Hold The Fries

At least anti-American sentiment has had a marginal impact on McDonald's global business. The possible exception is the Middle East, where consumers have been waging a quasi-official boycott of McDonald's as an apparent protest against U.S. policy. But consider the situation in Europe: France, a hotbed of anti-McDonald's-cum-anti-American protest, is also a bright spot for McDonald's sales. Merrill Lynch analyst Peter Oakes says flatly that political attacks are "irrelevant" to the company's financial future.

McDonald's, too, is not the only corporation that may be confronting its global limits. Many CEOs have been reassessing the pace of globalization since September 11 and the collapse of the tech bubble. In fact, McDonald's status as a symbol of globalization exceeds its actual business; there are several multinationals bigger than Mickey D's, which has annual system wide revenues of $40 billion. Some, like Coke, are more truly multinational, with sales spread evenly across North America, Asia and Europe. McDonald's makes 80 percent of its sales in just four countries--the United States, Britain, France and Germany. To be sure, McDonald's recent retreat "is a reality check on what globalization really means," says Adrian Hodges, managing director of the International Business Leaders Forum in London. But "at the same time, the death of McDonald's and the death of globalization are both greatly exaggerated."

The question is whether McDonald's can revise its global strategy fast enough to account for this new reality. Kroc's original business model balanced tight standards of cleanliness, speed and uniformity with a decentralized structure that gave franchisees real power in their local markets. That's not the way anymore, says Rodney Hackett of Melbourne, who runs a Web site to champion the cause of fellow McDonald's franchisees. According to him, many of them are tired of being inflicted with shortsighted price wars, costly conversions to accommodate new menu items and the company's habit of opening new restaurants close to existing ones.

Harvard professor Upton warns that the company risks responding as slowly to new competition as American carmakers responded to Japanese firms in the 1980s, with near-fatal results. Still, the new store closings show McDonald's is rethinking its obsession with growth, just as Detroit was forced to relax its focus on costs in order to compete with Japanese quality. U.S. firms emerged stronger, and McDonald's could, too. "We have issues that we're addressing," says company CFO Matt Paull. "But nobody has the marketing we have, the brand power we have, the franchises we have. That news gets lost."

Many of McDonald's ideas for reviving its global fortunes involve expanding beyond the hamburger. To try to get in on the "fast-casual" dining boom in the United States, it has snapped up chains such as Chipotle Mexican and Boston Market. Under its core brand it is promoting higher-margin food like the popular grilled-chicken flatbread sandwich, with new ads praising its fresh ingredients. In Taiwan, the company has opened a prototype McSnack outlet, offering coffee, drinks, cakes and bread--a menu that would appear to compete with Starbucks. In Indiana, the company is testing a McDiner concept: a 1950s-style sit-down diner serving made-to-order food such as steaks.

The company is also working hard on perfecting the old burger. In early December, McDonald's board member and former CEO Fred Turner was seen flipping burgers at a McDonald's restaurant in Illinois--and again later, at the company's secret innovation center, also in Illinois. Professional menu developer J. Hugh McEvoy says that in recent weeks McDonald's has brought in 30 top chefs to brainstorm ideas in a kind of "culinary think tank." "There were 100 people running around. It looked like the inside of the Pentagon war room," says McEvoy. That sense of urgency may be just what McDonald's needs to stem its global retreat.

WITH KAREN SPRINGEN IN CHICAGO, ALEXANDRA A. SENO IN HONG KONG, SCOTT JOHNSON IN MEXICO CITY, KAY ITOI IN TOKYO, ESTHER PAN IN CAPE TOWN AND GRETEL C. KOVACH IN CAIRO

© 2002