McDonald's adapts in Europe

12 October 2012

BERLIN: McDonald's, the fast food chain, is focusing on deals and discounts in many European markets, a move reflecting the challenging climate observable in several countries across the region.

The US restaurant group currently draws around 40% of its sales from Europe, and this level of exposure has left it vulnerable to the decline in consumer confidence and spending in numerous markets.

In Germany, where the firm has 1,400 branches, it is running a "McDeal" promising fries, a drink and burger or chicken sandwich for €3.79, alongside offering a "buy one, get one free" coupon for McNuggets.

Similarly, the organisation's French arm, boasting 1,200 sites and its most profitable European unit ahead of Germany, has introduced a "Eurosaver" menu, containing options like a €2 sandwich.

While the company saw a sales contraction in Europe in July, like-for-like totals climbed by 3.1% in August, although this lagged behind the 3.3% expansion predicted by analysts.

Longer term data from the German Association of Hotels and Restaurants also suggest that expenditure on eating and drinking out stood at €36.9bn in 2011, versus €47.7bn in 2001, showing wider issues exist.

"It is critical that they stabilise business in Europe," Jeffrey Bernstein, an analyst at Barclays, told the Wall Street Journal. He added that the deals should achieve such a goal, but potentially at the cost of hitting profits.

"It will take a few quarters for consumers to revert back to their normal ordering patterns," Bernstein added. "In an environment where commodity cost inflation is high, it's not an ideal environment to push value."

Don Thompson, McDonald's chief executive, stated on a conference call in July that the organisation was formalising plans to "re-energise" its European operations, with an emphasis on driving traffic.

"Markets are ... placing an even stronger focus on value offerings across the menu and on promotional food events featuring premium products," he said.

Burger King, one of McDonald's major rivals, has also engaged in promotional activity in Germany, like offering two-for-one chicken nugget burgers with certain orders, but only draws 25% of sales from the Europe and the Middle East, leaving it less at risk.

Data sourced from Wall Street Journal; additional content by Warc staff