Upscale makeovers power MacDonald's European revenues past those in the U.S.

LONDON — McDonald's, as American as apple pie and baseball, has become a bigger hit in Europe than on its home turf, despite many Europeans' disdain for fast food.

A big part of the reason is upgraded menus and high-design restaurants that have been so successful that they may be exported to the United States.

The nation's largest hamburger chain reported Wednesday that it swung to a profit in its second quarter, helped in large part by a 7.4 percent increase in sales in Europe.

Europe is now the company's largest region by revenues, despite having only about one-fourth as many outlets there as in the United States. Last year revenues reached $8.9 billion in Europe, compared to $7.9 billion in the United States.

With Europeans so bent on healthy eating, how has McDonald's lured so many European customers?

According to analysts and company officials, the company has succeeded with the help of classy designs and an emphasis on high-quality food.

Indeed, Americans in Europe seeking a little taste of home might be dismayed by what they find under the familiar golden arches.

"A huge chunk of the company's success comes from giving locals the kind of foods they like, instead of force-feeding American menu items to them," said Ron Paul, president of Technomic Inc., a Chicago-based restaurant research firm.

There's porridge in Britain and pasta freshly cooked to order in Italy. In France, there's a smaller-sized burger on a ciabatta roll slathered with a sophisticated mustard sauce — and served with a glass of wine.

The restaurants' decor is another culture shock.

Green swivel armchairs. Modernist murals. Elegant wood, leather, and stainless steal instead of retro plastic and Formica fittings.

Even the Ronald McDonald play areas have been given a face-lift and rechristened Ronald Gym Clubs. Pits full of plastic balls have been replaced by climbing walls, bicycle simulators, and basketball hoops with electronic scoreboards.

"Contemporary design has played a very important part to make McDonald's a destination," said Carmen Vroonen, a spokeswoman for McDonald's Europe.

During the 1990s, growth at McDonald's Europe was mediocre at best. But then Denis Hennequin, the head of McDonald's in France, asked to recreate the chain's standardized template into a more bistro-like cafe. Soon France was the company's most profitable market in Europe.

In 2005, Hennequin became the first non-American to hold the job of president of McDonald's Europe since the company arrived on the continent in 1971.

Since then, the sweeping overhaul of the restaurants and their menus throughout Europe has been dramatic.

Thanks to the upgrades, Steve West, restaurant analyst with St. Louis brokerage Stifel Nicolaus, predicts that McDonald's will enjoy 9 percent growth in European sales in 2008 versus 3 percent in the U.S.

"The remodels have had a positive impact on the performance of the stores," he said. "They are cleaner and nicer looking and more relevant to local tastes than the previous cookie-cutter versions."

Last year, McDonald's remodeled 640 restaurants in Europe, with another 805 on tap this year. This represents a significant investment, considering that the work can cost between $411,000 and $686,000 on average.

Innovations vary by country.

In Ireland, a trial program has staff providing at least some table service. In France, restaurants have built-in iPods at breakfast bars for customers to listen to while eating.

West said it's likely that McDonald's will test some of its European redesign ideas in the U.S. market to see if they can be applied there.

Already, McDonald's has confirmed it will introduce new wrappers, boxes, and bags in the U.S. market this year that will publicize the quality of its products, an idea that originated in Europe.

Another European export this year will be baguette-style sandwich rolls, or "artisan breads," that have long been popular in Italy and France.

Allyson Stewart-Allen, who heads International Marketing Partners, a cross-cultural consulting firm in London, said that "many American McDonald's have too much plastic and look like they are from another era."

"McDonald's in Europe has changed so that it's become a place where people want to sit and dwell for a while," she said. "The consumer in Western Europe doesn't want to be reminded they are in a fast food restaurant. They want to feel like they are in a real restaurant, and at McDonald's they do."

In its earnings report Wednesday, McDonald's said it earned $1.19 billion, or $1.04 per share, compared with a loss of $711.7 million, or 60 cents per share, during the same period last year. The suburban Chicago company said revenue grew 4 percent to $6.08 billion.

U.S. sales were up by 3.4 percent in the second quarter.

Shelley Emling is an international correspondent for Cox Newspapers.