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McDonald's Restaurants

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The UK is one of food giant McDonald's key territories, but it faced several challenges from the late 1990s to mid 2000s. Inevitably the brand dominates the local restaurant market, but it struggled for several years to adjust to consumer concerns over unhealthy eating. Those problems appeared to have been resolved in the mid-2000s and in 2007, McDonald's UK reported its highest sales for more than a decade. That improvement has continued since then. For a time the group also dabbled in other brand chains. It acquired a minority stake in much admired British sandwich chain Pret a Manger in 2001, but sold those shares sold in 2008.

Advertising

Click here for agency account assignments for McDonald's from adbrands.net. In the UK, Nielsen (at Brand Republic) estimated media expenditure of £72m in 2013.

Competitors

See Restaurants Sector index for other companies

Contact

McDonald’s Restaurants UK
11-59 High Road
East Finchley
London N2 8AW
United Kingdom
Tel: 44 (0)20 8700 7365

Brands & Activities

McDonald's has 1,250 outlets in the UK, and it is the country's biggest-earning restaurant chain. Market watcher Technomic estimated sales of almost £1.9bn in 2011, around three times higher than #2 fast-food chain KFC. However, it has been overtaken in outlet numbers by bakery chain Greggs, as well as Subway and Costa Coffee. Nor is the UK the group's largest territory by outlets in Europe. That honour now goes to Germany, and the UK is now the #5 worldwide (after the US, Japan, Canada and Germany). However, performance remains strong; stronger in fact than in the chain's domestic US market. In summer 2015, the chain claimed its 37th consecutive quarter of growth. Part of that momentum comes from cost reduction. McDonald's is steadily reducing the percentage of outlets it directly owns. By 2014, that figure had fallen to just 30%. The remaining restaurants are franchised.

McDonald's has a dominant position in the local hamburger market, with an estimated 75% market share (compared to 43% in the US). It is firmly established as the #1 food brand among British under 35s, and combined traffic to its UK outlets averages 3m people a day. However, the group is facing increased competition from gourmet rivals such as GBK, Byron's and Nando's. In 2015 it began offering screen-based ordering and table service in selected restaurants and plans to roll this out to all outlets by 2018.

Like its US parent, the British business was hit hard by the consumer backlash over obesity and unhealthy eating from 2003 onwards. According to newspaper reports, financial accounts for McDonald's UK showed a 71% fall in profitability that year, and the downturn was more prolonged in the UK than in the US, where the company's introduction of low-fat meal alternatives delivered a fast recovery during 2004. The UK operation was still under pressure by 2006, despite a matching line of healthy foods. Some of these proved just as controversial. Towards the end of 2004, newspaper reports revealed that the dressings used in some Salads Plus "healthy" meals actually contained more fat that a typical burger meal. McDonald's moved quickly to replace the dressing with a low-fat, low calories version.

During 2005, the UK was the only important McDonald's market in Europe that showed a further decline in sales, and the group acknowledged that the local business had become "tired". The group closed around 25 outlets at the start of 2006, and began a £140m refurbishment programme designed to improve performance in its core high street branches. Among other initiatives the group introduced a new line of toasted deli sandwiches, as well as bagels and fairtrade coffee. In another ploy to attract customers into its outlets, the company began offering free wi-fi access in selected restaurants in 2004. In 2007, that offer was expanded to cover all McDonald's UK outlets, making it the country's biggest such network.

To boost its appeal to family customers, the company also extended promotional movie tie-ins to products such as fruit and vegetable options as well as its main burger meals. To emphasise that much of its food was home-grown the company began putting photographs of the British farmers who supplied the chain on the liner paper in customers' trays. Another important development was the introduction of more unusual mid-priced snacks under the "Little Tasters" banner. These aimed to attract the attention of parents taking out their children for a meal, but who would otherwise not have ordered any food for themselves. More recent innovations have been the introduction of takeaway "sharing meals" and publication of calorie information at point of purchase.

Gradually the refreshed appearance of McDonald's outlets, combined with an easing of public over-reaction to the obesity issue, has resulted in improved performance. In early 2008, the company was reported to have sold more burgers in the UK in 2007 than in any previous year.

The company has also fought had to improve its reputation as an employer, making huge strides in the introduction of progressive new policies. It was the first company to align its work experience programme with a nationally recognised academic qualification, and launched a national campaign in 2010 to fight the use of the word "McJob" as a generic term for low-paid, low-value work, highlighting the many benefits of a career in the company, as well as its extensive qualifications training programmes. In 2011 it was rewarded with a place among the Sunday Times newspaper's 25 Best Big Companies To Work For.

Two years later McDonald's was among the unexpected winners in the UK horsemeat scandal. Several packaged meal manufacturers and even rival chain Burger King were forced to defend themselves on concerns that their imported beef may have been adulterated with horse meat. McDonald's uses only locally supplied beef and pork from the UK and Ireland so was able to rise among the controversy, and was even commended by a government report into the saga.

McDonalds acquired a 33% shareholding in upscale British sandwich retailer Pret a Manger in 2001. Those shares were sold on to private equity fund Bridgepoint in 2008.

Financials

For 2014, corporate entity McDonald's Restaurants Ltd reported turnover of £1.43bn, up 5%. Sales from owned restaurants were up 5% to £1.1bn, and licensee income by the same percentage to £322m. Underlying operating profit rose 7%, but an increase in franchise rights fees payable to parent company McDonald's Corp resulted in an 8% fall in pretax profit to £225m.

Management

Steve Easterbrook - now McDonald's group CEO - was widely credited with turning around UK performance during his tenure as UK chief executive from 2006 to 2010, re-positioning the chain from junk food outlet to family favourite. He stepped down at the end of the latter year and was succeeded by former UK CMO Jill McDonald. She resigned in Spring 2015 to head retailer Halfords, and was herself succeeded as chief executive by Paul Pomroy. Richard Forte is SVP & COO.

Alistair Macrow is SVP & chief marketing officer. Other marketers include Emily Somers (VP, marketing & food development), Katie Parker (head of marketing, brand & experience), Dionne Parker (corporate affairs director) and Michelle Graham-Clare (marketing manager, McCafe).

Background

McDonald's took its first steps into Europe in 1971. That year the group opened its first three outlets outside the Americas, in Japan, Australia and Europe. However, the UK was not the first port-of-call. McDonald's made its European debut in Amsterdam, and it was another three years before the first British restaurant opened, in 1974, in Woolwich, south London. Its manager was American-born Paul Preston, later chairman of McDonald's UK & Ireland. The opening was reportedly fraught with problems. The previous night, a workman accidentally set off the restaurant's sprinkler system, causing much damage, while some supplies shipped in from the States were held up at customs. However McDonald's was an immediate success with British customers, although Preston claimed to have been caught off-guard by the local custom of ordering hot instead of cold drinks to accompany meals. The brand was gradually rolled out nationwide.

Despite an immense popularity with huge numbers of British consumers, the group has spent much of its time since its UK launch attempting to combat repeated resistance from commentators and some sectors of the population unhappy with the group's mass-consumerist approach. Ironically, the UK has proved more susceptible even than France to high-minded (often irrational) sniffiness about the McDonald's culture and concept. The chain did untold damage to its reputation in 1996 by suing Dave Morris and Helen Steel, a pair of penniless British pamphleteers who claimed that McDonald's caused starvation in the Third World, destroyed rain forests and lied about recycling. The "McLibel" trial lasted 313 days, making it the longest in UK legal history, as well as one of the most expensive, costing the company more than £10m in legal fees.

The human cost to Morris and Steel was arguably far greater. Unable to apply for legal aid, the pair were forced to defend themselves against the top legal team hired by McDonald's. The fast-feeder was eventually awarded £40,000 in damages (reduced on appeal from the original award of £60,000), but it was a hollow victory, and lost the group considerable moral ground. Although the judge dismissed the campaigners' claims, he agreed that McDonald's exploited children in its advertising, was probably cruel to animals and also paid inadequate wages to British workers. Morris and Steel refused to pay the damages, and instead took the case to a European court of human rights. In 2005, that court agreed that the libel trial had been unfair, violating the campaigners' right to a fair trial and freedom of expression.

McDonald's won back a little prestige when it persuaded the Queen to make a most uncharacteristic visit to its Cheshire Oaks restaurant in 1998 (although she declined the offer of a meal). In a bid to diversify, the group acquired UK coffee shop chain Aroma in 1999 for around £10m. Later that year McDonald's reportedly considered a bid for the Hard Rock Cafe, the worldwide burger chain owned by Britain's Rank Group, but no deal materialised. Instead, in 2001, the group announced the acquisition of a 33% stake in the enormously successful upmarket sandwich chain Pret a Manger. Launched in 1986, Pret had grown to a 104-outlet chain by 2001, with sales of £120m. The deal with McDonald's surprised many commentators, who claimed that Pret, with its perfectionist obsession with hand-picked, high quality ingredients, was the antithesis of the McDonald's global machine. However, both companies pointed out that McDonald's is equally obsessive about perfection, but targets a much larger mass market, where low prices are more important than finest quality ingredients. Privately controlled Pret used McDonald's muscle to expand its chain of luxury sandwich outlets outside the UK. A New York store opened in late 2000 and proved successful. Under the terms of the deal, McDonald's agreed not to open any more Aroma outlets, and offered an option for Pret's founders to buy back their shares at a later date. The Aroma outlets were later sold off to rival coffee shop Caffe Nero.

In 2003 and 2004, McDonald's was hit hard by a consumer backlash against foods perceived as unhealthy or fattening, causing sales to drop significantly. However despite the introduction of several appetising low-fat meal alternatives, the UK market appeared to be taking longer to bounce back than the US. In 2004, the UK division launched new advertising which dropped the company's Golden Arches logo (for the first time ever) to highlight the non-burger range, under the headline "McDonald's. But not as you know it." Also during the year McDonald's rolled out wireless internet access in more than 500 of its bigger British branches in a partnership with BT.

Last full revision 25th November 2015

* Archive page for historical reference only. This profile is no longer being actively updated. See active page here *


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