• Strategy
  • CFO Europe Magazine

Food Fighters

American restaurant chains have reigned, but some European innovators are gaining ground.

McDonald’s has, after learning from experience, become more adaptable. “Although we have an American heritage, we are quite local in the execution of our strategies,” says Linda Buckley, CFO of McDonald’s Europe. (For a full interview with Buckley, see “On the Record.”) As she notes, “More than two-thirds of our restaurants are owned and operated by independent locals and our country management is primarily local.” None more so than France, where McDonald’s, after a sputtering start in the 1970s, found the right partner in the mid-1980s. Despite the obvious cultural challenges, France has become McDonald’s single most profitable country with nearly 1,100 outlets, and local adaptations such as sales of beer. Indeed, Buckley’s boss, Denis Hennequin, was promoted to head of Europe two years ago after a long stint running France.

Apart from rapid expansion and franchising, another obvious area for Europeans to emulate is supply chain innovation and the exploitation of scale, though this is a much greater challenge when a chain is focused on high-end products, with different consumer segments. Unlike many fast-food chains, Flo’s restaurants don’t distribute pre-made meals from a central warehouse. But, Malassagne says, the group jointly owns a company called Convergence Achats with Euro Disney, where Flo also operates concession outlets. The purchasing outfit is responsible for sourcing raw goods, negotiating prices and then submitting samples to a Flo technical director, who selects the product to be used in the restaurants. Products are monitored via a database that kitchens use to order directly from the supplier, enabling restaurants to make small orders of fresh food, but also to exploit group volume rebates.

Similarly, Groupe Holder centrally purchases and processes in bulk. All dough, for example, is manufactured in Lille and then distributed to the stores where it is baked behind the counter. There are contracts with 300 farmers who together harvest 14,000 tonnes of Camp Rèmy winter wheat each year, and seven mills in northern France that grind Paul’s wheat into flour before it’s made into dough and sent to bakeries everywhere from Miami to Tokyo.

Redefining the Doughnut

A less obvious recent area of innovation by US chains is in financial reengineering. Over the past two years, for example, chains including Dunkin Donuts (now Dunkin Brands, including the Baskin Robbins ice cream chain), IHOP (a pancake chain) and Domino’s Pizza have raised billions of dollars by securitising their franchise royalty receipts. Morgan Stanley analyst Mark Wiltamuth points out that issuers of such royalty-backed bonds have secured $6 to $8 in financing for every $1 of franchise royalty at interest rates around 5.25% to 5.6%, significantly improved return on equity and given more balance sheet flexibility.

In the case of Dunkin Brands, its business model was radically redefined. “It basically went through significant restructuring of its business operations to set up for securitisation, essentially putting all cash-flow-generating assets in bankruptcy remote special purpose entities,” according to Standard & Poor’s analyst Eric Hedman. “Dunkin has become, effectively, a brand management company.”

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