Hold The Fries

Company earnings have fallen in seven of the past eight quarters, and its share price is down 39 percent this year, dipping below $16 for the first time in eight years. In a survey by Sandelman & Associates of nearly 50,000 regular fast-food customers last year, McDonald's was rated dead last out of 70 chains. Analysts note that complaints center on long lines, dirty restaurants and unhealthy, uninteresting food. (McDonald's last new blockbuster dish in the U.S. market, Chicken McNuggets, was unveiled in 1983.) The McFlurry of bad news culminated in December when CEO Jack Greenberg stepped down. His replacement is Jim Cantalupo, the former president who came out of retirement at 59, after a 28-year career at the company. "The Street would have liked an outsider, simply because this is a company that needs its culture shaken up," says Citicorp analyst Mark Kalinowski.

McDonald's has been more deft abroad. Yes, it's stumbled here and there, becoming a laughingstock in Britain for the McLibel case in the mid-1990s when it sued two activists for distributing leaflets about the company's environmental and business practices. But at least it's not drawing such brutal consumer reviews. It has always been sensitive to local tastes, hiding its Golden Arches behind period facades in Paris, for instance, and opening a drive-through for snowmobiles in Sweden. There are meat-free veggie burgers in India, and kosher restaurants in Israel--not to mention grilled McLaks in Norway, sweet red-bean pies in Hong Kong and beer in Germany. In Asia, says Harvard anthropologist James Watson, editor of "Golden Arches East," the company still appeals to consumers as a haven of safe, smoke-free hygiene.

But that's the problem: the more local the company becomes, the less of a novelty it is. Tokyo got its first Golden Arches in 1971 and embraced the restaurant so completely that Japanese traveling to Hawaii were surprised to find "Makku" in America, too. Whatever McDonald's is selling in Asia, whether Hello Kitty toys or veggie burgers, it's no longer an "aspirational" vision of America.

A decade ago getting one's first set of Golden Arches was like a rite of passage, marking a nation's entry into the world of wealth. That may still be true in China, where there are 500 outlets and more than a hundred estimated to open (although prices are so high it's not unusual to see a family of four sharing one ice cream). But in many markets, even in the developing world, the attitude these days is "been there, done that Happy Meal." In South Africa, McDonald's bought prime locations when it showed up just seven years ago. Now it's closing 15 of 104 locations, beaten by local take-away joints like Spur and Steers, or more popular chicken chains. In Japan, the company is losing ground to hordes of other cafes and chains.

The company, in fact, may be running up against a once unthinkable possibility: the world may have enough McDonald's outlets. In Paraguay, where McDonald's just shut down five of its 11 restaurants, franchise director Miguel Brunotte admits he made a mistake opening up several in less urbanized parts of the country, where few people can afford the meal; local customers can fill up on empanadas--the street food of choice--for about a fifth the price of a Big Mac ($1.50). Over the past three years Brunotte saw sales in some towns plunge by nearly half, as Argentina's economic troubles spread to the rest of the Southern Cone. Merrill Lynch calculates that because of the slumping regional economy, 1,581 units in Latin America with some $1.9 billion in assets will produce less than $50 million in income for McDonald's this year.

The company's fortunes may rise somewhat as developing countries grow richer, but no one talks about a McWorld anymore. It's clear, for instance, that McDonald's effort to enforce detailed standards can be costly overseas. It is harder and more expensive to find local suppliers who can keep those fries at nine thirty-seconds of an inch wide (cut from potatoes with 21 percent starch) in --Trinidad than it is in Texas. The grand opening in Poland in June 1992 was delayed because Polish potatoes didn't meet the grade and Russian spuds had to be imported instead. And despite having more stores overseas, McDonald's earns between 55 and 60 percent of its operating income in the United States.