McDonald's Opens Virtual Store to Promote Value Meals in China

Aims to Court Customers Who Are Turning to Traditional Foods in Soft Economy

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HONG KONG (AdAge.com) -- As fast-food sales in China soften along with the economy, McDonald's Corp. has opened a virtual store to promote its Super Value Meals through an alliance with the online portal Taobao.

McDonald's core customers in China appear to be returning to traditional Chinese-style fast-food options, usually rice or noodle dishes that feature chicken, rather than beef burgers and fries.
McDonald's core customers in China appear to be returning to traditional Chinese-style fast-food options, usually rice or noodle dishes that feature chicken, rather than beef burgers and fries. Credit: AP
McDonald's is partnering with Taobao, the consumer division of Alibaba Corp., known as the eBay of China, to conduct reverse auctions offering pricey consumer electronics for the price of Super Value Meals in response to Chinese consumers' growing concern about their future prosperity.

Consumers going traditional
McDonald's core customers in China -- white-collar workers in tier-one and tier-two cities -- have grown nervous about the state of the economy and are cutting back on discretionary spending. What's worrying McDonald's executives, as well as senior management at rival chains such as KFC, is that consumers appear to be returning to traditional Chinese-style fast-food options, usually rice or noodle dishes that feature chicken, rather than beef burgers and fries.

Food sold at street stalls or in small dai pong dong snack shops commonly found in China is usually cheaper and more suited to local tastes. McDonald's hopes cheaper prices will reverse the sales drop hitting Western fast-food chains in China. The company launched Super Value Meals in China last month and added inexpensive breakfast combinations.

To win back consumers and tap into their desire to save money, McDonald's is leveraging the popularity of the Taobao auction site "to communicate the benefits of everyday super value to more young netizens," said Phyllis Cheung, McDonald's VP-chief marketing officer in China. "We needed to find a way to raise awareness of our new Super Value Meals. A lot of online shoppers are looking for value, just like Taobao, and we're both talking to urban adults, especially people in their early 20s."

Prizes
To promote the meals, McDonald's and Taobao launched a promotion that gives consumers a chance to win prizes for 16.5 RMB ($2.41), the price of McDonald's Super Value Meals.

Web surfers who visit the McDonald's Super Value online store on Taobao can bid for items initially listed at normal retail prices. Every time a user bids on an item, the price goes down by 1 RMB (15 cents) in a reverse-auction format. When the price of the item hits 16.5 RMB, the last bidder can buy it for that price.

"Amid the current global economic recession, e-business is showing its strengths clearly [of] high efficiency and low cost. By cooperating with traditional enterprises, we hope to find a way integrating online and traditional marketing," said Zhou Junwei, VP-advertising at Taobao, which had more than 92 million registered users at the end of 2008.

Above the line, digital
There are 4,000 items on offer, including laptops, cellphones, digital cameras, digital music players, watches, cosmetics, apparel and household appliances, all of which are normally sold on Taobao. About 100 products will be auctioned daily through the end of March. The e-store also lets consumers buy McDonald's gift vouchers.

McDonald's is marketing the promotion with above-the-line advertising and digital marketing created by Omnicom Group's TBWA Worldwide and DDB Group, respectively.

McDonald's operates more than 1,065 restaurants in China. It wouldn't confirm how sales have been affected by the downturn in the fast-food category, but that will be one of the challenges facing Kenneth Chan, who took over this month as CEO for China. He succeeds Jeffrey Schwartz, 55, who is retiring.

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