The American institution is doing well in a recession. Its trick: wooing consumers abroad by targeting local tastes and marketing like mad.
By Blake Ellis
While the latest headlines from McDonald's may be distinctly American -- its $4 Angus Burger recently debuted with much fanfare -- it's abroad and not at home that McDonald's has been doing its best business during this recession.
Despite hard times and widespread sales slumps across nearly every type of industry, sales at McDonald's (MCD, Fortune 500) continue to climb, and that's largely a result of the company's efforts to broaden its global appeal. Since the late '90s, more than half of the company's total sales have come from abroad. And last year, international sales accounted for more than 60% of its $23.5 billion in total revenues.
That's good news for a company that, while still robust in the United States, has seen sales growth begin to slide. U.S. comparable sales grew 6.1% in April, but slowed dramatically in May, with sales up just 2.8%. By contrast, comparable sales abroad remained steady at above 6% this year: In May, sales rose 7.6% in Europe and 6.4% in the company's Asia/Pacific, Middle East and Africa segment.
"There was definitely some disappointment with the results," says UBS analyst David Palmer. "But McDonald's also saw out-performances in places like Europe where I definitely wasn't expecting growth to that degree."
That's no accident. While McDonald's has benefited from its global presence during the current recession, its worldwide advance began decades ago. And it's had some successful -- if amusing -- results: In Mexico, there are McMollettes, or English muffins topped with bean, cheese, and salsa. The McArabia features a chicken patty with garlic mayonnaise, vegetables, and Arabic bread. There's Vegemite on toast in Australia and Chicken SingaPorridge in Singapore. And don't forget the McAloo Tikki -- made with potato and vegetables -- and the lamb or chicken Maharaja Mac in India.
But just because there's a "Mc" in front of these items doesn't mean they're all alike. McDonald's has courted international consumers with customized approaches, from supporting local farmers and suppliers to creating elaborate guerilla marketing campaigns.
In Italy, it was a question of targeting native palates directly with the Parmigiano Reggiano. Launched in September 2008 and now called the "Parma Reg" by regulars, the beef burger features Italy's popular Parmigiano Reggiano cheese, as well as other key regional ingredients. That, along with attempts to enlist the backing of Italian farmers, has made McDonald's -- in Italy, at least -- feel like a homegrown brand.
"This launch has proven to be much more successful than we expected," says McDonald's spokesperson Louise Marcotte-Jervoe, who points out that, despite the fact that the Parma Reg has exceeded expectations, McDonald's isn't likely to offer it outside of Italy because it is so specialized to Italian culture.
But in some places, it's not just a new product -- but a new image -- that's necessary. In France, McDonald's has traditionally been met with disdain, leading to a farmers' union protest in 1999 led by José Bové, who called the corporation a symbol of global capitalism.
Protestors destroyed a McDonald's restaurant in Millau, resulting in the death of a McDonald's crew member and prompting McDonald's to take action, says Marcotte-Jervoe. The company held an open-door event in 2001 where the public could meet its employees and go behind the scenes to see its cooking process, the quality of its food, and its use of local products. Since 2002, McDonald's has also been a regular participant in France's largest agricultural show, the Salon International de l'Agriculture.
While McDonald's continues to work on improving its image in France, Marcotte-Jervoe says that "it now considers itself a more welcome part of French society."
That shows in the overall French reception of the company's newer offerings, such as the P'tit Plaisirs line launched in 2005. "Why France? Maybe because it is the country of gastronomy," says Marcotte-Jervoe, referring to the premium ingredients and special spice blends used in P'tit Plaisirs -- or "small pleasures" -- to target the more discerning French consumer.
The line of miniature beef and chicken sandwiches has expanded to include such creations as the Mexican-themed Le P'tit Mex and Le P'tit Poivre, which incorporates France's staple peppercorn sauce. And the snack turned out to be such a hit in France that today, specialized versions of the P'tit Plaisir can be seen on McDonald's menus in twelve countries.
Even when McDonald's brings a traditionally American product abroad, the company uses new, often bold, tactics to attract the target audience. This was the case in Japan, where McDonald's menus had never offered the Quarter Pounder. In November, two McDonald's stores in Tokyo were scrubbed of traditional McDonald's branding overnight and surrounded by a wall labeled "Top Secret" to spark onlookers' curiosity.
For almost three weeks, the shops remained hidden, and when they were finally revealed, they'd been transformed into new black-and-red "Quarter Pounder" shops selling only Quarter Pounder meals. This "teaser promotion," as McDonald's Tokyo spokeswoman Junichi Kawaminami called it, "was a kind of blind test for Japanese consumers. We especially wanted customers who don't come to McDonald's."
As unorthodox as the strategy may seem, it passed the consumer test. After converting the first two Tokyo restaurants, McDonald's opened three more -- in Osaka, Nagoya, and Shibuya. All three broke sales records for Japanese McDonald's stores, and the last shop -- opened in Shibuya on April 28 for just 24 hours -- broke all previous Japanese daily sales records, bringing in 12.4 million yen (around $128,000).
Today, as a result of the record-setting sales, Quarter Pounders appear on every menu in Japan. And according to Marcotte-Jervoe, the new addition has already had a positive effect: Sales at Japanese McDonald's stores rose almost 5% in May.
From big, juicy Quarter Pounders to miniature sandwiches, these international innovations have kept McDonald's growing through a tough economic time. It's the determination to press into even the most difficult markets, says UBS analyst Palmer, that will spur success further.
And nothing is more exemplary of that than the company's efforts with the most skeptical of consumer bases -- the English. "The U.K. is a tough, tough market with heavy competition and the most cynical customer base," says Palmer, "yet McDonald's is winning customers over."
