McDonald's super-size strategy falters

CHICAGO -- Golden arches have been proliferating around the globe ever since a traveling salesman named Ray Kroc had a vision about the limitless potential of fast food nearly a half-century ago.

Taking over the revolutionary Speedee Service System from brothers Richard and Maurice McDonald, Kroc built a burger-and-fries empire on the premise that there can never be too many McDonald's.

Or can there?

After spreading to 30,000 restaurants in 121 countries and more than tripling in size since Kroc died in 1984, the empire is showing widening cracks -- in its home nation, of all places.

Facing a crowded restaurant market, complaints about poor service and a depressed stock price, McDonald's Corp. has ordered up slower expansion and other measures as it tries to break an unprecedented slump. A planned overhaul of U.S. restaurants, its first big price-discounting campaign since 1997 and menu additions all are part of the "reinvention" of the U.S. business.

'Quietly toward oblivion'

Restaurant experts doubt, however, whether those actions or any other can fully restore the golden glow cast by the McDonald's arches in the past.

"It's an ideal-type brand that's in trouble," said Kevin Clancy, who heads the Copernicus marketing and research consultancy in Auburndale, Mass. "They haven't had a really successful new product or many marketing successes in more than a decade. The brand has been moving ever so slowly and quietly toward oblivion for years."

It's not like the world's biggest restaurant company has become just another burger joint on its home turf.

McDonald's and its more than 13,300 U.S. stores hold a whopping lead over Burger King and Wendy's with 43 percent of the quick-service hamburger market, according to data compiled by Chicago-based Technomic Inc. That's bigger than the next four chains' portions combined.

Oak Brook, Ill.-based McDonald's has done more experimenting than a mad scientist lately to maintain that advantage over its fast-food foes, inventing new products, test diners and other restaurant concepts and installing a made-to-order computerized cooking system.

But the innovations, producing mixed results so far, haven't prevented the hamburger business from becoming a slowly shrinking piece of the restaurant industry pie.

Changing market core

Americans increasingly are forsaking burger places for pizza chains, more upscale eateries and "fast-casual" dining -- everything from bakery cafes to burrito shacks to sandwich shops. A baby boomer-led clamor for healthier and more sophisticated food presents a tall order for the purveyor of Big Macs.

"The fundamental core of their market has changed," said industry consultant Jerry McVety, president of McVety & Associates in Farmington Hills, Mich. "There's more competition. Kids today have more money, and many of them don't necessarily feel that going to McDonald's is a cool thing to do."

Sales at established U.S. McDonald's restaurants have been stagnant for several years and slid 2.8 percent in the third quarter compared with the previous year as new units continued to cannibalize business, angering franchisees.

The deepened U.S. slump, following mad-cow disease scares overseas which weakened profits in 2000-01, has put the company on pace for a second straight year of lower earnings. Its stock has lost about 70 percent of its value since Jack Greenberg became chairman and CEO in 1998, prompting calls for a management shakeup.

Like analysts, loyal customer Dick Chase thinks the company has strayed a bit from its credo of good food and quick service. The suburban Chicago resident considers himself an authority on the subject, as both a longtime friend of Kroc's and someone who eats at McDonald's about 350 times a year.

"The food isn't bad. But I think there's too much on the menu now," says Chase, 74, president of the Illinois Festival Association. "It's confusing. And the service could be better."

He chuckles at the irony of Kroc telling him years ago, "We're never going to have a complicated menu."