No more clowning around at McDonald’s

Once maligned for its fatty menu and tacky decor, McDonald’s has turned its image, and stock price, around

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Photograph by Andrew Tolson

It was only day two of Morgan Spurlock’s month-long experiment of eating nothing but McDonald’s when he vomited out his car window. The moment, among the grossest and most memorable in the 2004 documentary Super Size Me, came after Spurlock struggled to eat a Double Quarter Pounder with cheese, seven-ounce fries and a 42-ounce soda. McDonald’s, not surprisingly, wasn’t thrilled with Spurlock’s “stunt,” but the Oscar-nominated documentary struck a chord with North Americans and confirmed what many already believed about the world’s biggest restaurant chain: it was a massive multinational that put profits ahead of people and their health.

Ten years later, the popular perception of McDonald’s has changed remarkably. Walk into most locations and you’re just as likely to see someone sipping a latté while reading an iPad as wolfing down a box of greasy McNuggets. The hard plastic furniture, jarring red-and-yellow paint scheme and grinning clown statues have been replaced by comfy chairs, muted hues and stone fireplaces. The hamburgers and fries are still present, but so too are salads, wraps and smoothies. Even the iconic Big Mac, long the yardstick to measure how bad something was for your diet, has come to look almost healthy next to heart cloggers like KFC’s Double Down (no buns, just bacon and cheese between two slabs of fried chicken). Earlier this year an Iowa high school teacher made headlines when he repeated Spurlock’s experiment and lost 37 lb. by sticking to a 2,000-calorie a day McDiet and exercising regularly.

It’s the sort of image makeover that’s virtually unheard of in the business world. Just ask Microsoft how easy it is to alter long-standing perceptions of a company and its products. But getting here wasn’t easy. McDonald’s spent heavily to overhaul its restaurants, reconfigure its menu, add upscale espresso drinks and, most importantly, redefine the way it relates with customers. Several of the key breakthroughs came not from the global headquarters in Oak Brook, Ill., but the squat, brutalist office tower next to a busy Toronto freeway that houses the offices of McDonald’s Canada. The Canadian contributions include free coffee promotions and a bold ad campaign that, among other things, took viewers inside a chicken processing plant to see how McNuggets are made, ground skin and all. “It had never been done the way we did it—ever,” says John Betts, the lanky and convivial president of McDonald’s Canada.

Is it all marketing hype? McDonald’s still has plenty of detractors who complain a Mac Snack Wrap isn’t much better for you than the double-decker burger that spawned it. Meantime, the company is taking a beating in Canada amid accusations that a B.C. franchisee was abusing Ottawa’s temporary foreign workers program, prompting a federal investigation. While Betts says guest traffic is up 85 per cent at the chain’s 1,400 Canadian stores, McDonald’s global sales have disappointed of late, with some blaming the menu tweaks for over-complicating a straightforward, value-oriented business.

That’s not how Betts sees it. McDonald’s, he says, is playing the long game in an era where the line between fast-food, coffee shops and so-called fast-casual chains is blurring. By focusing on “honest” marketing, sustainable business practices and better service, he insists McDonald’s will endear itself to a new generation of customers who expect more from companies than cheap and quick. “For a long time, we didn’t push back. We didn’t tell our story the way we could have,” Betts says. “I want people to feel great about having McDonald’s as part of their life—whether they eat there, go through the drive thru or are employed there.”

In other words, the fast-food chain responsible for the Happy Meal wants you to feel warm and fuzzy about what it does on the other side of the counter, too.

Betts, whose loopy smile and thick-framed glasses make him look more science teacher than executive, says a low point for the company came before Spurlock’s film hit theatres. After trading at nearly $50 in the late 1990s, the stock sagged below $13 in early 2003 after McDonald’s posted its first-ever quarterly loss. At the time, it had tried to offset waning interest in fast food with investments in upscale chains like Chipotle Mexican Grill and Boston Market. “That was the absolute bottom,” says Betts. “We had stopped paying attention to the customer with the same zeal as before. We had lost our way a little bit.”

Enter Jim Cantalupo, a company veteran, who as CEO began a massive overhaul that included putting more salad and chicken on the menu and ditching the controversial “supersize” options. (Cantalupo, ironically, would die the next year of a heart attack.) It was the start of a “plan to win” that ultimately boosted the stock to around $100 today.

McDonald’s also began looking inward for new innovations, drawing on its experiences in international markets. By far, the most important of these imports was McCafé, a Starbucks-like line-up of specialty coffees that originated in Australia. With its promise of consistency and high margins—people tend to get their morning coffee from the same place every day—the coffee business promised to extend the chain’s reach to a wider demographic, while bulking up its breakfast and mid-afternoon sales. Another piece of the puzzle was giving McDonald’s tired decor a more hip, coffeehouse vibe. In 2011, McDonald’s Canada announced a plan to spend more than $1 billion remodelling the restaurants of franchisees, making it one of the first markets to undertake such an overhaul.

There was just one hitch: convincing customers to give McDonald’s another try. The solution, Betts discovered, was free coffee. As early as 2008, McDonald’s experimented with free drip-coffee promotions in a handful of Canadian cities coinciding, not coincidentally, with Tim Hortons’ Roll Up the Rim campaign. It’s a loss-leader tactic that McDonald’s can afford to get away with because of its sheer size. “Coffee is a way to bring frequency to the restaurant and steal share from your competitor,” Betts says.

While McDonald’s doesn’t break out figures for its Canadian subsidiary, Betts says McDonald’s share of the Canadian market has grown every year since 2008, despite operating roughly the same number of stores. A report last year by Euromonitor found that McDonald’s held 11 per cent of the Canadian quick-service market in 2012, compared to 26 per cent by Tim Hortons with some 3,500 stores. “Our breakfast business is up 65 per cent and our guest counts are up 85 per cent,” Betts says. “Coffee is the thing that turned our business here.”

The free-coffee tactic has been adopted in the U.S. Taco Bell’s recent launch of its odd-looking Waffle Taco, with ads mocking the Egg McMuffin as an ’80s throwback, prompted McDonald’s to launch its first nationwide coffee giveaway. Although McDonald’s framed it as a way to encourage customers to try its coffee, the real intention was made clear when it tweeted a waist-down photo of Ronald McDonald kneeling to pat the head of a nervous chihuahua—Taco Bell’s mascot.

With 35,000 restaurants around the world serving 70 million people each day, McDonald’s has long thrown its weight around to maintain a competitive edge. But when it comes to fending off criticism of its business practices—its role in high levels of obesity or the treatment of animals in its supply chain—the company’s sheer size works against it. “You have a real issue if you’re a company that’s representative of a whole category people think of as negative,” says David Soberman, a marketing professor at the University of Toronto’s Rotman School of Management. “You take on all the negative baggage.”

It’s an issue that bothers Betts, who began his McDonald’s career frying burgers in Southampton, N.Y., in the 1970s. “The No. 1 question, and I still get this today, is whether it’s 100 per cent beef,” he says. “Well, yes, and it has been forever.” With the help of its ad agency, Betts said McDonald’s Canada decided it was far enough along its transformation to try and change the public conversation about its brand. Beginning in 2012, it rolled out an ad campaign called “Our food, your questions” that promised honest answers to people’s queries about the company and its products. Everything was on the table. The team responded to 23,000 questions through social media, addressing more common ones in frank video spots. They included: how a burger was prepped for a photo shoot (ingredients are all pulled to one side of the bun to be more visible); where McDonald’s gets its beef (a rancher in Alberta talked about feeding herds a mixture of feed, extra minerals and antibiotics); and how Chicken McNuggets are made (an employee at supplier Cargill showed how chickens are deboned, separated and combined with skin and seasoning to be stamped into one of four shapes). Betts is the first to admit it wasn’t easy to sell McDonald’s top brass on the idea—particularly when it came to showing raw, pulverized chicken meat. But the campaign was not only well received in Canada, it drew attention around the world. Some of the online videos were viewed more times in the U.S. than here.

The latest phase in the makeover tackles questions about sustainability. Filet-O-Fish boxes now carry a stamp that certifies the Alaskan pollock as coming from “sustainable” fisheries; Betts says McDonald’s Canada is working with Canadian beef producers and the World Wildlife Fund to develop a similar program for its hamburger meat. He also pledged to do a better job educating people about its labour practices—an issue that flared up last year in the U.S. when thousands of fast-food workers went on strike, demanding better wages, and is once again in the headlines amid accusations a Victoria franchisee abused Ottawa’s Foreign Temporary Worker Program. McDonald’s says it’s in the process of terminating its relationship with the B.C. franchisee and is reviewing all its restaurants. Roughly four per cent of McDonald’s 85,000 employees were hired through the federal program, it said.

Despite the brand renaissance, McDonald’s faces competitive challenges, too. The company performed well during the recession, thanks to its U.S. “dollar menu,” but sales have been sluggish with the economy on the mend. In 2013, global revenue at McDonald’s was flat—at $28.1 billion, up just two per cent from 2013—despite the new additions (Betts says Canadian stores bucked the trend). Some have blamed the menu changes for bogging down operations. One analyst told Reuters, “If McDonald’s doesn’t fix itself by the end of 2014, the drumbeat of activism will grow.”

Darren Tristano, the executive vice-president of Chicago-based food-consulting firm Technomic, says part of the problem is that McDonald’s is maxing out its current business model. Each U.S. store already books about $2.6 million in revenue each year, more than double its next biggest competitor, Burger King. “They may be hitting the ceiling,” Tristano says. “I mean, how much can you actually pump through one of those stores?”

Betts, for one, believes there’s room to grow. He says recent investments at McDonald’s Canada give it a solid platform on which to build over the next decade, and that some problems, like long lineups and wait times, will be solved by opening more restaurants. He also hints at changes in the way McDonald’s interacts with customers. “If you look at the industry, there’s no one that really dominates from a service standpoint,” he says. “I want to separate our guest experience from everybody else.”

Admittedly, it all starts to sound ambitious for a burger chain. But while McDonald’s is often viewed as a monolithic, top-down corporation, it has proven to be a remarkably nimble operator, as evidenced by the wide variety of menu items in foreign markets—items Tristano says McDonald’s may be able to use to win over more North Americans in the future. After all, who wouldn’t want to try a McAloo Tikki Burger from India? And while competitors like Starbucks and Tim Hortons struggle to figure out how to serve more hot meals in their small, café-style stores, McDonald’s has the advantage of operating full kitchens that can make everything from flaky pastries to yam fries—both items that Anne Parks, McDonald’s director of menu management, says are currently being tested.

Eating at McDonald’s remains as bad—or good—for you as it ever was. The same can be said about its business practices, depending on your politics. But thanks to a more forthcoming approach, the burden of responsibility for diners’ personal health has shifted back to the consumer, where it probably belonged in the first place. “We now have people defending us,” Betts says of online commentary about the company. “The beauty of that is it’s no longer just me telling the story.” Or a mustachioed filmmaker who just puked a key menu item out his car window.

Supersized returns

Over the last decade, McDonald’s has spent billions to overhaul its restaurants and public image

January 2003

McDonald’s posts first quarterly loss in its history. Shares slump to a low of $12.83.

May 2004

Morgan Spurlock’s Super Size Me released in theatres

October 2005

McDonald’s announces a plan to put nutritional information on packaging

May 2009

McCafé launched nationally in U.S.

September 2011

McDonald’s Canada reveals plans to spend $1 billion updating restaurants

November 2011

McCafé launched in Canada

June 2012

McDonald’s Canada launches ad campaign called ‘Our food. Your questions.’

March 2014

McDonald’s rolls out first-ever national free coffee promotion in the U.S.




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