MCDONALD'S COOKS WORLDWIDE GROWTH WITH U.S. SLUGGISH, CHAIN CHARGES ABROAD

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Michael Quinlan, chairman-CEO of McDonald's Corp., loves to remind shareholders about how many earthlings have never tasted a Big Mac. On any given day, only 0.5% of the world's population visits McDonald's, a fact illustrating the vast potential market share.

Faced with a saturated U.S. fast-food market, expected to grow no more than 5% annually in coming years, McDonald's growth depends on expansion abroad, where two-thirds of its new restaurants-as many as 1,000 each year-will be built in the near future.

Roughly 350 this year will be erected in Central Europe, including previously McDonald's-free zones Croatia, Slovakia, Romania and Malta.

Rival Burger King Corp. operates roughly 1,500 units outside the U.S. and plans to build expansion this year in the U.K., France, Canada and Australia. And PepsiCo operates 7,400 KFC, Pizza Hut and Taco Bell restaurants abroad-2,000 more than McDonald's.

But PepsiCo's 1994 sales outside the U.S. came to $5.6 billion, compared with $11 billion for McDonald's. "No other company comes close to McDonald's reach and growth plans," said Steven Rockwell, an analyst with Alex Brown & Co. And new markets are conquered constantly; McDonald's next year will serve vegetable and fish burgers to 800 million Hindus in India.

China, Russia and India offer huge opportunities, but McDonald's is relying most heavily on its six largest markets-Australia, Canada, the U.K., France, Germany and Japan. "Markets in the Far East, Eastern Europe and South America will grow in importance, but a country like China isn't profitable and won't be for a number of years," Mr. Rockwell said.

McDonald's vigilantly preserves its core menu and brand image in markets around the world, but each region is given the autonomy to create relevant advertising.

Of the world's 50 most profitable McDonald's outlets, 25 are in Hong Kong, where 83 restaurants serve burgers and fries, paying little heed to local taste. "The thing that sells McDonald's is its standard product," said Angel Bassage, communications director in Hong Kong. DDB Needham spent $6.5 million on local advertising last year.

Occasional promotions offer the likes of teriyaki and pork burgers, as well as Chinese New Year gift certificates. McDonald's also pays close attention to numerology. "We would never price something for $14.44," said Ms. Bassage, because pronunciation of the Cantonese word for "four" is similar to that of "death."

McDonald's pioneered fast food in the U.K. by opening its first outlet in 1974. Now 590 strong, it plans to build 50 restaurants a year through the year 2000.

"When McDonald's started here, it was very unusual because most of the restaurants were either slower formal restaurants or downmarket fish-and-chips shops," said Edward Whitefield, chairman of London-based retail consultancy Management Horizons Europe. "McDonald's filled a gap for the modern consumer."

McDonald's in the U.K. benefits from less competition than in the U.S., allowing it to sell a "fun, happy" image, he said.

Through Leo Burnett Worldwide, McDonald's spent $47 million in U.K. media last year-more than 55% of U.K. chain restaurant spending, according to A.C. Nielsen Co.'s Register-MEAL unit.

McDonald's recently opened its first U.K. freeway restaurant, a joint venture with Forte Hotels, London, and plans to open 30 more in coming years. And promotional efforts in recent years include sponsorship of the 1994 World Cup soccer games and various anti-drug and anti-litter campaigns. The latter may be a response to a public-relations nightmare: its libel suit against two environmentalists for distributing pamphlets alleging the marketer's low wages and environmental damage.

McDonald's is the market leader in every country it has ever entered-except Belgium, where it plays second fiddle to Casino SCA, Paris, owner of 459 Quick and Freetime outlets here and in France. The 72 Quick units in Belgium and Luxembourg own 78% of the hamburger restaurant market, according to Datamonitor, a London-based management consultancy. McDonald's operates only 32 restaurants in Belgium.

McDonald's leverages brand power against Quick, frequently chauffeuring mascot Ronald McDonald to outlets. Quick strikes back with appeals to children through its Magic Box kids' meal.

In Mexico, where the peso's devaluation curbs consumption, McDonald's uses the slogan "More value for your money." Its sales here for the first half of 1995 fell 25% over that period last year.

McDonald's first Mexico City outlet, opened in 1985, attracted mostly upper-middle-class consumers, but its value message has expanded the customer base to include lower-income groups.

Extra Value Meals are the cornerstone of sales in Mexico, where a startling nine in 10 transactions include the purchase of a value meal, compared with half of U.S. transactions.

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Corporate close-up

Headquarters: Oak Brook, Ill.

Leadership: Michael Quinlan, chairman-CEO; James Cantalupo, president-CEO, McDonald's International; Paul Schrage, senior executive VP-chief marketing officer.

Agencies: Leo Burnett Worldwide handles McDonald's in 17 countries outside the U.S., DDB Needham Worldwide in 23.

1994 worldwide ad spending: $385.6 million on company-owned stores alone. Spending on franchised and company stores in the U.S. was $763.7 million. A comparable figure for worldwide restaurants is not available.

Recent successes: Rapid international expansion coupled with reduced costs helped McDonald's international operations contribute half of the company's total operating income for the first time in the third quarter last year; overcame dietary hurdles and signed joint venture partners to begin opening restaurants in India early next year.

Challenges ahead: Follow through with plans to open 600 units by decade's end in China, where the government recently revoked McDonald's 20-year lease on a 700-seat Tiananmen Square restaurant; cope with the ongoing recession that has hit sales in Japan, McDonald's largest market outside the U.S.; craft global and local promotions to maximize sponsorship of the 1996 Summer Olympics in all markets.

Source: Advertising Age International and company reports

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