McDonald's: Fries With That Salad?
On May 6, midway through his 36-day biking-and-hiking trek across the country, Bob Greene, Oprah Winfrey's personal trainer, stopped at a McDonald's in Dallas. There, the fitness promoter was met by a former Miss Universe and the president of McDonald's U.S. operations to launch the fast-food chain's first-ever Happy Meal for grownups: an entrée salad, a bottle of Dasani water, and a "stepometer."
The timing was no accident. The next day, the burger-bashing documentary Super Size Me was set to open, chronicling filmmaker Morgan Spurlock's growing waistline as he gorged on nothing but McDonald's food for 30 days. Greene's pitch for McDonald's Corp. (MCD ) didn't dampen the crowds for Super Size Me: The movie now ranks among the five highest-grossing documentaries in U.S. history. But the new boxed meals helped counter the film's assault, as McDonald's in May totted up its 13th consecutive month of higher same-store sales.
At its core, McDonald's is undeniably still a burgers-and-fries outfit. But as the world's biggest restaurant brand fights the growing anti-obesity backlash, it has found a weapon: the salad. Its mixed greens and toppings are bringing in moms and other young women -- exactly the customers it consistently alienated throughout the '90s with lame attempts to expand beyond beef-on-a-bun. Today the $3.99 salads are doing more than boosting profits. They're letting the Oak Brook (Ill.) company recast its image as a place where folks really can get a healthful bite to eat. "There has been a glow of improvement all around," says Irwin Kruger, who owns seven McDonald's stores in midtown Manhattan.
Ronald's rebound, though, is about to enter a tougher phase. The easy sales comparisons are over: Analysts predict McDonald's sales growth in stores open at least 12 months will slow to 5% or less in the second half of this year, when stacked up against the double-digit gains of late 2003. And while McDonald's customer ratings are up overall, its outlets still trail rivals in the critical areas of line waits, order accuracy, and store cleanliness, according to 2003 research by Sandelman & Associates, a restaurant consultant in Villa Park, Calif.
Meantime, McDonald's has to overcome its own internal health issues. Only 16 months after he was brought out of retirement, Chairman and CEO James R. Cantalupo died unexpectedly of a heart attack in late April. Then, just two weeks later, the company disclosed its new CEO and president, Charles H. Bell, 43, had colorectal cancer. Bell, who was Cantalupo's No. 2, has had surgery and is undergoing chemotherapy every other Monday. So far, analysts and franchisees say, the turnaround that Cantalupo engineered in 2003 is still on track, and Bell seems remarkably hale. They worry, though, that things might slip if Bell can no longer run the place. All this explains why McDonald's share price, which doubled during 2003, has been flat since mid-February, at 27.
So a lot is riding on McDonald's ability to convince customers that it really has turned a corner. Bell has laid out a relentless, restaurant-by-restaurant operations up-grade. In 2004, he's planning to remodel as many as 1,800 of McDonald's 13,600 U.S. stores and start keeping 1,600 open around the clock. Both moves have been proven to boost per-store sales. McDonald's is also policing franchisees, through reports by "mystery shoppers" as well as customers who can now call a toll-free number with gripes. McDonald's also plans to speed service by allowing customers to pay by credit card at more than 8,000 outlets by yearend.
At the same time, the company is determined to capitalize on the boost from its conversion to a more healthful menu. It now offers all-white-meat chicken in McNuggets, apple slices (albeit with sweet dipping sauce), and low-fat "milk jugs" as Happy Meal options. The chain has dropped its Super Size fries and soft drinks. And it will keep building its salad line. Tied in with a new Go Active! Happy Meal, McDonald's came out with a fourth version of its entrée greens, the Fiesta Salad, with seasoned ground beef, Monterey Jack cheese, tortilla strips, and low-cal salsa. Several more salads are in testing, including one with fruit and nuts.
This isn't McDonald's first stab at offering salads -- it first tried them in 1987. Then came a cholesterol-free muffin in the early 1990s and a low-fat burger, the McLean Deluxe. But McDonald's didn't really have its heart in it. Those offerings didn't taste very good, and the McShaker salad -- which came in a big plastic cup -- was poorly designed. Its lid often flew off and, despite vigorous shaking, the dressing sat on top. Patrons fled to fresher alternatives, from Subway sandwiches to Wendy's salads.
So what changed? For one thing, the market. By early 2003, when Cantalupo and Bell introduced McDonald's latest salad, obesity had been declared an epidemic. And this time, McDonald's took salads seriously. After months of experimenting and testing, McDonald's chose higher-quality ingredients, from a variety of lettuces and tasty cherry tomatoes to sharper cheeses and better cuts of chicken. It offered a choice of Newman's Own dressings, linking the entrée to actor Paul Newman, widely known for his nonprofit work. "The brand tie-in was a stroke of genius," says David S. Palmer, an analyst at UBS Securities.
Of course, healthful is still a relative thing in fast food. McDonald's California Cobb Salad with grilled chicken packs 270 calories, about a third from fat. That's without dressing, which adds an additional 120 calories. That's a lot lighter than a 600-calorie Big Mac or 520-calorie large serving of fries. But the chain still sells eight times as many double cheeseburgers as salads. And its hottest new product is the calorie-packed McGriddle breakfast sandwich.
Salads may not be the core of the operations, but McDonald's still managed to sell 150 million of them in 2003. That's bringing in another kind of lettuce: Michael J. Roberts, president of McDonald's USA, says the average check for someone buying a premium salad is more than $8, nearly double the typical bill. Spurlock, director of Super Size Me, has proved to be a shrewd marketer. After all, he spent $65,000 to make a movie that, at last count, had taken in more than $7.5 million. With salads, McDonald's is showing that it knows a bit about marketing, too.
By Michael Arndt in Chicago