McDonald's Europe Stumbled Going After Kids, Young Men
Tuesday October 19, 1:56 PM EDT
DES MOINES, Iowa (Dow Jones)--McDonald's Corp. (MCD), admitting that its European business "ran into some challenges in the third quarter," plans to increase sales pitches to children and young adults there.
Although high unemployment in Germany and other external factors were partly to blame for slowing momentum, the company admitted it had made internal errors in some of its marketing to key customer segments, among them the quality of toys in Happy Meals.
"We failed to execute well with kids and young adult males," McDonald's Europe president Russ Smyth said on a conference call.
The company intends to boost its advertising on television and offer coupons to stimulate more sales across Europe, he said.
Also, "we've got to get hipper and edgier" in delivering messages to those young adult males, he said.
In reporting third-quarter results, McDonald's said comparable sales in Europe rose only 0.3% from a year earlier. That compares with a 8.5% increase in the U.S.
Because McDonald's doesn't expect that economic conditions in Germany will improve dramatically near-term, it will focus on driving sales partly by offering more so-called "McDeals" that emphasize value pricing, McDonald's Europe President Smyth said.
In France, another of the company's biggest European markets, the company is testing what it calls a "Eurosaver type menu."
New hamburger choices coming to the continent next year will include Asian and Tex-Mex flavors, primarily to appeal to young adults.
McDonald's restaurants in the U.K. recently revised their breakfast menus, adding bagels and porridge. Preferred brands of coffee and juices also are replacing previous fare.
In Asia, McDonald's also expanding its menu, testing rice and seafood offerings as well as local versions of its premium salad line.
Reviewing sales around the world, Chief Financial Officer Matthew Paull said recently introduced Chicken Selects strips, white-meat Chicken McNuggets and Happy Meals were major contributors to third-quarter results.
Asked for an update on the chain's test of deli-style sandwiches, called Oven Selects, Paull said sales in some 400 stores in five markets were "pretty good so far," but added that McDonald's is concerned about such a product slowing service times, particularly in its drive-thru lanes.
Moreover, adding the sandwiches would require new kitchen equipment and an investment of at least $20,000 per restaurant, he said. On the other hand, Paull noted that the deli-sandwich category is "growing very quickly" and "we're trying to see if we can leverage the speed of McDonald's" to capitalize on it.
On the service front McDonald's plans to have remote call centers handle drive-thru orders from between 40 and 50 of its U.S. restaurants by year's end. The intent is to relieve some pressure on drive-thru window and kitchen crews and speed up service, the CFO said.
Paull said McDonald's expects beef costs in the current quarter to be similar to those a year ago, while cheese should be down. For next year the company anticipates that beef and chicken will be "up modestly" but cheese to remain down, he said.
In a filing with the Securities and Exchange Commission Tuesday McDonald's disclosed that it has raised the range of debt payment intentions this year, to $800 million-$900 million from $600 million-$700 million it had reaffirmed only last month.
McDonald's president and chief executive officer, Charlie Bell, wasn't on Tuesday's investor conference call. Addressing his absence, investor relations Vice President Mary Healy said, "Right now his top priority is his cancer treatment and recovery."
As reported, Bell has undergone surgery and is receiving chemotherapy for colorectal cancer.
- By Richard Gibson; Dow Jones Newswires; 515-282-6830; dick.gibson@ dowjones.com
Dow Jones Newswires
10-19-04 1356ET