In 1995, just one year after South Africa had emerged from the repressive Apartheid system of government, fast-food chain McDonald's began opening restaurant locations in the country. Today, McDonald's is still operating in South Africa with a portfolio of 123 locations.

I have tasted the McDonalds here, and I must say it's much better than in the states.

Among the top stories in the business world last week was McDonald's announcement that it is offering the sale of operating licensing rights to its South African locations. The technical term is a Potential Development License.

But the offer is not just for anyone, and the terms are narrow. Information disclosing more certain terms will be enclosed in an offering memorandum for those who are qualified with operating experience and are significantly capitalized.

My perception from the newspaper and magazine stories on the matter is that an interested party must be a leader in the financial markets and hold a great deal of liquid cash as well as access to financing.

The problem for McDonald's is that finding qualified candidates won't be easy.
South Africa is just now realizing the global recession that the United States has been experiencing for the last two years. What's more, the South African government does not appear to have the financial capacity or enabled constituency to invest in a stimulus plan to assist businesses and investors. This has led some to scratch their head as to who will jump at McDonald's offer.

But don't fret. There are always naive opportunists hat tdon't understand the incredibly important management assumptions, or cost-benefit calculations, such as increasing operating costs during volatile market conditions.

One may ask why McDonald's has made this decision in the first place?
Well, McDonald's has said that it does not have the financial capacity to operate in the South African market, but nevertheless desires expansion. Thus, they are looking for a partner to operate and develop the business.

This is a load of crap. McDonald's is looking for local investors to operate and expand the business in rough times so that it can focus on core domestic assets - keeping shareholders happy - and still retain ownership rights and brand equity. If fact, under the announced terms, McDonald's would retain all ownership rights. This includes, but is not limited to, the brand, corporate identity and all existing real estate property holdings.

To translate, this means the prospective operator/investor would pay all operating and expansion expenses, in addition to business licenses and rising import costs, while McDonald's would only pay existing real estate taxes that will continue to decrease due to diminishing real property market conditions.

This is not a local phenomenon. McDonald's has already executed similar strategy in Latin American countries such as Mexico, Argentina, Brazil and Venezuela as well as 13 others around the globe.

The plain fact is local South African market competitors are able to hold the ranks with the leading U.S. fast-food Goliath, which means McDonald's does not have a monopoly...yet. Wimpy and Steers burger restaurants have more than three times the number of locations as McDonald's (400 and 476 respectively).
Several articles have argued that South African's desire a flame-broiled burger, something that McDonald's does not offer.

Do you blame them?

Interestingly, none of the three burger joints enjoys top spot in South Africa's fast-food. Kentucky Fried Chicken is king of the hill here. In fact, there are only a few countries where chicken outsells burgers in the fast-food category. South Africa is one of them. Boy, I love my fried chicken!

I can't say that I am an expert in business strategy and operations. However, I can say that one key to success is doing the right research when opportunities present themselves. McDonald's may sell a story that they are struggling. Yet, there not struggling the way people in South Africa know struggle and they definitely have the keen sense to know how to continue making money in all markets regardless of the economic circumstances. 

Caveat emptor. Buyer beware.