Fast Food’s Life Beyond Burgers

Health scares, obesity worries and the growth of anti-Americanism following the Iraq war make for interesting times for US fast-food giants.

It’s one of the food industry’s legends. A milk-shake machine salesman called Ray Kroc wanted to find out why a Californian hamburger restaurant was so busy it used eight of his mixers. Obviously, if the owners opened more branches, he could sell them plenty more machines.

Two brothers owned the restaurant: Dick and Mac McDonald. They liked the idea of more outlets, but didn’t know anyone to run them. Kroc was so impressed with the success of the brothers’ ‘Speedee’ concept that he suggested himself.

And so on 15 April 1955 Ray Kroc opened his first McDonald’s restaurant in Des Moines, Illinois. The first day’s sales were US$366.12. Today McDonald’s says it serves 47 million customers each day in more than 31,000 restaurants in 119 countries. McDonald’s wasn’t the first of the big burger chains (for example, Burger King started in 1954). But Kroc’s ideas helped define the template of the modern fast-food industry, from doughnuts to pizzas. There’s the production-line approach to making and assembling the food. There’s the emphasis on service and staff training. (People may ridicule McDonald’s ‘Hamburger University’, but lots of companies in the food industry and beyond have copied the idea.)

And there’s the franchising model. There’s a strong trademark that’s rigorously—perhaps overzealously—defended in court when necessary. And finally, a sense of pizzazz and showmanship that Americans somehow seem to lead the world in. But odd things have happened to fast food recently. McDonald’s may sell the most burgers in the world. But it’s also probably the biggest retailer of salads, and has reportedly got vegetarian certification in Britain.

So what’s going on? Well, what’s influencing McDonald’s has affected to lots of other chains as well. Perhaps it’s the diseases of middle-age. Health scares, obesity worries and the growth of anti-Americanism make for interesting times for US fast-food giants. Sales at Wendy’s, for example, dropped sharply in 2004. The firm recorded a fourth-quarter loss of US$135.7 million. One analyst told USA Today that Wendy’s performance was ‘humiliating. McDonald’s has had some bad luck in the past few years. It made some of its problems itself. Others were sheer misfortune. McDonald’s reported its first quarterly loss since the 1950s in 2002. It had lost its way. Ray Kroc’s ideas about quality, service, cleanliness and value seemed to have been forgotten. The number of new McDonald’s outlets continued to rise. But so did the number of complaints about rude staff and dirty restaurants. Margins looked anorexic. Customers were switching to rivals with food that seemed healthier, such as Subway sandwiches. Customers were suing McDonald’s for allegedly making them fat, and the filmmaker Morgan Spurlock made an entertaining but disturbing documentary, ‘Super Size Me’, about the effects of eating nothing but McDonald’s food for a month. (He put on 11kg.) In January 2003, Jim Cantalupo was brought out of retirement to save macDonald's from itself. He's credited with turning the company round. But, in April, hr died of heart attack. The firm didn't panic. It quickly prmoted the chief operating officer Charlie Bell, who was just 43. He had first worked for McDonald’s as a ‘crew member’ when he was a teenager. And as an Australian, he was the first non-American to lead the firm. The problem with McDonald’s, he was widely quoted as saying, was it was like many companies that ‘get fat, dumb and happy and take their eye off the ball.’ But Bell was diagnosed with cancer little more than a month later. (He died in January this year.) So McDonald’s had to appoint its third chief executive in less than a year. It promoted Jim Skinner. Despite all those problems, McDonald’s seems to be turning round. Sales have been rising for the past 22 months in a row. It’s difficult to tell who is responsible for what in the McDonald’s turnaround. Obviously the Cantalupo ‘Plan To Win’ strategy was important. The firm went back to basics: hygiene problems were addressed, the expansion plans for new restaurants were slimmed down and instead the firm focused on increasing sales at its existing outlets. New concepts such as the McCafe take on Starbucks by selling espresso and European-style sandwiches. Advertising built around the ‘i’m lovin’ it’ slogan that debuted in September 2003 has helped to give fresh appeal. That was reinforced last month by the McDonald’s ‘it’s what i eat and what i do ... i’m lovin’ it’ campaign to improve awareness of healthy eating. The launch in New York included athletes such as the ice hockey legend Wayne Gretzky and China’s gold-medal diver Guo Jingjing. The tennis stars Venus and Serena Williams feature in the new adverts too. But McDonald’s—and other American chains—may not be out of trouble yet. Health issues won’t go away. And antiAmericanism is unpredictable. US fast-food giants don’t always dominate markets. Local firms can find niches that bigger companies ignore. Sometimes they succeed for nationalistic reasons. Other times it’s because they’re closer to what consumers want. The classic example is Jollibee of the Philippines. This local chain beats McDonald’s into second place, with around two-thirds of the market. The chicken and burger restaurants, and their cute bee mascot, are familiar sights across the country. Jollibee was started in 1975 Jollibee by Tony Tan Caktiong and his brothers. It has more than 26,000 employees people in over 1,000 stores in seven countries. The firm says its success strategy is simple: good food, Filipino taste, successful branding and aggressive pricing. Now it’s expanding into China: it’s already on target to open 20 stores a year and has reportedly set an annual target of 100 new outlets within five years. Jollibee also owns an 85 per cent stake in the company that operates the Yonghe King restaurant chain in China. China is worth watching. At the moment. Western-style chains have novelty value (and clean toilets, a rarity in many restaurants in China.) But that novelty-premium may not last. There’s still plenty of room for home-grown fast-food The tennis stars Venus and Serena Williams feature in the new adverts too. But McDonald’s—and other concepts to develop. And expand abroad. East Asian food accounts for just ten per cent of fast-food sales in North America. Jollibee has great hopes for its Chowking brand Chinese restaurants. The bee might yet sting Ronald McDonald in his home market yet.