McDonald's may struggle to replicate British success

Remember those fuchsia and red T-shirt-clad volunteers at the London Olympics back in 2012 who won so much admiration for their cheery help guiding visitors to and from the sporting events?

They were trained by McDonald's UK, which was at the time being run by Steve Easterbrook, who pushed to rid the company of the negativity surrounding "McJobs" - a phrase used to depict low-status jobs - by introducing much more staff training.

Mr Easterbrook was credited with transforming McDonald's UK business between 2006 and 2011 from being a purveyor of "fast-food junk" to "family-friendly food", as Maureen Hinton, global research director at research agency Conlumino, says.

But he now faces a more daunting task. He must resuscitate the reputation of the entire company. The brand of the world's largest restaurant chain by market value, which is more than twice the size of Yum! Brands, KFC's owner, has soured amid scandals in Asia and a global revolution in consumer tastes.

Investors were underwhelmed this week when Mr Easterbrook unveiled his recipe for revival, involving cost cuts and reorganising the business structure to reduce bureaucracy. The company is targeting $300m in annual cost savings.

Mr Easterbrook says he will use the UK as a "major market pacesetter" for his global plans. Some analysts say the British market, in which McDonald's is still the biggest restaurant chain, is a good model to follow.

Under Mr Easterbrook's leadership, the UK operation went back to basics, analysts say, by focusing on customers. McDonald's UK spent hundreds of millions of dollars on making stores more contemporary, introducing products such as coffee and cappuccinos, working with farmers to improve standards and open up to consumers about the supply chain, while engaging directly in the growing debate over the growing health concerns of fast food.

He also realised that McDonald's was not just competing against fast food restaurants but with everything from gourmet burgers to Starbucks, Nandos and sandwich shops, says Peter Martin at industry analyst Coffer Peach. He says while Mr Easterbrook still has to prove himself in the top job, he has plenty of ambition.

"Can anyone do a big job like that - it's one of the biggest companies on the planet?" Mr Martin asks. "He's the best placed of anyone I know to do it."

But Mr Easterbrook's goal scoring in the UK and Europe will not necessarily translate into home runs in the US and the rest of the world.

In the UK, McDonald's benefited from the shift to cheaper eating during the recession that followed the financial crisis. The casual dining market still has lower per capita spending than the US, so there is plenty of room for growth, analysts said.

There was a lack of detail and focus on the consumer in Mr Easterbrook's plans, according to Morningstar analyst RJ Hottovy.

Some aspects, such as menu changes, local decision making and local sourcing "would resonate in most markets", he said. However, much of what the company said on job cuts and streamlining was reminiscent of what private equity group 3G has done with Burger King.

"It didn't seem to have the next big innovation," Mr Hottovy says. "It seemed to be keeping up with its peers instead of showing something brand new."

McDonald's also faces the more immediate task of putting a line under scandals in China and Japan. In China, the company found that one of its suppliers had been relabelling expired meat, while in Japan consumers found objects including a human tooth in its products. This is something it did not face in the UK.

"After food scandals, it is hard to get consumer confidence and loyalty back - if at all," says one branding executive, specialising in the Asian region.

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