Supersizing Europe: The McDonald's Stimulus Plan

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McDonald's hamburgers

There was a time not so long ago when U.S. fast-food giant McDonald's was viewed by European consumers as the advance scout of what the French loudly decried as American cultural imperialism. The Golden Arches, ran the prevailing European line, were a threat to the Continent's refined palates and appreciation of the civilized sit-down meal, and the livelihoods of people staffing "real" restaurants. Well, with the global economic crisis deepening, even the French aren't complaining nowadays — especially with news that McDonald's plans to invest more than $1 billion to keep its lucrative European business booming.

On Monday, McDonald's confirmed earlier press reports that it will spend about $1.1 billion — more than half its total global investment funding in 2009 — to revamp scores of existing restaurants in Europe and open 240 new ones there. That effort will not only focus on relatively new markets in Eastern Europe like Russia and Poland, but also sink roots deeper in West European nations like Italy, Spain and France — generating about 12,000 badly needed new jobs in the process. As part of that expansion plan, McDonald's says it will add about 400 new McCafés to the 800 outlets it already operates in Europe. Viewed from any angle, this kind of spending indicates that Ronald McDonald is feeling bullish about his future in Europe — the dismal global economic slowdown be damned. (See pictures of what the world eats.)

Such optimism in the face of prevailing economic gloom is understandable given the apparently recession-proof recipe McDonald's has cooked up. Indeed, while most companies limped out of 2008 on slumping results that look likely to plummet in 2009, McDonald's on Monday announced earnings of $985.3 million in the fourth quarter of last year. While that near billion-dollar activity represented a 23% drop over the same period the previous year — due mostly to an extraordinary tax bonus accounted to 2007 books — McDonald's also revealed an 11% rise in fourth-quarter consolidated operating income to $1.5 billion on global sales gains of 7.2%.

Europe now ranks as McDonald's largest region in revenue terms. Although Europe has nearly 25% fewer outlets than the U.S., in 2007 its $9 billion in revenue outpaced the $8 billion generated in America, partly because of a strong euro but also because of consistently higher sales. Given that, McDonald's new European investment strategy seems quite clear: provide its operations in Europe a boost by multiplying the number of restaurants capable of serving clients there. And ironically, a swiftly tightening recession may be the best environment in which that can be done. (See the top 10 food trends of 2008.)

"People forced to economize by forgoing outings to restaurants will visit McDonald's to compensate, while lower-income people already frequenting McDonald's will tend to choose cheaper menu options there rather than giving it up," says Raphael Berger, deputy director of the consumer division at France's Research Center for the Study and Observation of Living Conditions in Paris. "McDonald's has successfully marketed itself as a festive and affordable dining option to young and less-affluent people. That is now starting to spread to other segments as people in most socioeconomic categories feel less affluent due to the recession."

But a financial pinch isn't the only reason McDonald's is winning fans in Europe — and in standoffish France in particular. According to Berger, after laboring for years in France with the greasy-spoon label imposed by detractors (as le mal bouffe, or junk food), the company has of late made very determined and demonstrative efforts to adapt menus, tailor to hygiene sensibilities and communicate with clients on dietary and nutritional questions that have long dogged its food. "It has introduced salads, begun using certain traditional French cheeses on burgers and told clients, 'Our food is good food, but it isn't meant to be eaten every day and can't replace the regular diet you'll get at home,' " says Berger. "Basically, McDonald's and France have worked out an understanding that [its] kind of fast food is all right — albeit in moderation."

But wouldn't the billion-dollar expansion drive of McDonald's suggest that the company is seeking to lure more time- and cash-strapped European clients as frequent diners? If so, Berger says the objective may well prove elusive — at least among continental Europeans. "People will make concessions to time pressures when necessary for convenience's sake, but will often reserve evening and weekend meals for quality, sit-down, often homemade food," he says. "The British are a bit different in that regard — which may be why the U.K. seems to be a particularly strong market for McDonald's."

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