When my sisters and I were kids, our parents never took us to McDonald's just because it was fast and cheap, though that helped. They took us because McDonald's was a treat. The burgers, shakes and fries—especially the fries—were tasty and the restaurants themselves had a cheery, all-American feel. Going to McDonald's in our Ford Falcon station wagon was like taking a mini-holiday.
But that was more than 40 years ago, and McDonald's and the fast-food market it still dominates have changed. In early March, I went to a McDonald's for the first time in almost a decade. The rather gloomy outlet was on a busy high street in North London. It was late afternoon and the place was almost empty, save for a few teenagers in plaid school uniforms. I stared at the menu for two or three minutes before I could decipher all the options—too much choice—and ordered a regular hamburger with small fries.
The meal was not particularly fast or cheap, but that wasn't the point. The point was the burger tasted like cardboard and the fries had almost no taste at all, despite the salt, sugar, fat and other ingredients larded into them (the fries have 19 ingredients including an anti-foaming agent called dimethylpolysiloxane, should you be keen to spice up your next barbecue).
The next day, I went to two of the new breed of American "fast casual" burger joints, Shake Shack and Five Guys Burgers and Fries, in London's buzzy Covent Garden area. They were definitely slower than McDonald's, though not by much, and certainly not cheap by McDonald's standards. But that wasn't the point either. Compared with McDonald's, the meals were delicious, and because they use high-quality ingredients, such as Shake Shack's hormone-free beef, I felt pretty sure it was healthier, if equally fattening. And the decor was definitely more pleasing.
In the United States, Elevation Burger says it uses "100-percent USDA-certified organic, grass-fed, free-range beef." McDonald's signature gut filler, the Big Mac, offers 100% pure, USDA-inspected beef: "no fillers, extenders or preservatives." I'll take an upscale burger, please, even at twice the price, and I don't want to know what extenders are. But millions of other people don't share my reservations. McDonald's—born in California, then launched as a franchise by Ray Kroc in Illinois, in 1955—now has more than 36,000 outlets in 119 countries.
Yet all is not well under the golden arches. In 2014, McDonald's global revenue was down 2.4% to $27.4 billion (all currency in U.S. dollars). In the United States, guest counts—the number of customers—fell by 4.1%. The company's shares have been flabby underperformers, despite a recent uptick on the arrival of new CEO and touted turnaround man Stephen Easterbrook. Over the past year, in a raging bull market, they were up 6% by early March, only about half as much as the Standard and Poor's 500.
Fixing McDonald's won't be easy. If it goes upmarket through the use of higher-quality ingredients, it will have to raise prices and risk losing the mass market. If it cuts costs and prices to try to rebuild market share, it risks relegation to the bottom rank of ultracheap joints milling out bland factory burgers.
Already, McDonald's cool factor is a thing of the past. The bulk of the growth in the industry is in the fast-casual market, where the emphasis is on fresh, high-quality, locally sourced ingredients. You still line up to place your order, but most fast-casual chains offer some service, making them a hybrid between a classic stuff-your-face-and-run franchise and a proper sit-down restaurant.
McDonald's didn't anticipate the shift in customer demand in recent years. As society in general became more affluent, consumers became more willing to spend money in restaurants. But they also wanted food with flavour that was healthier. North American families became foodies, and learned to buy organic beef, free-range chicken and growth-hormone-free milk. Supermarkets like Whole Foods—stock market value $20 billion—are spreading across the land.
As fast-food consumers went upmarket, they were eagerly followed by the fast-casual restaurants and mysteriously ignored by McDonald's. It responded by tweaking its menu (not always for the better, like getting rid of the yummy beef tallow used for the fries), its decor and not much else. Along came Five Guys, Shake Shack, Habit Burger Grill, Panera, Chipotle and others. Some became stock market sensations. Chipotle, with 1,780 restaurants—just 5% of McDonald's total—has a market value of $21 billion, about 21% of McDonald's total. Shares in Shake Shack's IPO in January doubled on their first day of trading.
McDonald's isn't going to disappear any time soon, if ever. The question is how to make its meals tasty and healthy while keeping them cheap and fast. It might be impossible to satisfy all those goals.