974%And, like it did in China, Yum! will move into the second- and third-tier cities in India once the flagship locations are established. Because labor and rents are significantly cheaper in those cities, profits will be higher than in the first-tier cities, which should help the company's margins overall.

By slyly adopting one of McDonald's own best strategies, and developing some of its own, Yum! has gotten the jump in India and looks set -- once again -- to beat McDonald's at its own game overseas.

John Grgurich is a regular contributor to The Motley Fool and has no positions in either McDonald's or Yum! Brands. Motley Fool newsletter services have recommended buying shares of McDonald's.