Mc Donalds And Big Mac Index
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McDonalds
Founded in 1955, McDonalds built its success less on the taste of its food than on rock-solid standards and unfailingly good service (instilled during rigorous employee training). A web of alliances with other top brands and an energetic defence of its trademark cemented its position as the worlds biggest fast-food retailer.
With restaurants in over 100 countries, McDonalds is also a symbol of American-led globalisation. Burger-bashers complain that the chain destroys local traditions and promotes unhealthy eating. In response, McDonalds has adapted to local tastes. And the proverbial billions seem to like its food, even in France.
At least, until recently. Bad management and the rise of “fast casual” restaurants saw the company announce a loss and an unconvincing new strategy in January 2003. McDonalds has since staged a remarkable comeback, now led, in Europe, by a Frenchman.
How a Frenchman is reviving McDonalds in Europe
WHEN Denis Hennequin took over as the European boss of McDonalds in January 2004, the worlds biggest restaurant chain was showing signs of recovery in America and Australia, but sales in Europe were sluggish or declining. One exception was France, where Mr Hennequin had done a sterling job as head of the groups French subsidiary to sell more Big Macs to his compatriots. His task was to replicate this success in all 41 of the European countries where anti-globalisers favourite enemy operates.
So far Mr Hennequin is doing well. Last year European sales increased by 5.8% and the number of customers by 3.4%, the best annual results in nearly 15 years. Europe accounted for 36% of the groups profits and for 28% of its sales. December was an especially good month as customers took to seasonal menu offerings in France and Britain, and to a promotion in Germany based on the game of Monopoly.
Mr. Hennequins recipe for revival is to be more open about his companys operations, to be “locally relevant”, and to improve the experience of visiting his 6,400 restaurants. McDonalds is blamed for making people fat, exploiting workers, treating animals cruelly, polluting the environment and simply for being American. Mr Hennequin says he wants to engage in a dialogue with the public to address these concerns.
He introduced “open door” visitor days in each country which became hugely popular. In Poland alone some 50,000 visitors came to McDonalds through the visitors programme last year. The Nutrition Information Initiative, launched last year, put detailed labels on McDonalds packaging with data on calories, protein, fat, carbohydrates and salt content. The details are also printed on tray-liners.
Mr. Hennequin also wants people to know that “McJobs”, the low-paid menial jobs at McDonalds restaurants, are much better than people think. But some of his efforts have backfired: last year he sparked a controversy with the introduction of a “McPassport” that allows McDonalds employees to work anywhere in the European Union. Politicians accused the firm of a ploy to make cheap labour from eastern Europe more easily available to McDonalds managers across the continent.
To stay in touch with local needs and preferences, McDonalds employs local bosses as much as possible. A Russian is running McDonalds in Russia, though a Serb is in charge of Germany. The group buys mainly from local suppliers. Four-fifths of its supplies in France come from local farmers, for example. (Some of the French farmers who campaigned against the company in the late 1990s subsequently discovered that it was, in fact, buying their produce.) And it hires celebrities such as Heidi Klum, a German model, as local brand ambassadors.
In his previous job Mr. Hennequin established a “design studio” in France to spruce up his companys drab restaurants and adapt the interior to local tastes. The studio is now masterminding improvements everywhere in Europe. He also set up a “food studio”, where cooks devise new recipes in response to local trends.
Given Frances reputation as the most anti-American country in Europe, it seems odd that McDonalds revival in Europe is being led by a Frenchman, using ideas cooked up in the French market. But France is in fact the companys most profitable market after America. The market where McDonalds is weakest in Europe is not France, but Britain.
“Fixing Britain should be his priority,” says David Palmer, a restaurant analyst at UBS. Almost two-thirds of the 1,214 McDonalds restaurants in Britain are company-owned, compared with 40% in Europe and 15% in America. The company suffers from the volatility of sales at its own restaurants, but can rely on steady income from franchisees. So it should sell as many underperforming outlets as possible, says Mr. Palmer.
Mark Wiltamuth, an analyst at Morgan Stanley, estimates that European company-owned restaurants margins will increase slightly to 16.4% in 2007. This is still less than in the late 1990s and below Americas 18-19% today. But it is much better than before Mr. Hennequins reign. He is already being tipped as the first European candidate for the groups top job in Illinois. Nobody would call that a McJob.
Fast food in America
LOVE it or loathe it, even middle Americas smallest cities have a Strip: a blaze of neon signs leading towards the centre of town. There are petrol stations and motels, but mostly there is food. And the variety is staggering. Twenty years ago the usual suspects–McDonalds, Burger King, Kentucky Fried Chicken and a few others–dominated the field. Burgers and tacos are still staples, but todays hungry drivers have many more choices, from Whataburger and Taco Cabana to Quiznos Subs.
Americans now spend 48% of their food money on eating out, up from 25% in 1955, according to industry figures. Investors are also hungry for fast food, judging by the rate at which the chains are changing hands. Mark Saltzgaber, an industry analyst based in San Francisco, says that 2005 and 2006 have been without a doubt the most active restaurant M&A environment that weve ever seen. Private-equity groups have been buying up fast-food chains and several have been flipped back on to the public markets.
Wages