JOHANNESBURGERS AND FRIES.

If the managers of any food brand could be forgiven for arrogance, it would be those at McDonald’s. Last year, the burger-chain’s trademark was rated the world’s top brand by Inter­brand, a consultancy, beating Coca-Cola into second place. McDonald’s operates over 21,000 fast-food restaurants in 104 countries. Its golden arches overlook piazzas and shopping malls from Moscow to Manila.

In recent years, faced with greater competition in the United States, the company has increasingly relied on overseas markets as a source of profits. Managers at McDonald’s pride themselves on knowing how to adapt the Big Mac to local markets, whilist promoting the same basic idea: good, fast food served in clean surroundings by a company with a strong family brand.

In 1995, as part of this over­seas empire-building, McDon­ald’s made its first venture into sub-Saharan Africa, the last fron­tier of emerging markets. The company began its trek on the southern tip, in South Africa. But the journey across the country turned out to be more difficult than managers had expected. It even raises questions about the invincibility of the famed Mc­Donald’s brand.

Like many American multi­nationals, McDonald’s had long had its eye on the South African market, but waited until the end of apartheid before it felt ready to enter. During the 1980s, the strong anti-apartheid lobby in America, combined with federal, state and local trade sanctions, made the prospect of investing in South Africa a big public-rela­tions risk. Under such pressure, several American companies al­ready trading there had left the country. Others, including Mc­Donald’s, stayed well away.

But McDonald’s was only biding its time. It had registered its world-famous trademark in South Africa as early as 1968. In 1993, a year before South Africa’s first non-racial general election, McDonald’s finally decided to press ahead with an investment in the country.

However, by the time the first McDonald’s restaurant opened in 1995, it was clear that the American giant was entering a rather unusual market. Its forays into other emerging markets around the world had generally been successful. But South Africa did not fit the typical formula: it had already developed a first-world consumer industry in al­most complete commercial iso­lation, behind the shelter of sanctions and its own protective tariffs. Thus cosseted, South Afri­ca’s fast-food companies had built up several strong home-grown brands, specifically cater­ing to South African tastes. No­body at McDonald’s realised how difficult it would be to break in.

The first sign that South Africa might give McDonald’s some in­digestion came in mid-1993, when the company discovered that a local trader had applied both to register the “McDon­ald’s” trademark for his own use, and to have the American com­pany’s rights to the trademark withdrawn (its trademark reg­istration had technically ex­pired). McDonald’s instantly filed a case against the trader, and applied to re-register the trademark for itself.

At the time, the company’s managers did not expect the law­suit to be too much of a bother. As one of the world’s leading brands, by then running fast-food restaurants in dozens of countries worldwide, McDon­ald’s was plainly associated with the trademark around the globe and could reasonably expect the South African courts to protect it from lookalikes. Although its trademark registration had ex­pired in the country, there were good reasons for this. McDon­ald’s argued, under a clause in South African law, that “special circumstances” had prevented it entering the market: namely, trade sanctions against South Af­rica and pressure from the anti­apartheid lobby in America.

When the case came to the Supreme Court, in October 1995, things did not turn out quite the way McDonald’s had expected. Three cases, in fact, were heard at the same time. Two were brought by South African traders, Joburgers Drive-Inn Restaurant and Dax Prop, each of which al­ready ran a fast-food restaurant under the name “MacDonalds” and each of which wanted to de­prive McDonald’s of the right to trade under that name. The third case was brought by McDon­ald’s, which was suing the other companies for using and imitat­ing its brand.

The cases rested on two ques­tions. The first was whether Mc­Donald’s was a “well-known mark”. If it was, then the com­pany would be instantly entitled to protection from imitation by local traders, and the impostors would have to pack up shop. The second was whether McDonald’s claim of “special circumstances” could be justified.

For McDonald’s managers, the answer to the first question was self-evident. Though they recognised that South Africa had a relatively sophisticated fast-food industry of its own, with many brands of beef- and chicken-burgers, the idea that such a famous global brand might not be well-known on the southern tip of Africa seemed preposterous.

As part of its defence, Mc­Donald’s presented the results of two market-research surveys con­ducted in South Africa to show that the brand was well-known. Both confirmed that a large ma­jority of those interviewed had at least heard of the name, and over half were both aware of the brand and could recognise the McDonald’s logo. Which was all very well, said the judge presid­ing in the Supreme Court case, but the surveys were conducted among whites living in posh sub­urbs and could “by no stretch of the imagination be regarded as representative of the entire South African population”, 76% of which is black. The judge took an equally dim view of other evi­dence presented by McDonald’s, and threw its case out.

What of the second question, concerning the firm’s claim that “special circumstances” had kept it out of South Africa’s mar­ket? McDonald’s had first regis­tered its trademark in South Af­rica in 1968, and then renewed it at regular intervals until 1985. Under South African law as it stood at the time, a company lost its right to the trademark if it lan­guished unused on the books for five years, unless there was a good reason.

Again, the judge was uncon­vinced. He did not believe that “special circumstances” - pres­sure from anti-apartheid groups and sanctions - were the real rea­sons that McDonald’s had left its trademarks unused for so long: “there is no explanation for the failure to commence business in South Africa,” he declared, “other than the fact that South Africa simply did not rank on McDonald’s list of priorities.”

These legal setbacks were embarrassing but temporary. McDonald’s was allowed to press ahead with opening restau­rants whilst it prepared its case for the Appeal Court. In 1996 the American burger chain won this second battle: the Appeal Court, in essence, applied a less strict test of what it meant to be well-known in South Africa, and ac­cepted the evidence in the two surveys because it thought that whites represented McDonald’s target market.

Although the direct financial effect of the first court decision was negligible, the case was a harbinger of the sort of trouble that McDonald’s was to encoun­ter throughout South Africa. It was also the first inkling that South Africans might not regard the Big Mac with the same rever­ence that Americans do.

McDonald’s has made changes to its menu to cater to local tastes elsewhere in the world. Last year, it launched its first restaurants in India. To respect local custom, the menu there did not include beef. Instead, there was a novel item: the Maharaja Mac, made with mutton but served in the McDonald’s sesame-seed bun. In South Africa, however, the firm judged that the market was not different enough to merit intro­ducing changes from the start; it would wait instead to see how well the standard McDonald’s menu went down.

McDonald’s experience in South Africa shows how even the strongest brands from devel­oped countries cannot expect to trample all before them in devel­oping ones - particularly when consumers can choose estab­lished local alternatives. McDon­ald’s has also run into trouble in the Philippines, where a popular local fast-food firm, called Jollibee, has so far trounced it with a distinctively Asian menu that includes burgers and rice.

Many observers would bet that, through the sheer power of its marketing, McDonald’s will eventually barge into South Af­rica and other emerging markets. But given that the owner of “the world’s leading brand” has had such trouble, western companies with a less recognisable trade­mark might think twice before following its example.

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