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McSlump, McHistory

Activists' biggest fast-food target listens, and sales surge.

CHICAGO - It wasn't so long ago that the McDonald's fast-food empire looked as stale as a burger left under a heat lamp too long.

Sales were decreasing, new products weren't catching on and McDonald's Corp. was vilified by activists, nutritionists and others as Americans got fatter. Even its seemingly bulletproof stock staggered to barely $12 a share in 2003.

Now, thanks to a combination of improved menus, better marketing and deft management, business is cooking.

The fact that the sales resurgence not only continues to sizzle after more than four years but has spread internationally is a surprise to experts.

"A couple of years ago everyone was down on them," said Bob Goldin, analyst at Chicago food consultancy Technomic Inc. "Now it's hard to find people who are really hard critics of the company."

The latest evidence of the brand's renewed popularity came last week when the Oak Brook, Ill., company said August same-store sales rose a stellar 8.1 percent worldwide and exceeded the year-earlier total in U.S. restaurants for a 53rd straight month. Recent products - premium coffee, snack wraps and salads - contributed to the domestic surge.

Anti-Americanism over the Iraq war hasn't eaten into global sales, either, despite the golden arches' association with Uncle Sam abroad. The increase was 12.4 percent in its Asia/Pacific, Middle East and Africa restaurants and a noteworthy 6.1 percent in Europe.

Even shareholder activists have gone quiet after having the company on the defensive over its lagging stock price. Its stock has soared to all-time highs above $55 since it announced its largest dividend increase Sept. 13 and pledged to return $15-billion to $17-billion to shareholders through dividends and share buybacks by the end of 2009.

Targeted in recent years by lawsuits claiming its food contributes to child obesity, McDonald's remains vulnerable on nutritional issues. It took a skewering from books and movies: Fast Food Nation, Super Size Me and Chew On This.

McDonald's has lagged behind competitors and moved slower than promised in switching to oil free of artery-clogging trans fat for its fries - a change it has yet to complete.

But industry observers credit it for adding entree-sized salads, fruit and yogurt parfait and grilled chicken sandwiches, as well as apple slices and juice.

"Let's be honest, their business is still driven by burgers, fries and cokes," said Goldin. "But consumers have options."

Those moves may all be clever marketing, but they're a sign of McDonald's increasing responsiveness.

"Before they didn't necessarily want to acknowledge criticism," said Morningstar analyst John Owens. "Now they're meeting it head-on. I think consumers appreciate that."

[Last modified October 1, 2007, 23:44:39]