McDonald's: Sales in Europe are ahead of those in the US

Gonna talk about this, but I've already taken some pills, need to go to bed now..will write another entry tomorrow when I have time.. come back again later if you are interested.

For McDonald's, a European redesign starts to pay off
By Julia Werdigier August 17, 2007
International Herald Tribune

LONDON: Taking a respite from an afternoon of shopping, Ita Clift sipped a cappuccino at a McDonald's on Edgeware Road, in northwest London. Though she said she rarely set foot in one of the many branches of the fast-food chain in London, Clift said she dropped in to this one for a quick boost of energy because the restaurant "looked so nice and sophisticated."
Sophisticated? McDonald's?

The Golden Arches are going upscale in Europe - and if you haven't seen a refurbished McDonald's yet, chances are you will see one by the end of this year. Aiming to create a more relaxed, restaurantlike experience in a sophisticated atmosphere, McDonald's is replacing bolted-down, plastic, yellow and white "furniture" with lime-green designer chairs and dark leather upholstery. It is the restaurant chain's biggest revamp in more than 20 years, and, together with its franchisees, it plans to spend more than €600 million, or $806.6 million, remodeling 1,280 of its European restaurants by the end of this year.

McDonald's is also introducing more healthful foods and items that cater to regional tastes, like café lattes. Hoping to attract young adults and professionals, in addition to its core customer base of moms and kids, the chain is also adding amenities like Internet access and rental iPods.

So far, the changes appear to be paying off. Sales in Europe are ahead of those in the United States. In the first half of this year, combined sales at Europe's 6,400 restaurants rose 15 percent to $4.1 billion, compared to a 6 percent increase in America, where McDonald's has 13,800 restaurants and sales were $3.9 billion. The strength of European currencies helped, but even without the lagging U.S. dollar, European revenue is rising faster in real terms than revenue in the United States.

"McDonald's is doing a great job in Europe, which has become an enormously important market for them," said Larry Miller, an analyst at RBC Capital Markets in New York.

The chain now serves over 10 million customers a day in Europe, which contributes 36 percent to the company's operating income, making it the chain's second most profitable region after the United States.

The remodeling is also catching on in America, where McDonald's renovated about 6,000 of its restaurants. For now, the revamp is not spreading to Asia, where business is growing fast - sales are up 11 percent in the second quarter - but revenues are still a fraction of those in Europe and America ($852 million for the quarter that ended June 30).

In some ways the changes are moderate; in others, dramatic. McDonald's kept its trademark golden arches logo in Europe but got rid of the red accompanying it. Instead, restaurants feature a warm burgundy color. The pointy roofs are being phased out and replaced by simple olive green facades, and the bright neon lights in the restaurants were dimmed. French fries and cheeseburgers remain the best-selling items.

The original impetus for the makeover was a European sales slump in the late 1990s, brought on by concerns about obesity and European annoyance at unappealing décor and grumpy McDonald's staff. But the ideas for how to change came from Denis Hennequin, president of McDonald's Europe, the first non-American in that role.

As head of McDonald's restaurants in his native France in the late 1990s, Hennequin had searched for ways to make fast food more appealing to a nation that preferred slow-simmered cassoulets and likes to savor a meal.

"To make McDonald's and a Big Mac work in the country of slow food, we felt we had to pay more attention to space and showcasing," he said, seated in front of zebra print wallpaper in one of the remodeled London restaurants.

He was right. After refurbishment, on average, sales increased 4.5 percent at the upgraded restaurants in France. The new outlets were so successful that two years ago Hennequin was asked to do the same for the rest of Europe.

Some analysts say the new design works better in Europe than in the United States, where a majority of McDonald's customers prefer to eat in their cars or take their food home. "And they won't change their habits," said David Kolpak, an investment manager at Victory Capital Management in Cleveland, Ohio, who owns McDonald's shares in his portfolio.

But now the success of Hennequin's Europewide makeover comes with challenges of its own: How much can you upgrade its image before McDonald's isn't McDonald's?

"If you stretch the brand too much, it can snap," said Dean Crutchfield, director of marketing at Wolff Olins, a brand consultancy in New York.

Hennequin said he did not have a choice. "Re-imaging is essential in the competitive world of retail," he said. "We need to avoid aging faster than our customers." To do that he instructed the design studio he had set up in Paris to come up with nine different formats. Franchised restaurants, which account for about 64 percent of all European outlets, can then choose the design most appropriate for their location and clientele. The designs range from "purely simple," with minimalist decors in neutral colors, to "Qualité," featuring large pictures of lettuce and tomatoes and gleaming stainless steel kitchen utensils like meat grinders.

"The new ones are much more comfortable, less crammed and we love those chairs," said Shane Bogela, 16, referring to the redesigned stores and the "egg" chairs, designed by the Danish architect Arne Jacobsen, at a McDonald's in London.

A separate food factory in Munich is trying to come up with new menus for the different tastes in the 41 European countries, including Russia, in which McDonald's operates - a continuation of a process started in the 1980s, when the company started to offer beer in its German restaurants. In England, McDonald's has started to serve porridge for breakfast; in Portugal it offers soup; and in France, "cheese saga" - burgers with French cheeses.

Paying attention to local tastes has also helped McDonald's overcome some of the cultural hurdles it faced in Europe as a large American fast-food chain. "The problem in Europe," said Kolpak, of Victory Capital, "was the perception that any large U.S. brand has, which is bringing the American way of eating and marketing and invading the local culture."

While head of France, Hennequin experienced opposition to American corporations firsthand in 1999 when Jose Bové, the outspoken leader of a French farmer's union, organized a bulldozing of a McDonald's restaurant to protest the spread of American "hegemony." Hennequin reacted with a large advertising campaign promoting the American chain's use of local produce and its creation of local jobs.

While palates differ from country to country, design is more universal, Hennequin said. He admires strong brands that reinvent themselves to become more fashionable and appealing, like the Mini Cooper. In France he hired the same advertising agency as Apple.

"We would like to stay true to our roots," Hennequin said, "while moving forward."