Can McDonald's Get Cooking In Europe?

It's making a big push. But Britain poses a supersize problem

Now that McDonald's Corp. (MCD ) is sizzling in the U.S. again, can it turn up the heat in Europe? On Apr. 13, Chief Executive James R. Cantalupo announced a 14.2% rise in same-store sales for the first quarter in the U.S., evidence that a yearlong push to spiff up menus and improve service is paying off. But currency-adjusted growth in Europe was only 3.5% -- and sales declined 2.9% in March. That's no small concern for the fast-food giant, since European sales were $5.87 billion last year, not far behind $6.04 billion in the U.S.

Time to get the Old World cooking again. McDonald's is already rolling out new offerings, including salads, yogurt, and other fare aimed at health-conscious diners. To develop recipes, the company has opened a test kitchen in the Paris suburbs. It's also planning face-lifts for many of its 6,200 European outlets.

Directing this new push is Denis Hennequin, the former head of operations in France, where McDonald's is thriving. Hennequin, who redesigned more than half of McDonald's 1,000 French outlets -- they now range from faux alpine chalets to sleek, music-theme restaurants with headphones at the tables -- was named executive vice-president for Europe in January. "We will upgrade the McDonald's experience and give more value to the customer," he promises.

Signs are encouraging. Sales in Germany, flat for most of 2003, are showing modest growth. McDonald's plans 160 new restaurants in Europe this year, including 40 in France. The Big Tasty, a burger on an oversize bun introduced last year, is selling well, the company says. "You're going to see positive change, not only as to how the brand is viewed in Europe but in results trickling down to the bottom line," says Russell P. Smyth, who oversees European operations from McDonald's headquarters in Oak Brook, Ill.

But there's still a supersize problem: Britain. Sales at McDonald's 1,235 British outlets have been sluggish for years, and the reasons are numerous. New chains such as Yo! Sushi and Nando's Chicken Restaurants, which features spicy Portuguese chicken, have outpaced McDonald's. Operators such as U.S.-based Subway Restaurants are pulling in customers with fresh salads and sandwiches on focaccia bread. Starbucks (SBUX ) has made McDonald's outlets look sterile and out-of-date. And the 2001 scare over mad cow disease, along with concerns about rising obesity, make things worse. "They're being attacked from every angle," says Jeffrey Young, an industry expert at Allegra Strategies Ltd., a London consultancy.


No surprise, then, that Hennequin chose Britain for the Apr. 1 rollout of a Salads Plus menu, which features four varieties of main-course salads topped with warm chicken, a premium chicken sandwich, and a fruit-and-yogurt dessert. The menu will be launched in France in May and across Europe by mid-summer. Hennequin also wants British franchises to upgrade interiors and exteriors. Outlets in France have reported a 15% to 20% sales boost after renovations.

If anyone can pull off this turnaround, it may be Hennequin. The personable 45-year-old manager, who joined the company in 1986, has drawn the French to McDonald's with reverse-psychology ads poking fun at Americans and locally developed menu items such as a ham-and-cheese Croque McDo sandwich.

But Britain is a tougher market than France, where there are few takeout chains to compete against McDonald's. New designs may not revive McDonald's faded image, either. "The McDonald's near where I work is really smart, with Internet access and everything, but I only go in there as a last resort," says Toni Wyatt, a 24-year-old advertising sales representative in West London. For Ronald McDonald, winning customers such as Wyatt could be a very tall order.

By Carol Matlack in Paris, with Laura Cohn in London and Michael Arndt in Chicago

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