Giving Golden Arches Global Span

INTERVIEW: JAMES CANTALUPO

A JAPANESE manager with McDonald's Corporation brought his family on a visit to Los Angeles. Spying a pair of golden arches, his young son exclaimed: "They even have McDonald's in the United States!" That reaction might startle Americans, for whom the burger behemoth has acquired national icon status by virtue of its ubiquity and mass appeal. At year-end the fast-food chain had spread to 8,576 US locations - one per 28,000 inhabitants.

All this started with the drive-up (featuring red arches, by the way) that founder Ray Kroc opened in 1955 in Des Plaines, Ill.

When business outgrew that site in the late 1970s, public clamor prompted McDonald's to preserve it as an architectural landmark. America's landscape isn't the only one dominated by the world's largest food service company, as the Japanese boy's remark shows. McDonald's has established nearly 800 stores in Japan since starting there 20 years ago. Now the country's leading meal-server, the chain appears on its way to icon status there, too.

That's fine with James Cantalupo, president of McDonald's International. He says the company aims to "become as much as part of the local culture as possible" as it moves to exploit the lucrative, barely penetrated global market. Results from 1990 demonstrate the potential. International sales grew 27 percent. And with just a quarter of McDonald's 11,803 restaurants last year, international sales contributed over 80 percent of the $1.5 billion total growth in sales, which rose to $18.8 billion.

McDonald's "is not just a ham-burger. It's an experience ... that people want all over the world," Mr. Cantalupo says.

Indeed, revenue abroad averages around 50 percent higher per store than in the more heavily saturated and highly competitive US market, where also a recession is keeping disposable income in consumers' pockets. McDonald's is bracing for a difficult 1991 at home.

The company will continue to open one to two stores a day, with the non-US market gaining in percentage. In 1987 just four in 10 new openings were abroad, against half of last year's 641 new restaurants. Cantalupo sees international openings climbing to 60 percent and more of the total.

Worldwide market

"Our potential is huge," Cantalupo says. East and West Europe plus the Soviet Union have three times the population of the US. Then there's Asia and Latin America. "There's not a country out there that I don't see us making a viable, long-term, profitable business in.

"We just set up an office in Vienna to deal with Eastern Europe. We're working on Czechoslovakia and Poland right now, and then we'll move on to the other ones."

Currently McDonald's operates in 53 countries, largely in Europe, the Pacific, and Latin America. Cantalupo expects to open in two to four new countries each year.

Morocco will be the company's first step onto the African continent, while restaurant openings in Portugal and Greece will extend the burger chain throughout the European Community.

The war with Iraq has pushed the Middle East to the back burner.

"People always ask me why we aren't in this country or that country. I don't think people have a real appreciation for the amount of work that goes into developing the new markets," Cantalupo says.

For instance, in the Soviet Union, where one restaurant serves 15 million people yearly, the company had to build "McComplex" to manufacture all its food products for lack of local suppliers.

It takes at least three years to put all the pieces into place, and even longer to see a profit. During its first eight years in Britain, overhead and construction costs absorbed all of the operating profits as McDonald's expanded to 80 stores.

"Now that we've been there for 14 years, we're making very nice returns and we're continuing to grow the market," Cantalupo says. m not looking for notches on the belt in terms of countries," he adds. m looking for long-term potential."

Even so, initial operations can have remarkable results. The company recently opened its first restaurant in Indonesia and did $650,000 in business the first month - almost five times the systemwide average.

Canada, Britain, France, Germany, Australia, and Japan account for 80 percent of revenue and 70 percent of restaurant openings outside the US.

But "developing" markets like Brazil are also moneymakers for McDonald's.

"We're probably the ideal business for these hyperinflationary countries" because there are no receivables to devalue, Cantalupo says. "We run our cash to the bank every day."

McDonald's has been in Yugoslavia and Hungary since before the Berlin Wall fell, learning how to barter and other realities of doing business there. "The experience ... has been terrific. Those have not been loss leaders," he says. "We've made money, and we've been able to get our money out."

"People call us a multinational. I like to call us multilocal," Cantalupo says. That means finding local suppliers, partners, and staff. Fewer than 20 American expatriates work in the more than 3,000 McDonald's outlets outside the US, he says.

Since clowns are universal, Ronald McDonald remains a company symbol everywhere the company operates. However, he is Donald McDonald to the Japanese, who have trouble saying "R." But fitting in culturally does not mean tampering with McDonald's "food, folks, and fun" formula.

Kids are welcome

"People are people. What do they appreciate when they go into a restaurant?" Cantalupo asks. "If it's clean, and it's served with a smile, and they have a pleasant place to sit down and eat, and they get value for their money. Who wouldn't want all that, in any country?"

"How many restaurants in Europe, if you've traveled over there, welcome the kids? Very few. So that experience alone is something new for the Europeans."

"So now you get down to the food and the way it's served. Now that may be a little bit different, but it's still meat, bread, and potatoes," he says. "After they taste it, why wouldn't they like it?"