You don’t need to be a business student to appreciate how the success or failure of certain companies sheds light on the importance of contexts, culture and people. Read the article below and consider why McDonald’s is fairly successful in Singapore as well.
Born in the USA, Made in France: How McDonald’s Succeeds in the Land of Michelin Stars
France — the land of haute cuisine, fine wine and cheese — would be the last place you would expect to find a thriving fast-food market. In a country known for its strong national identity and anti-globalization movement, it seems improbable that McDonald’s could have survived the onslaught of French social and political activism. In 1999, José Bové, an agricultural unionist, became a hero to anti-globalization supporters when he and his political group, Confédération Paysanne, bulldozed a McDonald’s in Milau, France, to protest against U.S. trade restrictions on French dairy products. With bullhorn in hand, he declared to the television news cameras: “We attacked this McDonald’s because it is a symbol of multinationals that want to stuff us with junk food and ruin our farmers.” In 2004, amid the nutritional controversy sparked by Morgan Spurlock’s documentarySupersize Me, McDonald’s was declared in French media to be the epitome of malbouffe, or “junk food” and deemed partly to blame for the nation’s rising obesity rate.
And yet McDonald’s, the world’s largest fast-food corporation, with a global presence in 123 countries across all six inhabited continents, has turned the home of Le Cordon Bleu cooking academies and the Michelin Guide of world-renowned restaurants into its second-most profitable market in the world. The chain has more than 1,200 restaurants in France — all locally owned franchises — and a growth rate of 30 restaurants per year in the past five years alone. What is at the heart of this impressive growth that has stunned French observers and surprised business analysts? The three main reasons for McDonald’s success are local responsiveness, rebranding and a robust corporate ecosystem.
Burger King — arguably McDonald’s largest competitor in the world — entered the French market in 1981 but closed its 39 stores in 1997. Its strategy of directly transplanting the American restaurants,, with no local adaptation, resulted in weak sales. A French hotel and restaurant journal remarked at the time of the brand’s closing that “Burger King faced no significant handicap against its rivals McDonald’s and Quick. Despite the three companies entering the French market around the same time, McDonald’s has grown to 542 restaurants and Quick [to] 258.” To put Burger King’s failure into context, from 1983 to 1996, the French fast-food market grew by nearly 1,450 restaurants, and total market value increased fivefold. The different growth trajectory of McDonald’s France is largely attributed to the age-old American adage, slightly refined: The customer — the French customer, to be exact — is king. At every turn, the management of McDonald’s France has been sensitive to the preferences of French consumers, both inside the restaurants and in their daily lives.
Since opening its first French restaurant in Strasbourg in 1979, McDonald’s has sought to leverage the strength of the global conglomerate while tailoring its menu to the French palate. Although some elements of an international strategy were apparent in McDonald’s French entry, overall the chain was not responding to local market needs and opportunities. Strasbourg was chosen as the initial location in order to leverage the brand recognition that already existed in Germany, while keeping the same restaurant décor and recipes for France. According to Nawfal Trabelsi, senior VP for McDonald’s France and Southern Europe, “For the first 15 years, from 1980, what we did above all was offer people a slice of America.” However, in 1995, McDonald’s started using French cheeses such as chevre, cantal and blue, as well as whole-grain French mustard sauce. By changing the recipes in France, McDonald’s started executing a multidomestic strategy and winning the hearts of French consumers.
McDonald’s also demonstrated the power of understanding the cultural particularities of consumers across national boundaries. In France, barely 10% of meals are eaten outside the home, compared to nearly 40% in the U.S. and the U.K. Unlike their Anglo-Saxon counterparts, French consumers rarely snack between breakfast, lunch and dinner. As a result, French meal times also last longer, and more food is consumed through multiple courses, creating unique opportunities and challenges for fast-food dining. McDonald’s decided to capitalize on the opportunity. Rather than run promotions that encourage snacking, the company freed up valuable labor by installing electronic ordering kiosks, which are used by one out of every three customers in more than 800 of its restaurants. McDonald’s has capitalized on the French cultural preference for longer meals by using surplus labor to provide table-side service, particularly in taking orders from lingering diners inclined to order an additional coffee or dessert item. Thanks to such initiatives, the average French consumer spends about US$15 per visit to McDonald’s — four times what their American counterparts spend.
Moreover, to solve the issue of empty tables during non-meal times, McDonald’s introduced McCafé in France — a range of high-end coffees and pastries available from a separate counter. McCafé pastries come from the Holder Group, a baking conglomerate that operates the popular Paul and luxury Ladurée brand stores in France. According to McDonald’s France chief of staff Alexis Lemoine, “I set up taste tests for my friends between McDonald’s macaroons and those of Ladurée, and almost no one can tell the difference.” This unorthodox move from the most traditional purveyor of burgers and fries not only increased revenues by 5% — by adding products with over 80% profit margins — but also contributed to theembourgeoisement (gentrification) of the chain’s image.
In August 2011, McDonald’s announced that the McCafé would be taking on another ubiquitous French food icon: the baguette bread roll (which will also be supplied by the Holder group). By baking the baguettes in-house and offering them both as a breakfast item and in the form of baguette sandwiches, McDonald’s is clearly making a play for the non-franchised “fast-food” segment currently occupied by the tens of thousands of bakeries across France. According to a 2009 study by French restaurant industry consulting firm Gira Conseil, the French consume nine times more traditional sandwiches than hamburgers, and more than 70% of all sandwiches consumed in France are made on baguettes. As McDonald’s Trabelsi notes, “Today, we are part of French daily life. Our priority is to integrate locally while offering our traditional products…. The French are passionate about bread and crazy about baguettes. We’re gradually responding to a natural demand.”
As a response to the growing trend for healthy eating in France, McDonald’s introduced the McSalad. The new concept store, designed and implemented by McDonald’s France as an all-salad restaurant, is the first of the company’s 32,000+ global restaurants where customers will not find any of the traditional burgers, fries or shakes. Situated in the heart of La Défense, Paris’s massive corporate office park, the McSalad is targeted at the upscale clientele of the area’s 200,000 daily business workers who can place their orders online from their desks to maximize their short lunch breaks. According to Elizabeth Rosenthal, a New York Timescontributor and researcher on food trends, the French spent an average of 38 minutes per meal in 2005, down from an average of 82 minutes in 1978.
Fireplaces and Flatscreen TVs
The second major success factor could be headlined “progressive marketing.” Perhaps the most striking aspect about McDonald’s restaurants in France is not found on the menu — it is the restaurants themselves. McDonald’s franchisees have invested heavily in their ambiance and spent approximately US$5 billion in renovations in less than a decade. The most noticeable innovation has been the refinement of the restaurant interiors to create a welcoming environment where customers linger — a stark departure from the American restaurants’ strategy to minimize customer visiting time and maximize purchasing turnover. Sleek, modern tables with plush, comfortable chairs and high-impact wall graphics are more reminiscent of Starbucks than a traditional fast-food chain. Outside, the store’s visual profile and signage are so subdued as to be practically invisible to passers-by until customers are directly in front of the restaurant itself. This contrasts strongly with the chain’s style of buildings in the U.S., where the lighted golden arches logo is hoisted high in the air in order to be seen from a distance.
Far from the homogenous design layouts throughout the U.S., French franchise owners have opted for tasteful, diverse and regionally appropriate restaurants. McDonald’s Alexis Lemoine notes that, even within Paris, restaurants varied tremendously according to target demographics. In 2005, free wifi was implemented in all McDonald’s restaurants in France — a move not followed by their U.S. compatriots until 2010.
This strategic shift in the fast-food business model has not gone unnoticed by other global subsidiaries. In September 2011, McDonald’s Canada appeared to follow the French lead and announced its own $1 billion, 1,400-store overhaul. In explaining the decision to transform the traditional restaurant layout into sleek stone-and-wood interiors — complete with free wifi, fireplaces and flatscreen TVs — McDonald’s Canada CEO John Betts notes, “People tend to linger a little bit more in restaurants today. They want to enjoy their meals and take a break from the busy lifestyle that they lead. We think our restaurants today are certainly doing that a lot better than in the past.”
In trying to appeal to the modern French restaurant goer, McDonald’s has also pushed to publicize the “greening” of its image. In France, the golden arches are not surrounded by the familiar red background, but by a forest green color. Although initially controversial with the head U.S. office, this branding has already been followed by several of its European subsidiaries. Furthermore, McDonald’s advertises that it aims to reduce gas emissions by more than 50% over the next 10 years and already recycles 7,000 tons of frying oil to be used as bio-diesel fuel. Steps have yet to be taken to recycle the many tons of paper and plastic produced in-store. Lemoine claims it has proven “too difficult,” but it clearly seems a logical next step for the “green” company to take.
In line with the strategy of redefining its image, McDonald’s reviewed its reputation for unhealthy food. Jean-Pierre Petit, the CEO of McDonald’s France, put his decades of marketing skills to good use. Although not required, nutritional and caloric information were added to all food packaging. Other health-friendly features of McDonald’s France include reducing salt on french fries, fresh fruit packets (introduced in 2007), and “le Big Mac” with a whole-wheat-bun option. Although the lion’s share of McDonald’s revenue will continue to be burgers and fries, the company has taken steps to show that it is committed to healthy eating and using French fare.
Suppliers as Partners
Perhaps the greatest strength of McDonald’s France, in addition to its uncanny ability to predict French consumer preferences, is its ability to redefine the American model that has worked so well in the U.S. McDonald’s France has created an entire ecosystem that has been critical to its current success. After the José Bové bulldozer incident, McDonald’s France introduced ad campaigns to tell customers more about itself, where it came from, what ingredients it used, and who it employed — just how French it had actually become. It then strengthened ties to French agribusiness, advertising widely that 95% of the company’s ingredients come from France, with the rest coming from the European Union.
McDonald’s is today the number-one purchaser of beef in France. “We know where every hamburger and chicken nugget came from,” notes Lemoine. “We can trace them to the farm within one day.” This also allowed for some advantages during the mid-1990s’ “mad cow disease” panic (Bovine spongiform encephalopathy). “Our competitors had to cut out all beef production. We were so confident we knew our farms that we continued producing and gained market share.”
Moreover, although McDonald’s sources 95% of its produce in France, very few of its suppliers have formal contracts with the chain. Instead, they are seen as partners whose success is symbiotic to McDonald’s. “McDonald’s cannot afford to have supply issues preventing it from selling Big Macs,” Lemoine says, “but the large capital investment that suppliers make to provide products makes them equally dependent on Big Mac sales — creating a sort of interdependence between supplier and the restaurant.”
Employees are supported through programs to give them particular qualifications, such as nationally recognized diplomas and certifications, and in turn, employees regularly have been found supporting McDonald’s and protecting its brand on Internet forums and blogs. McDonald’s leverages its franchises and their proximity to customers by ensuring that 20 elected franchisee representatives vote on every marketing campaign and product launch before they are implemented. French doctors were consulted when discussing how to improve McDonald’s nutritional content, and Greenpeace was engaged to discuss its environmental strategy.
In their book, The Soul of the Corporation, Hamid Bouchikhi, a professor at ESSEC business school in France, and John Kimberly, a professor at Wharton, examine the challenge of both corporate and national identity in multinational corporations. Ask any French person the “nationality” of McDonald’s, and he or she will most certainly say it is an American brand. However, 95% of all McDonald’s France products are sourced from French farms. The company’s management, employees and franchisees are 100% French and operate nearly autonomously from the U.S. parent organization. Its menu items, designed by French chefs and featuring regional specialties, such as Roquefort cheese sandwiches and Parisian macaroons, are found nowhere else in its global network of restaurants.
Can McDonald’s France still be considered an “‘American'” company? Can its unique French characteristics explain its success there? Although McDonald’s France leverages the power of the global network — contributing to, and benefiting from, the brand and innovation — it has redefined itself as a French company that is constantly looking to adapt to the needs and preferences of the French culture.
Lucy Fancourt, Bredesen Lewis and Nicholas Majka, Knowledge@Wharton (original link here)