Why is there no McDonald’s in Bangladesh?

In many ways, a burger is the last thing McDonald's sells.

Founded in 1940 as a restaurant, McDonald's is not just the most famous fast-food chain on Earth, it is also an important symbol of globalisation and economic liberalisation.  

In international relations and economics literature, the term McDonald's almost carries theoretical relevance. The Economist magazine publishes a Big Mac Index (after the signature sandwich on the McDonald's menu) every year, testing what currencies are overvalued compared to the US.

The New York Times columnist Thomas Freidman once famously quipped "No two countries that both have a McDonald's have ever fought a war against each other," (although not literally true, but Freidman's larger point about McDonald's playing an important role in the integration and stability of the world economy certainly rings true.)

McDonald's, in essence, does not just sell a burger, it sells a certain style of production and management, a certain theory of economic operations and a lifestyle for its consumers.

And it has done this extraordinarily successfully. There are nearly 38,000-39,000 McDonald's restaurants in around 120 countries, serving a staggering 68 million consumers every day.

Which therefore begs the question: Why is there no McDonald's in Bangladesh? 

After all, Bangladesh is one of the fastest-growing economies in the world, will graduate to developing country status in 2026 and aims to become a developed country by 2041. 

Even Pakistan has an astonishing 72 outlets of McDonald's and the restaurant has been in that country since 1998.

Global fast-food franchises began making forays into the Bangladeshi market in the mid to late 1990s, starting with lesser-known names such as Southern Fried Chicken and Wimpy. Then in the 2000s, the big names – Pizza Hut and KFC - burst into the scene. 

Both arrived with fanfare. 

For months, the construction of the first outlets was kept literally under wraps; and for at least a month after its launch, you would find queues outside the restaurants that reached about half a kilometre. 

Today, fast-food franchises are a dime a dozen in the metropolis of Dhaka. You have Japanese chains such as Sushi Tei, numerous chains that originate from Southeast Asian countries like Malaysia and Singapore, and just about every other global big name – such as Burger King and Domino's – that are not just located in the major neighbourhoods of the capital city, but a number of other large cities in the country as well. 

Some, like Nandos, Baskin-Robbins and Krispy Kreme, came and then left. 

And yet, the jewel in the crown – McDonald's – is nowhere in sight. 

The trail runs cold

To find an answer as to why McDonald's never set up shop in Bangladesh, we actually started by reaching out to McDonald's itself. We received a generic response over e-mail a few days later. 

"McDonald's does not have any plans to open restaurants in new markets in the foreseeable future. McDonald's is focused on improving our existing restaurant base rather than opening restaurants in countries where we do not currently have a presence."  

That is certainly true to an extent. 

Although McDonald's expanded into new markets aggressively in the 1980s and 1990s, since 2000, they have opened restaurants in only six new countries. Nonetheless, McDonald's continues to aggressively expand in markets where they already have a presence and reportedly opened around 1,000 restaurants during the pandemic. 

For Bangladesh, however, the absence of McDonald's arguably has less to do with their strategy and more to do with their business model, the country's volatile real estate market and its weak cold chain.  

McDonald's, unlike the other international brands operating here, have very strict requirements of franchisees, including high investment costs that include 40 percent of the construction cost as down payment, $45,000 as franchising fee, and 4 percent of monthly sales revenue as a royalty fee. 

According to Franchise Business Review, setting up McDonald's usually involves an investment of anywhere between $1.2 million to 2.2 million. 

"The brands here in Bangladesh already are quite flexible, compared to others like McDonald's," says Rajeeb Samdani, the Managing Director of Golden Harvest, the company behind the launch of Domino's Pizza in Bangladesh. 

"McDonald's is extremely strict. For example, from harvesting the potatoes in the field to turning them into fries, McDonald's ensures complete traceability - by maintaining a cold chain in every step. We do not have the cold chain infrastructure that is required for all these. Bangladesh would have more food franchises if we had the cold chain infrastructure," he adds.

For Bangladesh, however, the absence of McDonald's arguably has less to do with their strategy and more to do with their business model, the country's volatile real estate market and its weak cold chain.  

According to Samdani, an investor looking to launch McDonald's in Bangladesh would not only struggle to meet the franchisor's strict requirements but would need an additional investment of Tk200 to Tk300 crore just on setting up the logistics. 

Akku Chowdhury, former Managing Director of Transcom Foods Limited – the company behind Pizza Hut and KFC in Bangladesh – concurred.

"From the beef to everything else in McDonald's has to be frozen, frozen, frozen! Everything has to be imported from outside. And that can be very difficult. For example, what would you do during Covid-19 or strikes when there is a supply chain disruption?"

According to Chowdhury, even Pizza Hut had to import the flour for the pizza dough from Australia at first. 

"We had to wait a long time to find a local flour that they approved of. We had to wait two years to get KFC here because the poultry we served had to be fed in a certain way, had to be properly taken care of, etc. And we had to audit it. We also needed to have an animal welfare officer."

The agro-processing sector in Bangladesh accounts for only 1.8 percent of the GDP, Samdani pointed out. "This makes it very complicated to source ingredients locally," he added. 

According to Chowdhury, McDonald's had been looking to enter the Bangladeshi market even before Pizza Hut and KFC arrived but were discouraged by the absence of cold storage.

"When we came, we found only two cold storages. Only one of them was somehow acceptable, but it was not good enough. For each of our outlets, we had to have a refrigerator room and a chiller room, whereas McDonald's requires a whole system for it."

McDonald's appears to take it a step further when it comes to requirements. 

Instead of profiting from franchisee and royalty fees, McDonald's generates more of its revenue from real estate. According to Wall Street Survivor, the company owns 45 percent of the land and 70 percent of the buildings of their total outlets.   

In Bangladesh, real estate is expensive, even by global standards. Secondly, real estate prices in places like Gulshan and Baridhara – where the most affluent and enthusiastic crowd for global franchises reside – are exorbitant. 

Furthermore, even in places like these, buildings are not often compliant with local and international regulations. Many franchises have folded, while the existing ones' struggle, largely due to high real estate expenses.

"We opened KFC and Pizza Hut in Gulshan because we had the space easily available. When it comes to KFC and Pizza Hut, we could not just run it anywhere because the building needs to be approved by RAJUK. I had to personally dig into whether the building was approved by RAJUK for commercial use," Chowdhury recalled. 

"It took us a long time to open in Dhanmondi. If I had it my way, I would have opened in Dhanmondi first. But finding a legally compliant building in Dhanmondi was very difficult back then."

"If you are looking for a place to start a fast-food restaurant, the first issue you are guaranteed to face is that you will not find a location with parking.

One area where many franchises went wrong is most of them began their journey from Gulshan Avenue. But our journey began from Dhanmondi," Samdani added. 

"When I am launching in Gulshan, I am competing with City Bank, Prime Bank, Standard Chartered Bank, etc. How can I compete with wealthy banks? While they can afford to pay Tk400 per square foot in rent, think of the volume of pizzas, burgers or fried chicken one needs to sell to pay for a space of 7,000 square feet," he further added.

Real estate prices in Bangladesh that directly contrasts with the franchisee model of McDonald's (McDonald's reportedly recommends restaurants be built over 50,000 square feet, with 4,500 square feet for the actual restaurant and the rest for parking) have meant that despite enthusiasm from McDonald's at one time, and local entrepreneurs still, the restaurant never materialised in the country. 

And then you have the issue of cold chain and agro-processing, which make it virtually impossible for any local investor to come up with a sustainable business model for introducing the premier fast-food chain in the country.