Sun, Mar 16, 2003 page12

• US brands stand to suffer should war be declared

  US firms once used their Americanness as a selling point in Europe and in the Muslim world, but they have recently had to cut back on the amount of flag waving

  • NY TIMES NEWS SERVICE
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  If the US does invade Iraq, some of the first casualties may be the cachet that American brands and products have enjoyed around the world and the globalized marketplace they helped to build.

  In Muslim nations, franchised stores like McDonald's and KFC have already been attacked, threatening to brake a recent surge of investment in franchised businesses, many of them originating in the US.

  At the same time, a growing number of knock-off products have appeared in Europe, imitating popular American brands but appealing to anti-American sentiment in Europe's large Muslim population and among other Europeans opposed to American policy in Iraq.

  "From a business perspective," said Bilal Hallaq of Franchise Development Services, a British consulting firm, "it has catalyzed a move to more insular markets."

  There is no easy way to know whether the effects of anti-American sentiment on American businesses in Europe will be substantial. They may be masked somewhat by the general economic slowdown, which has already reduced investment.

  But Hallaq said that a wave of Middle Eastern investment in franchised businesses, as an alternative to putting money in sour stock markets, appeared to have halted. An important meeting scheduled for April in Riyadh, where one Canadian and two American companies had planned to recruit Middle Eastern franchisees, has been called off, he said, and a similar meeting meant to bring together investors and franchise holders in Cairo, Egypt, next month has been put off until September.

  Arab-owned companies are postponing expansions into Western Europe. In recent months, Hallaq said, several Arab-owned chains, including one modeled on The Body Shop and another of Arabian-style coffee shops, shelved plans to open in markets like France, Britain and Germany.

  Similarly, Muslim countries seeking to attract American investment have suffered setbacks. A recent effort by Morocco to attract American franchisers was canceled after no Americans came.

  But business contacts among Muslim regions, like those between Malaysia and the Persian Gulf, remain strong.

  "Anything with a foreign flavor, especially from the United States and the United Kingdom, is not on the agenda," Hallaq said.

  Some local companies that appeal specifically to Western Europe's 12 million Muslim consumers have continued to expand. In the Netherlands, for example, Chicken Cottage, a chain of fried chicken restaurants promising that all its poultry is prepared according to Muslim religious standards, is thriving in large cities like Amsterdam, though its success in the countryside is modest.

  Soft drinks challenging Coca-Cola and claiming solidarity with Muslim causes are multiplying. After a Coke knockoff called Mecca Cola was introduced in November, two similar drinks, Muslim Up and Arab Cola, were rolled out in France this month. Though meant to appeal to young Arabs and to support Muslim causes, the products also seem to be cashing in on general anti-American sentiment.

  Muslim Up's advertising promotes "an alternative for all who boycott Zionist products and big American brands." But Gerard Le Blanc, the Algerian-born French businessman who started Arab Cola, was quoted by the French daily Liberation as saying that "we are above all a beverage manufacturer; we are apolitical, and not at all ideological."

  These brands may stoke competition, but they usually remain narrow niche products, according to Jagdish Sheth, a marketing expert at the Goizueta Business School of Emory University in Atlanta. (The school is named for a former Coca-Cola chief executive.) In some situations, he said, they even present opportunities for the market leaders: Two earlier Coke imitators, Thumbs Up in India and Inca Cola in Latin America, ultimately were bought by Coca-Cola and turned into successful regional brands.

  The problems that anti-American sentiment in Europe may be causing for American companies already operating in Europe and the Middle East are harder to gauge. The Starbucks franchisee for Switzerland and Austria, the Bon Appetit Group, sold its 21 stores back to the Starbucks Coffee Co this month, less than two years after opening them, prompting speculation in the Swiss media that concern about anti-American sentiment harming the stores' sales played a role as well.

  In the Middle East, McDonald's introduced a new product this month -- the McArabia, a chicken sandwich on Arabian-style bread -- with a sales and promotion campaign that overshadowed the flagship Big Mac, an effort that one French newspaper said was meant to "relaunch McDonald's in the Muslim world."

  Both Starbucks and McDonald's denied that their moves had anything to do with geopolitical tensions.

  Indeed, Starbucks said that buying out Bon Appetit's interest in the stores reflected its determination to expand ambitiously in Europe; Bon Appetit's main businesses, institutional catering and food distribution, had been struggling lately and the company had no spare cash to finance additional Starbucks stores in its territory.

  "It's not at all connected to Iraq," said Karin Vogt, a Starbucks spokeswoman in Zurich. "We're on line with our stores. It's not had an impact."

  McDonald's said the McArabia had been in the works for two years and was not a response to recent anti-American sentiment over Iraq. Rather, the company said, the new sandwich is part of a worldwide effort to adapt its menu more closely to local preferences.

  "There is no liaison between the McArabia and politics," said Rafiq Sakih, the owner of several McDonald's restaurants in Dubai, United Arab Emirates, where the new sandwich has been a big hit.

  Ricarda Ruecker, director of marketing and communication for McDonald's in the Middle East, said that after April last year, when tensions between Israel and the Palestinians worsened sharply, "We, like every global brand, suffered definitely."

  But she said the company's local franchisees reacted with an advertising campaign.

  "We educated people; we have a 100 percent local ownership model, 80 percent local suppliers; we do a lot of charity," Ruecker said by phone from Dubai. "Now people understand more."

  Even so, in recent weeks two McDonald's restaurants in Saudi Arabia, at Kharj and Dammam, were the targets of unsuccessful firebomb attacks.

  The growing drive to tailor products and advertising to varying national tastes and cultures is gradually eroding the progress of globalization, Sheth of Emory said, by breaking up world brands into a network of localized versions.

  "It is a question of saying, `When in Rome, be Roman,'" he said.

  In the process, experts said, the magnetism of American flair as a promotional tool is waning.
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