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20/10/02 . by Lawrence Donegan in San Francisco and Paul Webster in Paris . The Observer . UK  
Times are lean for the company that has come to symbolise American corporate might.  

Call it ironic, call it camp, call it anything you like, but just don't call it the most innovative and inspired 30-second slot in the history of television advertising. This month McDonald's launched a new campaign in the US for its $1 burgers which features two characters many happily assumed had long been assigned to the dustbin of America's corporate history. The first was a cartoon character called Grimace, who featured in McDonald's ads back in the 1970s, and the second was Donald Trump.

'The Big 'N' Tasty for a dollar is a great sandwich at a great price. I'm proud to tell America that the buck stops at McDonald's,' says the bouffant-haired property developer who back in the 1980s became the very last word in million-dollar ostentation. One can scarcely begin to imagine the frantic brainstorming that went on at the ad agency responsible for the 'Got a Buck? You're in luck' campaign - DDB Chicago - before it was agreed to hire Trump.

As Slate , the online magazine, so succinctly asked last week: 'Would you buy a burger from this man?' It's too early to answer that particular question, but for its part McDonald's believes the investment in a sullied Eighties icon is money well spent.

'The sandwiches we're offering for a dollar are a great deal, and we chose people like Donald Trump - who know great deals when they see them - to help us make that point in a fun and memorable way,' said Bill Lamar, the burger company's vice-president. 'Combining our beloved characters with a high-powered celebrity and adding a little humour really resonates with customers as a way of bringing our value offer to life.'

Lamar had better hope it does. While Trump and Grimace have been expounding the wonders of McDonald's $1 burger, many analysts who follow the fortunes of the fast-food industry are beginning to wonder if anything - never mind Trump - will be enough to revive the fortunes of a global phenomenon which, along with companies like Coca-Cola, has come to symbolise American corporate might both at home and around the world.

These are dark days underneath the golden arches. Last month, with McDonald's shares at a seven-year low, US analysts Salmon Smith Barney downgraded the company's stock to 'underperform'. Sales in the US declined over the summer months, while performance in the UK fell below expectations, forcing bosses to cut earnings forecasts for the year.

Worldwide, McDonald's restaurant operating margins fell from 16.9 per cent in 2000 to a projected 14 per cent for this year - a statistic which might not mean much to the folks in Albuquerque queuing for a Big Mac and fries but raised a few eyebrows on Wall Street. 'As a brand, McDonald's has been one of the most incredible success stories in history,' says Simon Williams of the New York-based business consultancy Sterling Group. 'But there are so many chinks in the armour now, nothing short of reinventing the brand will save it over the long term.'

McDonald's itself has admitted problems, with chief executive officer Jack Greenberg pushing a recovery plan which calls for the company to spend more than $400 million over the next two years, money which will be used to remodel more than half of its 13,000 restaurants in the US.

At the same time the company has also decided to slow down its relentless expansion - opening only 300 new stores in the US this year, compared with the 1,100 it opened back in 1995.

Greenberg, who faces losing his job if his plan should fall short of expectations, blames the current difficulties on an 'extremely competitive market', but there are many who believe the problems are more fundamental and wide-ranging than the fleeting popularity of Wendy's new range of salads. To illustrate the point, one need only look to France, admittedly a notoriously insular market (at least when it comes to food), but one which McDonald's long ago set out to conquer and which it now claims is the 'high profit' model its recovery will be structured on.

Back in the early 1980s, when Donald Trump was building his first skyscraper, the plan was to build 2,200 burger restaurants from Marseille to Calais. Today the number of McDonald's outlets in France has levelled off at under 1,000 as the company faces up to the hard fact that the Gallic appetite for burgers is not, after all, insatiable.

Eight times as many sandwiches are eaten there as hamburgers - a gap that is steadily rising, as evident around the office and tourist areas of central Paris. The queues that line up outside chains like Pomme de Pain and Brioche d'Or, specialists in made- to-measure sandwiches and instant pastries, are far longer than any gathering outside the off-the-peg McDonald's, whose most faithful customers include beggars and bag ladies. (In France, the McDonald's burger, with its near obligatory Coke, is included in a common term mal bouffe , meaning poor food.)

As in America and the UK, where a succession of unrelated misfortunes has befallen the company in recent years - from the publication of Eric Schlosser's seminal exposé of the fast-food industry, Fast Food Nation, to the BSE crisis - the fundamental problem facing McDonald's in France is one of image.

Denis Hennequin, boss of McDonald's France, never tires of pointing out that his particular branch of the global conglomerate is one of the most profitable.

But for how much longer? Earlier this year the French division launched a press campaign advising parents not to bring their children to McDonald's restaurants more than once a week, a response to concern over the doubling of the obesity rate among French teenagers to 16 per cent in the past 10 years.

In retrospect, this might come to be seen as money unnecessarily spent as some children have already instigated their own McDonald's-free diet. According to one study of four to seven-year-olds in France, three-quarters of those who purchased Happy Meals left most of their hamburgers and chips. The real attraction was the free toy.

Bernard Boutboul, the consultant who carried out the survey, also reported that the 15-25 age group is rapidly losing its appetite for McDonald's, despite the company's attempt to adapt and broaden its menu with the introduction of 'French' items such as salads and yoghurts.

Another 'innovation' is the remodelling (critics say the 'camouflaging' ) of McDonald's outlets in sensitive areas - mostly provincial towns - with the traditional, fast-food décor being replaced by café-style interiors. The ubiqui tous yellow 'golden arch' has also been reduced in size to blend in with its surroundings. Will it work? Boutboul thinks not. 'The single-product formula is running out of breath. But McDonald's is so associated with hamburgers that consumers have difficulty in believing that the chain offers alternatives. Innovation is no longer enough.'

The problems created by the sensitivities of the French palate have been compounded by the national political psyche, which has long been suspicious of American global imperialism and never more so in these days of George W. Bush's war against the so-called 'axis of evil'. It's hard to open a French newspaper and not find a cartoon which links the global ambitions of the 43rd President with the global ambitions of the fast-food chains.

McDonald's has its own difficulties with political agitators, with the company being targeted by José Bové's militant Confédération Paysanne and several movements fighting for regional autonomy. An outlet was burnt down near the Spanish border and another branch bombed in Brittany. The most notorious incident was the trashing of a restaurant in Millau, south-west France, by a group led by Bové.

Another problem has been allegations of staff exploitation, which have not only generated acres of bad publicity but also forced the temporary closure of 'prime location' restaurants like the one on the Champs-Elysées due to industrial action.

The most spectacular strike, at the Saint-Denis outlet in Paris last winter, went on for 115 days and rallied young immigrant protesters from the suburbs, the Communist-led CGT trade union and human rights associations.

A move to sack employees on trumped-up charges of theft was overthrown in the courts, but not before a documentary called On n'est pas des steaks hachés ('We're not minced steak') was filmed and given its premiere in Paris during an international anti-McDonald's protest last Wednesday.

Against such a troubled backdrop, Hennequin's boasts of record profitability seem all the more impressive, at least to shareholders. But even then, all may not be as it seems.

Some French economists say the company's success is largely due to the weakness of the competition. Burger King - one of the company's principal competitors elsewhere in the world - had to close down its French operation five years ago, while the only serious rival, Quick, a Belgian company with 325 hamburger restaurants, has its own problems.

This relative lack of competition might explain McDonald's ability to maintain its profits in France (for now). But in the US - where a recent survey by a market research company placed McDonald's bottom of 77 different eating chains across a range of categories, from food quality to service - life in the fast-food marketplace is a lot tougher.

And it is about to get a lot tougher still for McDonald's, according to Bob Sandelman, author of the damning survey. 'The main problem is, generally, people don't rate their food highly and consumers are very slow to change their perceptions from negative to positive,' he says. 'I'm not saying it's impossible for McDonald's to turn that round, but it is going to be a very long and costly road.'  
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