McDonald’s has been operating in Romania for five years without posting profits and without recovering as yet the 65 million-dollar investments it has made so far, but the multinational company’s local heads state that selling or liquidating the business in Romania is out of the question.
“As far as our business’s profitability is concerned, we are not where we should be or where we have all expected to get,” stated Marian Alecu, McDonald’s Managing Director for Romania and the Republic of Moldova.
He says that the main reasons behind the lack of profit are Romanians’ low purchasing power, the euro devaluation and taxes still levied for special funds.
Cristian Savu, a public relations director with McDonald’s, offers as an example the case of coffee for which the company pays a tax that is overall higher than the sales volume.
“The situation we are facing at present can seem surprising, since investments poured in Romania are much larger than those made in its neighbouring countries,” Alecu added.
Thus, in Romania there already are 46 restaurants, of which 27 McDrive, that is almost the total number of restaurants in Bulgaria, Croatia, Lithuania, Belarus, Slovenia and Latvia.
“Normally, a company as large as McDonald’s expects to derive profit in countries such as Romania 3-4 years after the moment it inaugurates a restaurant,” Alecu says. Moreover, the average investment for opening a restaurant stands at approximately 1.2 million dollars.
Analysts of market monitoring companies (Research Consultants) admit that Romanians’ curbed purchasing power has negative effects on the fast-food market.
“People who are younger than 35 continue to represent the market segment to which fast-food products appeal the most. But the lack of money is a frequently registered phenomenon with the young population,” analysts say.
Marian Alecu admits that in Romania, McDonald’s products particularly address the middle class that has a low purchasing power.
However, analysts of market research companies say a complete change in Romanians’ mentality as to rapidly prepared food has occurred and that the passage from grilled minced meat rolls to hot-dog and hamburger has been rapid.
The most eloquent example of the lack of profit is given, in the opinion of McDonald’s heads, by the price of a Big-Mac, which in Romania is the smallest.
“The Big-Mac index practically reflects the comparative level of population income from one country to another,” says Alecu.
Practically, while in Romania a Big-Mac costs 1.32 euros, in the United States it is sold for 2.56 euros, and in Finland it costs 3.36 euros. Cristian Savu says that prices for McDonald’s products are a direct consequence of the population’s purchase power and of the fact that the country’s economic situation does not register the growth all investors expect and count on.
On the other hand, McDonald’s is renowned for its franchising possibilities. “In fact, McDonald’s success key is its solid base, made up of those partners that are unique through their qualities,” Alecu says. The problem would be that so far there is only one restaurant operating in franchising, in Brasov.
“Even in the current context of the Romanian retail market, we are prepared to invest between 5 and 20 million dollars annually,” Alecu added.