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Last Updated: Friday, 8 July 2005, 15:27 GMT 16:27 UK
Big Mac fights back
By Elliott Choueka
BBC Money Programme

A McDonald's Happy Meal
McDonald's is expanding its menu to adjust to new tastes
It's a turnaround story that almost defies belief.

Two years after making its first ever loss, the world's biggest fast food company is back in the black.

McDonald's has changed its menus and revamped its stores to woo customers. But its problems are not over yet. It's under attack from the health lobby, facing the threat of an advertising ban and expensive lawsuits.

Most controversially, it's just started a new campaign encouraging consumers to do more exercise.

Rock bottom

In 2003 McDonald's share price was as low as it had been for almost a decade. In the same year the company posted its first quarterly loss and - to add salt to the wound - the health lobby was determined to push home its message that McDonald's food was bad for consumers... driving away more customers.

McDonald's was in trouble.

Brand expert Rita Clifton remembers how bad things were.

"They had the full set of challenges," she says. "They were carrying the can for the obesity debate for example, for fast food, secondly they were suffering extraordinary competition on just about every front, and thirdly of course they had the wave of anti-Americanism.

"Now that was a pretty strong set of challenges for them to overcome. So, yes - they certainly had the hounds of hell behind them."

The big cheeses at McDonalds HQ had a battle on their hands. They came up with a radical new plan.

A McDonald's "flagship restaurant" in the US
Some McDonald's outlets are getting a new look

McDonald's UK chief executive, Peter Beresford, reveals what happened in the inner sanctum.

"We had taken our eye off the customer, we were not customer focused, we were not customer driven," he admits.

"And so we reorganised and regrouped. We decided we had to stop and take stock of where we were. We had to be better, but we had to change the way we were running this business."

Green fingers

This "Plan to Win" was made public in 2003. A key part was all about the menu. Back in the kitchen, McDonald's took a revolutionary step, moving from greasy fingers to green fingers with the introduction in May 2003 of salads.

Stock market analyst Janice Meyer is convinced that the shift to "healthier" foods was a move in the right direction. "Salads was an absolute game-changer for McDonald's. It gave the chain a halo effect. It was a fresh product. It had fresh ingredients. It was good quality and it really changed the way people thought about McDonald's and the other products it sold."

But one item in particular grabbed the headlines: the Chicken Caesar salad, with more fat and calories than McDonald's world-famous hamburger.

"That did reveal a lot of McDonald's naivety about it," says Marie Farquharson, editor of Slimming, "because it just assumed that by its very nature a salad would be healthy."

She thinks the way the burger chain advertised the salad made it vulnerable to ridicule.

"If they just marketed it as another option on the menu they probably would have got away with," she says. "But marketing it as a healthier option than your hamburger probably was what got them into all sorts of trouble."

Insofar as I have problems to do with my diet, health and weight, they're entirely my own
Boris Johnson

Moving quickly, McDonald's UK chief Peter Beresford identified the problem and dealt with it.

"We responded further to that by listening to the customers," he says. "The customers told me they wanted a low-fat dressing offering. Three months later I introduced all new low fat dressings."

New look

So with the hiccup of the high-fat salad behind it the company continued with the Plan to Win.

A makeover was next up. Sponsorship deals with hip international superstars Justin Timberlake and Destiny's Child, a redesign of the traditional look of the restaurants, and the creation of a cafe-style menu were all ways to turn the image around.

Restaurant critic Toby Young described the impetus for the changes.

"They're trying to catch up with the design revolution that has really transformed Britain's high streets in the past 10 to 15 years," he says.

And if you've got one of the newly designed restaurants nearby you'll know what he's talking about.

"I think what's behind the thinking here is to create an environment that David and Victoria Beckham would feel comfortable in."

To showcase the new look, McDonald's last year paid for a glossy four-page spread in fashionista bible Vogue. A glamorous model was photographed at the flagship Strand restaurant eating fries, a far cry from the normal fashion shoot.

But not everyone is won over by the new style and new chic on offer. Mark Ritson, marketing professor at the London Business School, is sceptical.

"It gives you an example of what happens when you try and play a feminine, trendy, healthy, fashionable game with a brand that is none of the above," he says.

"This is what happens: you can pay the money for the editorial, but the end result is you have to do it in a restaurant which doesn't look like your restaurant, with a model who doesn't look like your customer, holding a product which doesn't appear very clearly to be your product.

"It's an astonishing piece of bad marketing."

On your feet

And now the most controversial part of the Plan to Win is being rolled out across Britain. In March this year the company launched an advertising campaign with the new slogan, "It's What I Eat and What I Do".

Boris Johnson
Boris Johnson says his fitness is not McDonald's problem

"We are doing the 'What I eat and what I do' campaign to help make sure that our young customers understand there's two sides to a balanced lifestyle," McDonald's UK CEO Peter Beresford explains. "We want them to learn at an early age that its a balanced diet, but also it's exercise."

But critics argue that the campaign is aimed more at heading off obesity lawsuits in America and the threat of an advertising ban in the UK. Even worse, the new slogan runs the risk of alienating McDonald's own customers.

McDonald's fan and Conservative MP Boris Johnson is not taken by the idea of being told by the fast food giant to exercise.

"Well, I think I rather draw the line at that," he says, "insofar as I have problems to do with my diet, health and weight, they're entirely my own.

"And I think it's utterly pathetic that anybody could conceivably blame McDonald's for their fatness."

But for McDonald's director of football and world cup hero Sir Geoff Hurst MBE, the campaign is really very simple.

"It's a balanced diet and balanced exercise, its just about really common sense," he argues. "It's not rocket science here."

Bouncing back

This year, McDonald's share price has bounced back from its low point and sales are up too. The speed of its recovery has been startling, according to stock market analyst Janice Meyer.

"When you have a company like McDonald's with tens of thousands of stores and billions of stores and billions of dollars in sales, it's really quite incredible to have a stock that triples in two years," she says.

The challenge now: can McDonalds sustain their turnaround and return to being one of the worlds most loved brands, rather than one of the world's most demonised brands?

The Money Programme: Big Mac Fights Back was broadcast on Friday 8th July at 1900 BST on BBC Two.

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