McDonald’s Goes Local

Associate Editor reports on regional products and other developments from the McDonald’s annual shareholder meeting.

By Derek Gale , Associate Editor -- Restaurants & Institutions, 5/29/2007

Though Oak Brook, Ill.-based McDonald’s recently announced expanded testing of its Angus burger and iced coffee drinks, don’t expect a nationwide rollout of either anytime soon.

Don Thompson, president of McDonald’s USA, says those items, along with others in testing—like a Southern-style chicken & biscuits combo and a sweet tea beverage—play stronger in certain markets according to taste preferences. He says no national rollouts are planned as yet.

Meanwhile, outside the United States, McDonald’s is appealing to local taste preferences with offerings that include Ebi Filet-O shrimp burger in Japan, McArabia in the Middle East and the one-third pound Big Tasty in most of Europe and Latin America.

The No. 1 chain caters to international customers by offering delivery in 17 countries in Asia and the Middle East. CEO Jim Skinner says this works well in congested cities such as Cairo, Istanbul and Delhi where there is a “culture of delivery.” In Egypt, delivery accounts for nearly 28% of business.

McDonald’s also has exported the successful concept of extended business hours from the United States to some of its various global markets; overall, positive results are seen from that initiative, Skinner says.

Emerging Markets to Drive Growth

McDonald’s will look to expand in all profitable markets going forward, Skinner says, with emphasis on Russia and China. According to Tim Fenton, president, Asia, Pacific, Middle East and Africa, the company will open a minimum of 100 stores in China this year (20 have opened to date), half of which will incorporate drive-thru windows. (Read Executive Editor Scott Hume's special report on McDonald's in China.)

The company this year has earmarked $1.9 billion to open 800 new restaurants and re-image 2,000 restaurants worldwide. The goal is to improve on recent years’ growth levels of 0.9% to 1%, getting up to 1.2% or 1.3% over the next few years.

Breakfast War Not a Worry

Despite strong plays by other fast-food brands to enter the breakfast game as the category grows, McDonald’s executives feel confident the brand will continue to execute as the breakfast leader going forward.

“Breakfast is not as easy as it appears,” says Chief Operating Officer Ralph Alvarez, noting the real estate advantage McDonald’s has built, which he calls being on the “breakfast side of the road.” He explains that drivers in a hurry to grab a bite aren’t quick to make left turns.

But despite the confidence in the brand’s breakfast stronghold, Skinner says McDonald’s is “toying around” with $1 breakfast menu items in some markets, which would counter Burger King’s $1 breakfast offerings.