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McDonald's, the US fast food giant, is spending $800m on a facelift of its European restaurants. Linda Buckley, the chain's European CFO, suggests the makeover is working.
Eila Rana, CFO Europe Magazine
November 5, 2007
McDonald's European restaurants are changing. Out go the bright lights and the plastic yellow and red interiors synonymous with the $22 billion (€16 billion) US fast food chain. In come soft lighting, easy chairs, leather stools and art deco walls, all in earthy shades of chocolate brown, camel, cream and burgundy. The changes are part of an $800m investment from corporate headquarters in Illinois aimed at repositioning the chain for the obesity-fighting, healthy-eating age. Linda Buckley, CFO of McDonald's Europe, says the money will help fulfil a long-term group strategy of improving the customer and employee experience. But she admits that some competitors have been opening new restaurants "fairly aggressively" in Europe and that, too, has played a part in the beneficence shown by headquarters.
So far, around 20% of McDonald's 6,400 European restaurants have been redesigned. But do long-time customers feel uncomfortable walking into a place that now feels more like Habitat or Ikea than a fast-food joint?
Far from it, asserts Buckley. "We do quite a lot of customer research as we're developing the designs and the response we've got has been very positive," she says.
The numbers are looking good too. Europe is McDonald's second-largest market. Last year, sales in the region rose 5.8% — the best result in 15 years — and operating income increased 9%. Europe contributed 28% to group sales and 36% to operating income.
So how has Buckley helped the "re-imaging" of one of the most recognised global brands? CFO Europe caught up with her in one of McDonald's flagship restaurants on Edgware Road in west London — just below her office in McDonald's European headquarters — where, she says, she eats lunch most days.
What's behind McDonald's $800m European facelift?
If you go back 20 years, the world was a very different place. We had plastic benches and laminated tabletops, and at the time that was new and different and served us very well. But life moves on and retail changes. If you look at all the other retail players on the high street, they've made tremendous changes over the years. So we need to be modern and keep pace and change as our customers are changing. It's really just about that. It's about making our restaurants look like places of today and places of tomorrow, not places of yesterday.
So what role have you played in devising this growth strategy?
In choosing the actual colours and design? Absolutely none, thank goodness! My role is about finding ways to support the business strategy in a way that also balances the shareholder interests. France was the first market to start this remodelling because they felt, in their environment, it was the right thing to do to make the restaurants more appealing, and we know they are getting very good results from it. I don't remember the specific numbers but France has had a very long run of positive comparable sales. When we see good results, we normally want to dig into them and find out why that is and share what we find.
How will you know the strategy is working? What kind of measurables have you put in place?
Comparable sales are a key measure. We have had fantastic results for the past year and a half. For the year to June, for example, our comp sales were 7.9% — that was the highest number for a six-month period in a very long time. I think 15 years is the period we quoted. So we know that we're doing very well in that regard.
We also watch returns very carefully. We have overall incremental returns, which measure everything going on in a restaurant. So it's not tied specifically to a new decor — it also includes the contributions of the marketing programme, the new food on a menu, extended hours — all those elements together make up the results of a restaurant. We're interested in seeing that the whole portfolio of initiatives is working well.
Why do you think American companies dominate the fast-food sector, even in Europe?
I can really only speak about what is driving our success. Through August, we have had 19 consecutive months of same-store sales growth. We strongly believe this is driven by focusing on what customers want. Our business units in Europe are aligned around upgrading the customer and employee experience in the restaurant, building brand transparency and focusing on local relevance.
Although we have an American heritage, we are quite local in the execution of our strategies. More than two-thirds of our restaurants are owned and operated by independent, local businessmen and women. Our country management is primarily local. We believe it is the knowledge of the local environment and customers that enables us to be successful.
But do you risk alienating your traditional customer base by bringing in new interiors and new menus?
I don't think we do, based on the fact that where we started this re-imaging — first France and then Germany — those are in fact the countries that are delivering some of the best results. It seems clear to me that with the business results we're getting, people are happy.
Has there been a fundamental shift in the fast-food business — such as increasing concern about the lack of healthy food choices — that has changed the way big fast-food companies such as McDonald's are having to operate?
All companies, regardless of the industry, need to change with the times. In our industry, our customers are increasingly concerned about the nutrition and quality of their food. We understand the need to continue to improve in this area. We are continuously looking at ways to improve our offer in terms of the nutritional value of menu items and providing balanced choices to our customers. It's about reformulation but also menu choices. For example, we've made changes to Happy Meals to include carrot sticks, fruit bags and apple compote, among other products. We've also moved to sustainable coffee and started a concerted programme of reducing the percentage of trans-fatty acids (TFAs) in the cooking oil we use across Europe by early 2008. There are some favourites, however, that we would never want to change as customers love them. McDonald's meals can be enjoyed as part of a balanced diet.
McDonald's attracts a lot of attention — mostly negative — from nutrition experts and anti-globalisation types. How do you handle these pressures and keep yourself motivated?
Actually, I find it very motivating to work for a pre-eminent brand. Everybody knows it. You get lots of feedback, not all necessarily positive but we have all the arguments to counter that. So it's really not difficult at all. It comes with the price of leadership.
What do you think about books and films like Fast Food Nation and Supersize Me? Are they a distraction or are they a good way of gauging public and customer sentiment and useful for informing your business strategy?
The book and the movie are about very serious issues but I don't know that either one of those projects actually triggered the issues or moved them any closer to a solution. And they're not new topics — we already know they're important things. Our strategies are based on the things that are important to our customers and our strategies really haven't changed since before those things came out so they really don't impact on us at all.
McDonald's has a strong tradition of nurturing future senior executives from inside the company. Did you ever flip burgers when you were starting out with the group?
I didn't start in operations. I joined Ernst & Young in the US after I graduated from university and then I've been with McDonald's for 15 years. So my opportunity to work in the restaurants hasn't involved being day-to-day crew or a manager. But I do spend a portion of my time in restaurants — in all the countries I visit — because it's a great way to find out what the issues are for managers and the crew. In this particular restaurant, they're probably sick of seeing me because my office is just upstairs so I'm down here every day.
It's mainly to check in with the employees and find out what's going on, because I have to say, when I get behind the counter I'm not the most helpful person back there — I'd probably just get in their way. Because I'm down here a lot, I have conversations with other customers as well. Everybody you meet is willing to give you their opinion of McDonald's, so you get to know how the man on the street is thinking and feeling about us.
Do you eat McDonald's food yourself? What's your favourite meal?
I'm one of the heaviest users of this restaurant. I eat lunch down here most days because it's very convenient and my absolutely favourite sandwich is the double cheeseburger.