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UK turns its back on McDonald's as 25 restaurants close

LONDON – Sales at McDonald's in the UK are falling, in contrast to robust growth internationally and in the US, resulting in the closure of 25 restaurants.

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The British and Germans, in particular, appear to have fallen out of love with McDonald's, according to the burger giant's annual accounts, with a combined sales drop of 0.5%. In contrast, worldwide sales grew by 5.7% and those in the US by almost 10%.

Once other factors such as service fees and rents from franchisees were taken into account, European sales fell by 6.6%.

As a result, the company is putting aside £23m to pay for the closure of 25 UK outlets. McDonald's is also in the process of selling at least 50 of its company-owned restaurants in the UK to franchisees.

The fall in sales is not a new phenomenon. Sales in the UK have been falling for five years. The fast-food chain is facing intense competition from coffee and sandwich chains such as Starbucks and Subway, which have followed a strategy, pioneered by McDonald's, of saturating UK high streets.

The poor UK performance dragged profit margins at McDonald's European restaurants down to 14.9% of sales last year from 15.6% in 2004. Pre-tax profits of the British part of the company fell from £83.8m in 2003 to £23.5m in 2004.

Denis Hennequin, president of McDonald's Europe, admitted this month that the brand is "tired" and that its restaurants need to be "re-imaged".

He announced plans to refurbish 200 of its UK restaurants and refranchise hundreds more in an attempt to lift flagging sales. In Europe, the introduction of sofas and wireless internet services has had a positive impact on performance.

The breakdown of figures in the annual report was the first time McDonald's has disclosed the profit margins of its company-owned restaurants, following pressure from an activist investor. McDonald's directly manages about 8,000 of its roughly 31,000 restaurants worldwide. The rest are operated by franchisees who pay royalties to the company.

McDonald's menus and advertising in Europe have been overhauled in recent years in response to concerns about the nutritional and environmental impact of its business.

The criticism was highlighted in the 2004 documentary 'Super Size Me' and a recent British documentary, 'McLibel', which was broadcast by the BBC last year, about the UK's longest-running civil trial, running from 1990 to 1997, between two environmental campaigners and McDonald's.

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