Hamburger University in Shanghai Is Sizzling

It's where McDonald's intends to develop leaders for a massive Eastern expansion

Source: Bloomberg Business

Zhou Xiaobu runs from one end of a table to another, grasping a piece of a jigsaw puzzle her team is assembling as part of a leadership training exercise for McDonald's managers. "Go, go, go!" yells their instructor, exhorting them to work for the prize, a box of Danish butter cookies that will go to the first group to build the company's trademark Golden Arches. Above their heads a sign reads: "Learning today, leading tomorrow." The thick green binders stuffed with paperwork on each of the 31 students' desks indicate this is no place for slackers.

Such is the seriousness of purpose found at McDonald's new Hamburger University near Shanghai, where the chain aims to crank out a new generation of leaders to fuel big expansion plans in China. While the 20th-floor training center is no Harvard, landing a spot at the Chinese campus of Hamburger U. (McDonald's has seven worldwide) is actually more difficult than getting into the Ivy League icon. (Less than 1 percent of McDonald's applicants get in, making Harvard's 7 percent acceptance rate look downright welcoming.) Zhou was one of only eight people hired from among 1,000 applicants for a management trainee position in the central Chinese city of Changsha. She then had to compete with 43 other workers at her store to be named first assistant manager, earning her a slot at Hamburger U.

Getting into the school is so competitive because more than 26 percent of China's 6.3 million college graduates were unemployed as of July 1, compared with a 4.2 percent jobless rate for its urban workforce. That has caused grads who wouldn't normally consider a food-service career to give Mickey D's a look. "The main reason McDonald's put up Hamburger University is to professionalize the sector, making it easier to recruit better people," says Joel Silverstein, president of Hong Kong-based consultants East West Hospitality Group.

McDonald's is counting on students schooled in store operations, leadership, and staff management at the Shanghai campus to power its mainland growth. So far it's been outpaced by rival Yum! Brands, parent of KFC and Pizza Hut. McDonald's operates 1,300 stores in China and aims to have 2,000 by 2013. Yum already has 3,700 in China, where it earned 44 percent of its $1.33 billion operating income in the first three quarters of 2010. An approving Wall Street sent Yum's market value up 40 percent last year, vs. McDonald's 23 percent.

McDonald's plans to raise investment in China by 40 percent this year after boosting such spending by 25 percent in 2010. It opened a record 165 outlets in China last year and plans 1,000 more by the end of 2013. Analysts say the chain can't meet that goal without minting more local managers to run individual stores and chart regional strategy. "They are preparing a base that will allow them to accelerate that rate of expansion," says Peter Jankovskis, co-chief investment officer of OakBrook Investments.

Hamburger U., which will cost McDonald's 150 million yuan ($22.8 million) in the five years through 2014, trained 1,000 of McDonald's almost 70,000 Chinese employees last year, says Susanna Li, its head. An additional 4,000 will attend classes through 2014. "We'll make sure the people pipeline is ready," she says.

The bottom line: McDonald's has big growth plans in China. It has opened a Hamburger University campus there to train managers to run those new stores.