Global Economics

McDonald's Still Hungry for U.K. Growth


Revamped stores, more franchising, and staff training have already lifted sales in Britain. But Northern Europe chief Steve Easterbrook aims to gain more ground

High energy levels are no guarantee of success as a chief executive, particularly at a fast food chain in the UK where its 2.5 million customers a day can vote with their feet. But it helps, and if the recent exploits of Steve Easterbrook, the president of McDonald's Northern Europe, are a guide he has plenty.

Last weekend, Mr Easterbrook, who became chief executive of McDonald's UK in 2006, completed a sprint triathlon at Blenheim Palace, comprising 750m in the water, 20km on the bike and a 6km run. For the record, he completed the event in one hour 48 minutes.

He competed in the race safe in the knowledge that McDonald's UK had delivered strong underlying sales just ahead of the overall figure of 5.7 per cent growth in Europe in May, which was unveiled on Tuesday.

This week's results provided further evidence of McDonald's (MCD) tasty performance in the UK after two years of barnstorming underlying sales growth.

But since opening its first restaurant on these shores in Woolwich, London, in 1974, McDonald's has not always had things its own way.

When Mr Easterbrook, 43, took the helm in 2006, its estate of 1,200 restaurants had been underperforming for a couple of years. He took on the additional responsibility for Sweden, Finland, Denmark, Norway and the Republic of Ireland in 2007.

But Mr Easterbrook, who first joined McDonald's in 1993 after being an accountant with Price Waterhouse, had an ambitious plan to fight back on the trading front and dampen the fire of its plethora of opponents, from environmental activists to campaigners on child obesity.

It's fair to say that on the PR front, Mr Easterbrook has to be both a politician – armed with justifiable rebuttals on contentious issues – as well as the boss of one of its US parent's most important overseas operations.

For instance, on the subject of obesity, Mr Easterbrook says that while McDonald's has an important role to play, so does the Government and individuals. After all, he says it had reduced the amount of salt, fat and sugar on its menu, where it has not changed the taste that customers prefer. He also points out that more than half of its Happy Meals for kids are now sold with a non-carbonated drink, and customers on average only eat in its outlets three times a month.

Furthermore, he became McDonald's first ever executive to have a live debate with Eric Schlosser, the author of the Fast Food Nation book, on the BBC's Newsnight four weeks after taking the helm.

Soon after, he was also behind McDonald's setting up a website, makeupyourownmind, to encourage debate and respond to people's concerns. "We wanted to send a signal of a step change in the way that we were going to be seen as a business. We were a faceless business, we were seen as being difficult to get to, and introspective," says Mr Easterbrook.

To deliver growth at its restaurants, McDonald's has invested across the business, improving its menu, as well as investing in staff training, kitchen technology and point of sale equipment over the past four years. Given that McDonald's has not increased a significant number of outlets, the uplift in underlying sales of 10 per cent in 2008 and 11 per cent last year has been largely driven by more customers.

More specifically, a key driver of growth has been the radical "reimaging" of its restaurants, including a new colour scheme, fixtures and fittings, and seats, which kicked off in 2007. The refurbishment is now 90 per cent complete on the high street and around half for its drive-through restaurants. "Our customers really enjoyed and appreciated the change – it was a more comfortable environment, more modern and they felt more comfortable hanging out in," says Mr Easterbrook, who is a keen follower of cricket and Watford Football Club. He gave up playing cricket three years ago and says the strongest team he ever played in was at Durham University, where Nasser Hussain, the former leader of England, was the captain.

Mr Easterbrook is also keen to recognise the contribution to its recent growth by staff and franchisees. Back in 2006, about 70 per cent of McDonald's restaurants were company owned with the rest being run by franchisees, but now franchisees account for 62 per cent, or 720, of its outlets. This increase has been driven by a reward programme where it sells more restaurants to its strongest-performing franchisees.

On investing in staff, McDonald's UK has also taken substantial strides to distance itself from the "McJob" jibe. For instance, it now has 6,000 UK staff enrolled on its apprenticeship in multi-skilled hospitality, which it introduced in 2009 and typically takes a year to complete.

This year, McDonald's also introduced a Btec qualification for teenagers who complete an 80-hour work experience programme.

While Mr Easterbrook says "snobbery" over such schemes is less prevalent these days, it still frustrates him. "Does it make me sad? Not really. It makes me sad there is still some intellectual snobbery out there." McDonald's has helped 2,638 employees to gain GCSE Maths or English qualifications over the past 18 months.

In fact, McDonald's has created 13,000 jobs over the past two years, taking its headcount to 80,000, and plans to add another 5,000 this year.

This is despite the challenging outlook for consumer spend. A key concern of Mr Easterbrook's is the prospect of the Government raising VAT, possibly by 2.5 per cent, in the emergency Budget on 22 June. When VAT returned to 17.5 per cent on 1 January, McDonald's UK reflected this in prices on its menu, as it did the reduction in December 2008.

"They will buy less because as a family they cannot go out and spend 2.5 per cent more than they did last year because their income is going to be squeezed in other ways. I am more confident about our ability, given the momentum we have in the business, to negotiate that stronger than the competition around us."

Certainly, McDonald's intends to turn the screws on its rivals this year with a "record capital investment." Most of this will go on stepping up its refurbishment programme that will see it complete a further 240 in 2010, following 192 last year. Despite all high-street operators being in a "market share fight," the ominous news for its rivals is that, as this week's results proved, McDonald's UK's "momentum has continued through this year," says Mr Easterbrook.

The CV: Steve Easterbrook

Born in 1967, Mr Easterbrook attended Watford Boys Grammar School before studying natural sciences at Durham University.

Mr Easterbrook was a keen cricketer until three years ago and describes himself as a "slow left arm bowler." He played with Nasser Hussain, the former England cricket captain, at Durham University.

He joined McDonald's UK in 1993 after a career with the accountancy firm Price Waterhouse. His career included senior roles in finance and operations before taking the helm in 2006.

He is married with three children, who go to McDonald's two to three times a month. "They are always surprised when they go and they don't see me there," he says.


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