McDonald's health drive wins back customers

McDonald's increasingly diverse menus and funkier restaurant designs are winning back European customers, the burger chain said yesterday.

Its European business enjoyed sales growth in 2006 that was better than at any point in the past 15 years, and even health-conscious Britons were lured back into restaurants over Christmas.

The company also revealed another set of super-size figures from the core US business, where chicken wraps and posh coffee are driving a sales renaissance.

McDonald's shares jumped to levels not seen since the 1990s, when Eric Schlosser's damning investigations into the fast food industry were just starting to appear in Rolling Stone magazine, and before they had been compiled into the culture-changing book Fast Food Nation.

Yet the nutritional value or otherwise of a McDonald's meal seems less important to its turnaround than the sheer diversity of options on the menu.

European sales growth in 2006, from restaurants open all year, was 5.8 per cent, outstripping even the US thanks to a bumper December. European menus have changed more in the past three years than they did in the previous 30, the company says, with innovations in the UK including roast beef sandwiches and vegetable melts, plus fruit bags and water instead of soft drinks for kids meals.

Jim Skinner, its chief executive, said: "Europe generated its highest annual result in nearly 15 years, and ended 2006 with comparable sales rising 8.2 per cent in December. Customer enthusiasm for Germany's Monopoly game, seasonal menu offerings in France and the UK and a strong post-holiday shopping season contributed to results for the month."

The UK division, though, is still clearly lagging the rest of the continent. Its more modest boast yesterday was that, after a better-than-expected December, sales have been positive for three consecutive months.

The company singled out new seasonal menus that drove UK sales growth. Its "winter warmers" suggestions, including onion rings with sweet chili dip, have proved a successful marketing tool.

The division under Steve Easterbrook, a new chief executive installed last spring, has been trying to emulate the continental European McDonald's business with a greater variety of restaurant designs, ending a one-size-fits-all philosophy at its 1,220 UK outlets that had made them look decidedly dowdy. After the successful refurbishment of 64 restaurants last year, 150 more will be refitted in 2007.

Mr Easterbrook is also handing decisions to local franchisees, aiming to boost the number of franchised restaurants from barely 40 per cent now to 50 per cent by this summer, to try to make them more responsive to local customers. Franchised restaurants traditionally pull in higher sales and profits.

The UK has proved a stubbornly difficult market, however, particularly since concerns over obesity have grown and celebrities such as Jamie Oliver have weighed in on children's diets. Burger King had to pump a $3m cash injection into its UK business last year because of falling sales, blaming "perceptions about obesity and food-borne illness and increased competition from sandwich shops, bakeries and other new restaurants that are diversifying into healthier options in response to nutritional concerns".

In the US, the addition of chicken wraps to its menu has been the single most successful innovation of the past year. "McDonald's is no longer just a 'burger joint'. They do about $5bn in chicken sales in the US on an annual basis, roughly equal to their burger sales," said Jack Russo, analyst at AG Edwards. "Expect new chicken snack wrap flavours and new chicken sandwiches... Expect more new products at breakfast... Expanded coffee offerings from the recently launched premium coffee blend could include specialty coffees such as lattes and flavoured iced coffees."