Why McDonald’s, Yum! Brands, and Burger King Succeed in Europe

Even though McDonald's and Yum! Brands have recently struggled in the U.S., both companies have steadily grown in Europe over the past several quarters. Likewise, Burger King has had great success in Europe. Why are these three fast food brands succeeding in Europe?

Jun 18, 2014 at 8:00AM

While Americans have slowly drifted away from fast food options like McDonald's (NYSE:MCD), Yum! Brands (NYSE:YUM), and Burger King (NYSE:BKW) in recent quarters in favor of new fast-casual trends, Europeans have done the opposite.

McDonald's and Burger King pioneered fast food in Europe during the 1970's. Later Yum! Brands and several other top U.S.-based fast food brands entered European markets. Today , McDonald's, Yum! Brands, and Burger King are the top three fast food chains in all of Europe with nearly 15,000 locations among them.

But why do McDonald's, Yum! Brands, and Burger King succeed in Europe?

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McDonald's in Europe.  Credit: Michael Carter

McDonald's May comp sales show more of the same
Last week, McDonald's released its global comparable sales for May 2014 . The 1% decline in same-store sales for U.S. restaurants was the seventh straight month of flat or negative growth. This is currently the longest stretch of this in more than a decade for McDonald's largest market in terms of restaurant count.

In Europe, however, McDonald's has been seeing slow, but steady, positive growth. In May, Europe saw same-store sales grow 0.4%. Year-to-date, McDonald's 1% same-store growth in Europe is a sharp reversal of the 0.8% same-store sales decline it saw in the same period of 2013.

The pattern isn't unique to McDonald's, though.

In Yum! Brands' recent quarter , U.S. same-store sales fell for KFC, Pizza Hut, and Taco Bell by 4%, 5%, and 1%, respectively. However, Yum! Brands saw significant sales growth in its KFC and Pizza Hut concepts in developed European countries at 8% and 2%, respectively. Taco Bell isn't included in Yum! Brands' European metrics yet since it still generates 97% of its total operating profit in the U.S.

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Long lines in a crowded KFC in downtown Barcelona, Spain.  Credit: Michael Carter

Burger King's Europe, Middle East, and Africa , or EMEA,  region has been its biggest performer recently as well. The region is up 4.8% in same-store sales for the first three months of 2014, while the U.S. and Canada region is up just 0.1% for the same time span. In fact, the EMEA region has had thirteen straight quarters of same-store sales growth driven by Germany, the United Kingdom, and the new Satisfries, which have been a hit throughout Europe.

Why McDonald's, Yum! Brands, and Burger King succeed in Europe
Smaller meals, meal timing, and portion sizes may be driving Europeans to choose fast food alternatives.

For example, tapas are popular Spanish dishes that often come in small portions but cost a little more for the amount of food that you receive. In other European countries like France , a small croissant and coffee is often considered a complete breakfast. Additionally, snacking throughout Europe is a lot rarer than it is in America.

The alternatives, or lack of them, also help drive sales at fast food locations. Many dining options outside the home revolve around full-service restaurants where meals are not only on the expensive side but also take up considerable time. Meals at these restaurants are often expensive due to the logistics of the food supply, especially when it comes to proteins that Americans take for granted like beef products.

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Burger King lines backed to the door in the Netherlands.  Credit: Michael Carter

McDonald's, Yum! Brands, and Burger King also don't have threatening fast food competition in Europe yet. Telepizza, Hesburger, and Chicken Cottage are European versions of pizza delivery, McDonald's and Burger King, and KFC, respectively. However, sales growth numbers show that Europeans prefer American fast food chains over local establishments.

Then there is the tourism factor. Seven of the top ten tourism destinations in 2012 were in European countries, with France taking top honors. Even though tourists come in from all over the world, many of them are Americans who favor the familiarity of American fast food choices when they travel. Because all three brands are globally known, though, even non-Americans feel at home when they see a McDonald's or Burger King near their hotel.

In the end, fast food gets an edge over other dining options among tourists because of their time and cost constraints. Tourists generally want to put their money toward tours and sightseeing expenses.

What about fast-casual threats?
Right now it appears that American fast-casual chains don't pose the same threat in Europe they do to fast food in the U.S. Even though Europe has a lot of full-service dining options, it also has a lot of dining options that would be defined as fast casual in the U.S.

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Wok to Walk locations throughout Europe's most popular tourist destinations. Credit: Wok to Walk

Wok to Walk is an example of a popular, growing chain. With over 50 locations that are mostly in Europe, it has a philosophy that revolves around exotic flavors and real fresh food and a fast-casual price point. Customers can pick their ingredients in the forms of carbs, proteins, vegetables, and spices and add them to their stir-fry meals as they are cooked on-the-spot.

The bottom line
McDonald's, Yum! Brands, and Burger King have never been more popular in Europe. European locals and tourists alike choose fast food for different reasons.

Locals want something different in their diet, while tourists want some familiarity in theirs when they are traveling. The lack of other fast food options has helped these three brands grow in Europe.

McDonald's and Yum! Brands, in particular, have relied on Europe to keep their overall sales growth positive as they have both recently struggled in the U.S.

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Michael Carter has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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