What's This? The French Love McDonald's?

Gallic twists are luring crowds--and giving the parent a boost

After teaching the world about haute cuisine, France is ready to offer another culinary lesson: how to sell le fast food. McDonald's Corp.'s (MCD ) French subsidiary is booming even as its parent is struggling. The Oak Brook (Ill.) company announced its first-ever quarterly loss on Dec. 17. Yet as the parent is shuttering 175 outlets worldwide, a new McDonald's opens in France every six days. What's more, the typical French customer spends $9 per visit, vs. only $4 in the U.S., even though a Big Mac costs about the same in Paris as it does in New York.

Just as remarkable, McDonald's France appears to be breaking every rule in an efficiency-obsessed industry. It's spending lavishly to refit restaurants with chic interiors and extras such as music videos that entice customers to linger over their meals. And while McDonald's in the U.S. has tried to speed up service by streamlining menus, France has gone in the opposite direction, adding items such as a hot ham-and-cheese sandwich dubbed the Croque McDo. "We are upgrading the experience, making McDonald's a destination restaurant," says Denis Hennequin, the French unit's chief executive.

McDonald's success in France could offer the chain a recipe for boosting sales overseas, a key to future growth as the U.S. market has become saturated. There's no question McDonald's needs a lift. CEO Jack Greenberg resigned on Dec. 5 after failing to reverse a profit slide. He has been replaced by the former head of the company's international operations, James R. Cantalupo. Estimates are that earnings in 2002 grew a disappointing 7%, to $1.8 billion, on sales of $15 billion. Moody's Investors Service has even put McDonald's debt rating on credit watch for a possible downgrade.

Through all the turmoil, Hennequin has steered a deft course in France, where mistrust of the U.S. runs deep. When antiglobalization activist José Bové was hailed as a hero for razing a partially built McDonald's in the south of France in 1999, Hennequin, 44, responded with lighthearted newspaper ads depicting fat, ignorant Americans who could not understand why McDonald's France used locally produced food that wasn't genetically modified. "Some of our advertising is over the edge, but you have to have a sense of humor," says the 17-year company veteran.

McDonald's France also has defused criticism by adapting its restaurant designs to blend with local architecture. Some outlets in the Alps now boast wood-and-stone interiors reminiscent of a chalet. "The atmosphere is friendly," says Marie Schwinnt, a 16-year-old eating lunch at a McDonald's in a 19th-century building in Mulhouse, in eastern France.

The updated styling, now found in about half of McDonald's 950 French outlets, doesn't come cheap. Michel Réglat, a Toulouse franchisee, redid the interiors of 12 of his 14 restaurants, including one with barstools made from bicycle seats. Réglat figures he spent 20% more than if he'd used McDonald's standard designs. But sales at the spruced-up outlets have soared as much as 20%.

True, McDonald's à la française would almost certainly fail in the U.S., where fast-food customers mainly want quick service and cheap, tasty eats. McDonald's stumbled in 2001 when it tried to import the McCafe concept from Australia. U.S. forays into pizza, for instance, also have flopped. "They need to be careful not to overdiversify," says Philippe Hersant, a French restaurant consultant. Still, the company is eager to replicate its Gallic success stateside. McDonald's says its theater-themed outlet in New York City's Times Square was inspired by France's push for spiffed-up interiors. The Times Square franchisee is aiming for annual sales of $5 million, well above the $1.6 million that is the U.S. average. Who knows, the next French restaurant in your town could be a McDonald's.

By Carol Matlack in Paris, with Pallavi Gogoi in Chicago

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