Chicago resident Hazel Stewart has lost 13 pounds since April, but, while on a walk Friday, she detoured into a McDonald’s in Oak Park to see how the recently remodeled restaurant looked.
Ten minutes later, she was sitting in a booth, breaking her diet and trying a snack wrap.
“I haven’t been here in a while,” she said, marveling at the cleanliness, the attentive counter help, and, most noticeably, the stylish decor. In addition to a two-sided fireplace, there are mission-style wall sconces and wood paneling. There isn’t a fleck of bright yellow to be found. Instead, the color palette favors browns, tans and soft greens.
“It looks just great,” she said.
There is a lot at McDonald’s Corp. that looks great these days.
Despite taking a serious amount of public flak in recent years as the biggest target of health and obesity campaigns, the company–in an almost quiet way by comparison–is enjoying one of the best periods of business in its history.
The world’s largest restaurant chain is expected to announce record sales this week when it reports fourth-quarter and 2006 earnings, while its stock price is hovering near a seven-year high, at about $45 a share.
The chain has enjoyed 44 consecutive months of sales growth. And, around the world, McDonald’s is attracting 4 million more customers a day than it was four years ago.
The Oak Brook-based chain’s explanation for its success doesn’t seem particularly glamorous. Company executives in 2003 abandoned the old growth-through-new-outlets strategy and have instead embraced a back-to-basics philosophy that focuses on increasing sales by improving the experience in existing stores.
It’s more complex than it sounds, and it has worked. In 2004, the company said 90 percent of its sales growth came from increased same-store sales.
In its back-to-basics plan, McDonald’s has touched up every aspect of its operation, trying to increase its customer base with a broader menu, better tasting food, faster service, longer hours and cleaner stores. It’s an impressive feat, made all the more so because of a significant cultural shift that is bringing a sharper focus on healthy eating. McDonald’s, of course, is home to the Big Mac and its famous french fries, which will never be viewed as health food.
The company’s ability to change with the times is complicated by the fact that it operates more than 31,000 restaurants worldwide and can’t change menu items overnight–although it did roll out its chicken snack wrap last year in record time. Also, it still has to find a way to eliminate the trans fats it uses to cook its french fries without changing the flavor.
Perhaps most importantly, McDonald’s has to keep attracting new customers without alienating its core constituents, those infamous “heavy users” who keep coming back for more.
Chicagoan Pat Siragusa doesn’t hesitate when she explains why she came back after years of going elsewhere for salads and “healthier” lunch items.
“It was the menu change that caused me to come back,” she said. “I order salads, usually the Asian salad. I feel it is healthier.”
Top it off with a packet of Paul Newman’s dressing, which McDonald’s includes, and Siragusa says she has a lunchtime meal that is “wonderful.”
It should be music to the ears of people like Jim Skinner, who was named McDonald’s chief executive in November 2004, after the deaths of his two predecessors, Jim Cantalupo and Charlie Bell.
And yet.
“I’m a CEO. CEOs are worriers,” Skinner said in an interview Friday.
Skinner, who visits a McDonald’s restaurant every day, knows that there have been plenty of successful companies undone by all sorts of things, some preventable, some not. He worries about complacency and pushes continuous improvement.
“We’re not looking at maintaining but accelerating the momentum,” he said.
Fast-changing fortunes
In the ultra-competitive fast-food industry, momentum can change on a dime. Taco Bell was recently hit with an E. coli outbreak that temporarily closed stores and threatened to damage its image.
McDonald’s often finds itself facing tough regional battles with smaller upstarts around the country.
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Now comes one of the biggest tests, finding a healthier oil to cook its french fries that doesn’t change the taste.
The stakes are high no matter what McDonald’s does because its size makes it a symbol and a target.
During McDonald’s current bull run, it has survived everything from a critical documentary about a guy who lived on nothing but McDonald’s food for a month, to threats of obesity litigation.
Today, it faces the threat of trans-fat bans in some cities.
The company fires back with its own public relations salvos. And it changes when it has to, in less-stubbornly ways than it used to. It eliminated its huge “super size” portions just before the release of the documentary titled “Super Size Me,” while claiming the movie had nothing to do with it.
It also began adding healthier menu items and started trying to find a solution to the trans-fat issue when both became controversial.
“It’s not about solving the problems,” Skinner said. “We can’t eliminate issues. People want to take a pot shot at us. But it’s about telling our story.”
So Skinner focuses on what he can control, like putting his top managers in the right spots around the globe.
“It’s about finding the people and putting in place people I have the utmost confidence in. That’s all you can do.”
Then there’s actually running the business.
When it lost moms to rivals because it didn’t have a tasty, healthy salad to offer, the company set out to find one.
After figuring out that teenagers no longer thought McDonald’s was cool, it hired a marketing guru to fix its image with the key customer group and aligned with stars like Justin Timberlake.
“We have more young women and adults coming in because of the [food] selection,” Skinner said about part of the 4 million more customers filing in every day. It used to be that moms would come in for a Happy Meal for their child and that was it. “Now premium salads is one of the options for them.”
Some CEOs might have felt it necessary to put their own stamp on the turnaround program developed by predecessors, but Skinner signed on instead, saying he was part of that inner circle that developed the plan.
Skinner pushed franchise operators, many of whom he knew personally from working his way up through the company, to adopt the policies they could control. This include improving customer service, cleaning up the restaurants, getting orders right the first time, extending hours, and, most of all, being courteous.
The extended hours alone have been a boon. McDonald’s said 98 percent of its U.S. restaurants now have some form of extended hours, opening earlier or staying open later each day.
“There are more people out and about now at all hours of the day and night,” said Don Thompson, who was named president of McDonald’s USA in August.
Without the cooperation of franchise operators, any program would have faced problems because 80 percent of the U.S. restaurants are owned by franchisees. The company operates about 13,000 U.S. restaurants.
On the product side, the company has moved aggressively in new directions. It introduced a $1.29 chicken snack wrap that utilized products the restaurants already had on hand–tortillas, chicken strips and lettuce. Instead of just being sold as a mid-afternoon snack, as the company expected, the wrap is being snapped up as a light lunch and is recording sales 30 percent higher than expected.
In a separate achievement, McDonald’s got the wrap to market quickly: in about six months, compared with the more typical two-year testing period.
“We decided it may not be 100 percent perfect, but no one will be able to touch it,” said Thompson.
McDonald’s also rolled out a richer tasting coffee that has helped drive breakfast sales 7 percent higher. Breakfast accounts for 29 percent of a restaurant’s sales, so any increase in that part of the day quickly translates into higher margins.
Thompson said new products, focused heavily on the changing tastes of the American consumer, could include lattes, espressos, flavored coffees, bottled teas and energy drinks, a skillet burrito, more baked goods, and a Southern-style chicken product that is receiving high marks in initial tests.
Chicken or beef?
There are already so many different items on the McDonald’s menu that one analyst calculated that, in dollar terms, the world’s most famous hamburger company actually sells as much chicken as beef.
In other innovations, the company is considering a breakfast dollar menu to complement its daytime dollar menu. That menu is used to promote sales of the chain’s french fries, double cheeseburger, chicken sandwich and small salad.
Wall Street and Main Street have taken note of the efforts.
“We find the story of McDonald’s to be in great shape as it continues to lead all quick-serve restaurants,” said Jack Russo, an analyst with St. Louis-based A.G. Edwards & Sons Inc.
Back at the Oak Park McDonald’s, customer Robert Williams was meeting a friend for coffee. But there was something about the place, he noticed. It seemed pleasant.
“Atmosphere has a powerful effect on people’s psyche,” he said. “It can put you in a much more peaceful mood.”
The plan was to stay just for coffee, but after a while he went back to the counter on the recommendation of his friend and ordered a snack wrap for the first time.
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John Schmeltzer is a Tribune staff reporter. Mary Ellen Podmolik is a freelancer.