McDonald's makeover in Europe increases sales

WOLFRATSHAUSEN, Germany, June 27 (Reuters) In this German hamlet 15 miles south of Munich, McDonald's Corp is conducting an experiment that counters the fast-food, drive-through image of the world's biggest restaurant company.

The McDonald's restaurant here has a fireplace, leather sofas, wooden floors, vases with plastic flowers and a McCafe, where it serves pastry, tiramisu and cappuccino on china.

The eatery is what the company calls one of its best examples of weaving together ambience, convenience and food. The experiment is part of McDonald's Europe's strategy to create a more restaurant-like, sit-down eating experience.

Sales at the two-story restaurant, where the makeover was finished 18 months ago under a design called Venge, have grown 22 percent.

Michael Heinritzi, who owns and operates 30 McDonald's franchises in southern Germany including this one, says his customers enjoy the restaurant more and that clients now include businessmen who drop by in the morning for a coffee.

Before the remake, mothers would drop off children for a birthday party and pick them up later. Now they stay and enjoy a latte and a piece of cake, he said.

McDonald's has remade 2,000 of its 6,400 eateries across Europe, which is the parent's second-biggest market outside North America. Six hundred more such makeovers are planned a year under 10 designs with names such as Urban, Qualite and Less Is More.

''Reimaging,'' said Denis Hennequin, president of McDonald's Europe, ''is important in the fast-moving, competitive world of retail.'' A FRENCHMAN'S IDEA The new restaurants are boosting profits in Europe, where the company's operating income grew 38 per cent in the first quarter of 2007 and sales climbed 9 per cent.

And with the franchisees bearing most of the costs of the renovation, the move is not a burden on McDonald's balance sheet.

Heinritzi said the renovation cost 750,000 euros (1 million dollar) and should pay for itself in four to six years. Costs have gone up with a fancier restaurant, but sales are up too.

Hennequin, a Frenchman, came up with the idea of combining ambience and convenience when he took over McDonald's operations in France in 1996.

Unlike in America, Europeans think eating a meal involves sitting down and taking their time.

''To make us a real destination, we are also looking into new services like free WiFi Internet access, cash-less restaurants and McCafes,'' Hennequin said over lunch in Munich, where McDonald's was showcasing its European operations.

The lunch featured the company's summer European menu, which included le P'tit Moutarde burger from France.

McDonald's plans to increase the number of McCafes, which are like small cafes within a restaurant, to more than 1,500 by the end of this year from about 1,000 at the start of 2007.

Nearly all of them will be in Europe or Australia.

The reimaging idea is catching on in America too, where McDonald's has already renovated about half of its 13,000 restaurants. But the drive-through, fast-food culture of the Americans has led to a simpler style of renovations with fewer McCafes.

''The European concept is being transported, but it is adapting to the U.S. market,'' a McDonald's spokeswoman said. ''In Europe we also want to be a part of the customer's lifestyle.'' In Europe, where the population is ageing, McDonald's hopes its cafes and more comfortable decor will attract older people.

But during a recent visit to the restaurant here, nearly all the 30-odd customers were either teenagers, college students or young families.

The only senior citizen drinking coffee said she had stopped by because her husband was at a car dealership in the area.

''I never go to McDonald's, but the coffee is good and cheap,'' she said.

REUTERS LPB RAI1323