Fast-food giant struggles to keep customers | News | DW | 15.04.2015
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Fast-food giant struggles to keep customers

Sixty years ago, Ray Kroc opened his first McDonald's franchise - the firm's ninth restaurant. Although the McDonald brothers had the ideas, his vision drove the company to its worldwide success - something it now lacks.

Fast food in the US is big business. Americans still spend more than $100 billion (94.2 billion euros) every year on burgers, fries and the like.

Back in the 1970s, when the market was worth $6 billion, McDonald's was a place where nearly every American would be happy to eat. But today, customers are turning their backs on the fast-food giant in favor of smaller chains.

Ask people in the streets of New York about their favorite fast-food restaurants and you will hear the same two names all over again - Shake Shack and Chipotle.

"If I had to choose, I'd say Chipotle!" Tanisha, a 19-year-old student. "I feel like it's healthier." Jada and Neeuli, both 18, agree. Their friend Tia says "I love Chipotle, but I still vote for Shake Shack! Their root beer and fries are just so good."

But which chain don't they like at all? They all agree: McDonald's.

Chipotle restaurant (Photo: Richard B. Levine)

Newer 'fast casual' restaurants like Chipotle have cachet that McDonald's lacks

Not lovin' it

A growing number of Americans seem to be losing their appetite when it comes to Big Macs and Chicken McNuggets. In January, McDonald's reported weaker same-store sales in its home market for five consecutive quarters. In the fourth quarter of 2014, year-on-year revenue tumbled 7 percent to $6.57 billion.

In contrast, both Wendy's and Burger King had a much better year than their bigger rival. Their revenue increased by more than 2 percent. But to attain this they had to rely on promotional coupons and offer new menu items. The companies stepped up their sale of company-owned restaurants to franchisees to boost revenue.

McDonald's meal (Photo: DON EMMERT/AFP/Getty Images)

Image problem: McDonald's isn't as unhealthy as many think

From innovation to ubiquity

For decades, McDonald's success story seemed unstoppable. Brothers Richard (Dick) and Maurice (Mac) McDonald opened a drive-in barbecue restaurant in San Bernardino, California, in 1940, but discovered most of their profits came from hamburgers. They closed down their restaurant in 1948, re-opening three months later as a stripped-down hamburger takeaway that operated on assembly-line principles - and could offer burgers for 15 cents, half the typical restaurant price.

Similar principles had been in use at the White Castle chain, which started in Kansas in 1921. But White Castle expanded slowly, as it didn't franchise. In 1953, the McDonalds began franchising their concept, which by now included a standardized building design that featured eye-catching "Golden Arches."

Their company drew the attention of milkshake salesman Ray Kroc, who immediately realized its potential when he visited San Bernardino in 1954. He convinced the brothers to put him in charge of franchising, which they had begun the previous year.

Kroc opened his own McDonald's restaurant, the ninth McDonald's overall, in the Chicago suburb of Des Plaines, Illinois, exactly 60 years ago - on April 15, 1955. Kroc soon oversaw the company's rapid expansion before buying the company from the McDonald brothers in 1961.

Other McDonald's-inspired fast-food chains followed, such as Burger King, Taco Bell and Wendy's. Kentucky Fried Chicken, which began in 1930, also began to expand rapidly in the late 1950s, as Americans enjoyed an economic boom and increasing access to automobiles. Fast food became a ubiquitous part of the postwar lifestyle.

In 2001 Eric Schlosser cited a study of American schoolchildren in his book "Fast Food Nation." An overwhelming 96 percent of them knew the company's mascot, Ronald McDonald. Only one character enjoyed higher recognition: Santa Claus.

McDonald's protest, New York, 2014 (Photo: Andrew Burton/Getty Images)

McJobs: Working at McDonald's might earn teenagers pocket money, but others are demanding a living wage

But today the fast food pioneer seems stuck. McDonald's still operates 36,000 restaurants worldwide, far ahead of other burger chains. But customers are increasingly opting for smaller "fast casual" competitors that convey a sense of authenticity and value.

Take Shake Shack, for example. The company started in 2000 as a food truck in New York City. Today, it promotes hormone-free meat and sustainable ingredients in its 63 restaurants. In January the company went public. Its stock rocketed 123 percent from its issue price of $21 to $47 during the first day of trading.

It only looks healthier

"There is no question that there is a movement to consuming healthier food," nutrition scientist Marion Nestle of New York University said. "There are large numbers of people, particularly young people, who care very much about the quality of food and the way it is produced."

It is the millenials - those aged under 30 - who are increasingly raising questions about what's inside their food and how it is produced. But if you compare the amount of calories and fat, food at the up-and-coming restaurants is not necessarily healthier. A Big Mac and French fries from McDonald's contain about 870 calories. The Shake Shack equivalent has around 960.

At Mexican restaurant Chipotle, it's even higher: A typical meal of beef burrito and fries has a whopping 1,350 calories. "When you are talking calorie count - which is a different thing than nutrition - the Chipotle offerings are very high," restaurateur Joe Bastianich US told business broadcaster CNBC.

Identity crisis

Ultimately, the market is becoming more fragmented, requiring a marketing rethink.

"I think there is a consumer for each kind of thing," Bastianich said, adding that companies like McDonald's and Burger King need to decide who they want to be and whom they want to serve.

Bloomberg food analyst Venessa Wong agrees. "McDonald's has to figure out what it means by a 'progressive, modern burger company.'"

McDonald's hasn't ignored demands for healthier fare - it's offered salads and wraps for years. But its attempts to shift towards higher-quality, more nutritious offerings have been flawed. It took the company two years to ensure restaurants had enough cucumbers in stock for the Premium McWrap. The pricier Angus Deluxe Burger - made from 100 percent Angus beef - flopped. The switch to chicken breeding free from antibiotics will supposedly take another two years.

The company has been struggling to rid itself of its greasy image. It was badly hurt by the film "Super Size Me" - even though nutritionists have questioned the methods used in Morgan Spurlock's documentary about the link between fast food and the rising level of obesity in the US.

In recent years, McDonald's has also faced criticism for its pay policies. Employees went on strike several times to demand better wages, claiming the company contributes to rising income inequality. Earlier this month, McDonald's said it would raise pay and offer new benefits to employees in the 1,500 outlets that it owns and operates, potentially putting pressure on franchisees to do so as well.

It also said it would look at updating its offerings, such as extending breakfast hours and testing sales of its Egg McMuffins throughout the day. In Germany the company even plans to introduce table service.

But the fact McDonald's is so well known is a problem - especially since its image was built up at a time when consumer demands were much different.

"McDonald's is ubiquitous," Wong said. "That is one of their biggest strengths. But as we have seen, that it means it is a bit harder to turn the ship around when things aren't going too well."

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