At one time, the "Billions Served" sign outside McDonald's could have featured 11-year-old Antoine Denis's name in big, bold letters. As a tyke, he nagged his mom to drive him to the Golden Arches, where he filled up on his favourites: French fries, Chicken McNuggets and breakfasts of pancakes and hash browns.
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Food was just part of the love affair. Like millions of kids, he and his brother celebrated birthdays in those moulded plastic seats. They tore into Happy Meals for the must-have trinkets pitched on Saturday-morning cartoons. Sometimes, mom would pack them into the car to spend an hour at Playland even if they weren't hungry. It didn't get any better than a trip to Mickey D's.
But as he got older and lost interest in toys and clowns, Antoine began to lose his stomach for McDonald's food as well. Now, just thinking about it makes him cringe. "I don't like the taste. I don't like the smell. The French fries and the Big Macs and stuff are all greasy. It's really gross," says the Toronto sixth grader whose friends share his disdain for McDonald's fare.
Ronald McDonald, welcome to your nightmare.
After decades of dishing out fattening food and watching sales grow as quickly as customers' waistlines, the world's biggest fast-food chain has got itself into a major pickle. Once-loyal consumers, including the kids it targets relentlessly in the hope of keeping them for life, are eating elsewhere. Even worse, some claim that McDonald's has done them physical harm and have taken the company to court. Meanwhile, competitors such as Subway that market themselves as a low-fat alternative to burgers and fries are expanding aggressively, often opening up shop right next door.
It all adds up to the biggest crisis McDonald's has faced in its 47-year history. Last month, the global burger giant lost money for the first time ever, and said its days of double-digit growth are over. The fourth-quarter loss of $343.8-million (U.S.) included the cost of closing 719 of its 30,000 restaurants, and now the company says it's pulling out of Paraguay, Bolivia and Trinidad and restructuring in the Middle East.
"You put all those things together and it's pretty devastating," says Max Valiquette, president of Youthography, a Toronto youth marketing firm. "I think they have a monumental hurdle to get by."
To fight back, McDonald's is introducing healthier fare, offering discounts and trying to improve customer service, but those efforts have produced only mixed results, observers say. They warn that the brand is so badly tarnished, and the competition so cutthroat, that once-mighty McDonald's may never recapture its former glory.
That young people are fleeing may be the worst news of all. The company spends many millions to pitch its food to them, but kids today are "dissing McDonald's big-time," says Debbie Gordon, a former advertising executive who holds media-literacy workshops in Toronto schools. "It's become fashionable," she says, and the change in attitude is mostly "from a health perspective."
The situation hasn't been helped by the rise of someone like Subway poster boy Jared Fogle, a former Indiana University student who shed 111 kilograms (245 pounds) while eating nothing but low-calorie submarine sandwiches. The surest way to turn into the pre-Subway Jared, teens believe, is to eat at McDonald's.
"I never go there. It tastes good but everything's fattening," says Ashley Sparks, 14, of Langley, B.C. Her Grade 9 classmates also shun McDonald's because "a lot of people in high school are watching their weight."
Boys aren't scarfing down McDonald's food the way they used to, either. Jake Magee, 11, of Toronto considers the burgers "unhealthy and fattening," and says the paper-thin patties taste "fake." When he was younger, McDonald's "used to be really popular, but now other fast-food joints are better."
Some kids tell horror stories about McDonald's that have the ring of urban myths. One cited a "rumour there was a fish in somebody's hamburger." Another said she had heard that McDonald's patties are "one grade higher than dog food." In fact, they are made from 100 per cent beef that is subject to "rigorous food safety procedures," according to the McDonald's Web site.
Playground rumours may be the least of McDonald's concerns. In New York, the company is being sued by two teenagers who claim that eating its food has made them fat (one is a 15-year-old boy who weighs 400 pounds, or 180 kilos) while giving them diabetes and high blood pressure.
Judge Robert Sweet of the U.S. District Court in Manhattan threw out the initial suit, saying the plaintiffs had failed to prove they were unaware that too many burgers and fries could lead to health problems. The company hailed the dismissal as a victory for common sense. "We said from the beginning that this was a frivolous lawsuit," it declared in a statement.
But McDonald's isn't off the hook yet. Referring to Chicken McNuggets as a "McFrankenstein creation of various elements not utilized by the home cook," the judge left the door open to refiling the suit, which is just what the teens' lawyer did on Thursday.
In fact, the judge even suggested how to overcome his objection: demonstrate that customers aren't given enough knowledge about the products McDonald's serves. For example, he noted that chicken is generally perceived to be healthier than beef, but heavily processed McNuggets actually have far more fat than a McDonald's burger. As well, they contain such chemical ingredients as dimethylpolysiloxane, an "anti-foaming agent," and tert-butylhydroquinone , a "stabilizer."
Not all of McDonald's financial troubles are of its own making. With virtually every major street corner featuring a McDonald's, Burger King, Tim Hortons, KFC, Harvey's, Subway, Taco Bell or other branded restaurant, competition for the fast-food dollar has never been more fierce. Compounding McDonald's woes are an uncertain economy, cold weather and the looming threat of war in Iraq. "I think the industry is suffering right now," says Leslie Root, director of marketing at Burger King Restaurants of Canada.
McDonald's sales are still growing — barely. But that's only because the company keeps opening restaurants. Last year, it opened 1,639 outlets worldwide and shuttered 632 for a net increase of 1,007. Even with all those new stores, total sales rose just 2.2 per cent to $41.5-billion.
Stripping out the impact of new stores reveals a bleaker trend: Sales at existing outlets are actually falling. Globally, comparable-store sales — a measure that includes only outlets open for a year or more — fell 2.1 per cent in 2002 and 1.3 per cent in 2001. In other words, the local McDonald's franchisee isn't selling as many Big Macs or fries as before.
In Canada, total sales at McDonald's restaurants rose 2 per cent last year to $2.28-billion, but comparable-store sales slipped 2 per cent. McDonald's isn't even the biggest restaurant chain in Canada any more. Tim Hortons is, with Canadian sales of $2.44-billion last year and 2,188 outlets compared with about 1,300 for McDonald's. And the gap is growing. Last year, Tim's comparable-store sales surged more than 7 per cent in Canada and nearly 10 per cent in the United States.
As McDonald's has run into trouble, investors have lost their appetite for its stock. Since peaking at $48.37 (U.S). in 1999, the shares have gone as limp as a soggy French fry, plunging more than 70 per cent to $13.16, and now trade around $13.50 on the New York Stock Exchange.
What is Big Mac doing about all this? It certainly isn't playing down the challenges it faces.
This month, in a move that underlines the gravity of its troubles, McDonald's summoned its top global advertising agencies — including Canada's Cossette Communication Group — to a three-day brainstorming session at its corporate headquarters in Oak Brook, Ill. The goal of the marketing summit: Make McDonald's cool again by injecting the brand with some attitude.
To accomplish that, the company knows it must overhaul its advertising, which is often as cheesy as one of its Quarter Pounders.
Larry Light, head of global marketing, challenged the agencies to take more risks creatively. He asked them to share more ideas with each other, and raised the possibility that concepts developed in one country could be adopted by other regions in the McDonald's empire.
But he admitted that the troubles run deeper than advertising. "This company is not going to be saved by an ad. We would be naive to think that any one thing is the answer," he told a reporter.
To be sure, McDonald's is grappling with operational issues as well. A new U.S. cooking system, Made For You, was supposed to improve freshness and allow for custom orders, but it has increased waiting times and sparked complaints about customer service. An eight-item U.S. "Dollar Menu" launched in response to price competition in the fast-food business has both failed to live up to sales expectations and cut into profit margins. And a 10-year marketing pact with Disney has been a disappointment, largely because of such box-office clunkers as Pinocchio and Treasure Planet.
The deal, which prevents McDonald's from aligning itself with a Disney competitor until 2006, helps to explain why U.S. sales of Happy Meals have declined for three straight years. As any parent knows, the popularity of Happy Meals rises and falls depending on the toy inside. For McDonald's, the trend is especially troubling, given the meal package accounts for more than 20 per cent of all U.S. transactions and generates spending by adults who come with their kids. To rejuvenate its appeal, McDonald's this week announced a line of video-game-inspired toys that will appear this summer.
Now, says new chief executive officer Jim Cantalupo, who came out of retirement specifically to reverse the tide, everything, including the Disney deal, is up for review. "While we face many challenges, we have an outstanding brand, great people, and an unsurpassed global infrastructure — and I am confident in our ability to succeed," he said in announcing the fourth-quarter loss.
Canadian consumers are getting an early glimpse of where McDonald's may be going as it tries to rehabilitate its image.
Last month, many of its restaurants began to offer 24-hour drive-through service, a move that appears designed to counter the success of Wendy's "Late-Night Pick-Up Window." As well, some are experimenting with in-store greeters — a concept associated with discount retail giant Wal-Mart.
See a filthy bathroom? The McDonald's greeter will get someone to clean it. Forget napkins because you were too busy watching your toddler? The greeter will fetch them. If other restaurants can go the extra mile, why not McDonald's? "We have to change with the times," says Randy Cunnington, a franchise holder in Winnipeg who plans to hire greeters if the company's test run proves successful. "If we want to be the leader in what we're doing, we have to listen to our customers."
In a bid to broaden its consumer base, McDonald's also is rolling out new restaurant concepts, such as the Starbucks-inspired McCafé and Boston Market, a homestyle eatery that serves up chicken, meat loaf and honey-glazed ham. Another McDonald's-owned chain, Chipotle, could bring its brand of Mexican fare to Canada in the next year or two.
Last June, the company made what may be its boldest attempt to reinvent itself. The Canadian subsidiary rolled out a Lighter Choices menu with a massive public-relations blitz to persuade consumers that eating at McDonald's could be good for them.
The new array of veggie burgers, salads and other low-fat items was aimed not just at baby boomers who are watching their weight, but also at younger consumers who are increasingly health-conscious and eating less meat.
As well the lighter menu was an attempt to neutralize the "veto vote" — the person who refuses to eat at McDonald's, thereby steering an entire group or family to a different establishment.
And how is the menu doing? Depends on whom you ask.
"It's meeting our expectations," said Louie Mele, executive vice-president of McDonald's Restaurants of Canada. The menu is evolving and will soon see the addition of low-fat soups, he said. Currently, the lighter menu items together account for about 5 per cent of total sales.
That, according to food industry analysts, hardly qualifies as a success. A single menu item alone should capture 5 per cent of sales; anything falling short of that benchmark "usually doesn't last very long," said Jim Robinson, vice-president with market research firm NPD Group in Toronto. "Sooner or later, you have to ask yourself, 'Is there something else I could put in there that would bring more customers in?' "
The challenge when introducing healthier food is that consumers may say they want it, but not necessarily from McDonald's. Subway, Tim Hortons and many other places simply don't carry the same fatty baggage.
"The core of what the brand is about is burgers and fries," said Mr. Valiquette, the consultant. "They're going to try to migrate the way their brand is perceived from being all about fatty, bad foods into healthier and lighter choices, and that's very difficult."
Just ask Antoine. Now, when he and his friends go out for a bite, they steer clear of the Golden Arches in favour of subs, pizza or more exotic fare such as Japanese or Greek food. He's not even a teenager yet, but he's had his fill of McDonald's. "I don't plan on going back," he said.
John Heinzl writes on marketing and advertising for The Globe and Mail's Report on Business.
