Mcdonald's Links Success To Corporate Refocus

(Tuesday, January 13, 2009) - CHRIS WARD, 23, didn't go to McDonald's much because it wasn't open late enough for after-hours snacks.

Casey Fillian, 32, and her friend Carol Milano, 33, gave up their teenage McDonald's habit when they became more health-conscious adults.

And Russ Green, 47, wouldn't go to McDonald's because, among other things, he thought its food was unhealthy.

Yet here all four of them are, lined up at McDonald's one recent morning, lured back by new menu items, longer hours and a sparkling new building that includes flat-screen televisions and video games for children.

Mr. Ward says he's a regular again because his McDonald's is open until 1 a.m. Ms. Fillian and Ms. Milano, now moms, say they often bring their children to the playroom and feel no guilt serving them apple slices and white-meat Chicken McNuggets. Mr. Green was drawn back in "" grudgingly "" because McDonald's lattes are cheaper and more convenient than those at Starbucks.

It wasn't too long ago that McDonald's, vilified as making people fat, was written off as irrelevant. Now, six years into a rebound spawned by more appealing food and a less aggressive expansion, McDonald's seems to have won over some of its most hardened skeptics.

The chain has managed to sustain its momentum even as the economy and the restaurant industry as a whole are struggling. Month after month, McDonald's has surprised analysts by posting stronger-than-expected sales in the United States and abroad.

As of November, the latest data available, the company had delivered 55 consecutive months of increases in global same-store sales. During a year when the stock market lost a third of its value "" its worst performance since the Great Depression "" shares of McDonald's gained nearly 6 percent, making the company one of only two in the Dow Jones industrial average whose share price rose in 2008. (The other was Wal-Mart.)

David Kolpak, an analyst at Victory Capital Management in Cleveland, says he has been recommending McDonald's stock to investors since 2002, when the chief executive, Jack M. Greenberg, resigned after a tumultuous tenure.

"I've been doing this for 18 years, and I've never recommended a stock for this long in my life,' Mr. Kolpak said. "It's been an amazing ride."

McDonald's hasn't silenced nutritional critics; some of its salads come festooned with fried chicken. The economy has also entered such a brutal downturn that the next year is likely to prove difficult for even the strongest and most nimble of companies.

"I was asked if we were recession-proof. And I said: "No, we are recession-resistant. I don't know if we are depression-resistant," says Jim Skinner, the company's current chief executive.

Still, here in Tinton Falls, the mood is buoyant. The owner of this franchise, Ken Hullings, says McDonald's lacked direction when he acquired the store in 1998, so much so that his wife asked him, "Are we in trouble?"

But he says that a relentless focus in recent years on improving store operations and measuring progress has helped the four McDonald's locations he now owns to thrive.

"It seemed like every other month I was putting something on the menu or taking something off," he says. "We were looking for that magic bullet, that magic pill. And I think what we realized that it wasn't just one thing."

FROM the time when Ray Kroc decided to franchise the McDonald brothers" fast-food concept in 1955 and transformed the way Americans eat, he preached the motto of quality, service, cleanliness and value. McDonald's incorporated those goals into its mission statement as it became a ubiquitous purveyor of burgers and shakes.

By the mid-1990s, however, McDonald's was struggling to find its identity amid a flurry of new competitors and changing consumer tastes. The company careened from one failed idea to another.

It tried to keep pace by offering pizza, toasted deli sandwiches and the Arch Deluxe, a heavily advertised new burger that flopped. It bought into nonburger franchises like Chipotle and Boston Market.

It also tinkered with its menu, no longer toasting the buns, switching pickles and changing the special sauce on Big Macs.

None of it worked.

"There were 14 changes over the years to that sauce, all relatively small," but cumulatively they took a toll, says Fred L. Turner, one of the company's first employees, who became the company's second chief executive, after Mr. Kroc, in 1974, and held that post until 1987. "The food got off track."

All the while, McDonald's continued opening new restaurants at a ferocious pace, as many as 2,000 a year. The new stores helped sales, but customer service and cleanliness declined because the company couldn't hire and train good workers fast enough.

Sales at existing stores, meanwhile, were sluggish and started to decline.

"We got distracted from the most important thing: hot, high-quality food at a great value at the speed and convenience of McDonald's," said Mr. Skinner, the chief executive.

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