Still the Champion

Fanciers of McDonald's hamburgers, who are used to giving their orders to teenagers, must have been puzzled by the bald heads and bulky bodies behind the Golden Arches last Friday. No wonder. At a store in San Diego, Founder Ray Kroc, 74, handed over French fries to waiting customers; in Baltimore, McDonald's president, Edward Schmitt, 51, picked up a spatula to flip burgers. It was "store day" at McDonald's, and from Portland to Pensacola, executives left their offices to don paper hats and hustle behind the counter.

It was an example of the close-to-the-customer approach that has maintained McDonald's phenomenal growth (TIME cover, Sept. 17, 1973) against what would seem to be heavy odds. Investors have sold the stock down from a high of $77 in 1972 to about $42 last week. One reason: the fear that energy shortages and higher gasoline taxes will eventually restrict driving and thus the patronage of McDonald's restaurants. Competition in the fast-food business has rocketed: not only have hamburger chains proliferated, but Americans can now pop around the corner to get takeaway tacos, fish cakes, spaghetti and even German sausage. Some of the country's biggest corporations have challenged McDonald's by buying up fast-food chains: Heublein (Kentucky Fried Chicken), Pillsbury (Burger King), General Foods (Burger Chef).

None of that bothers McDonald's.

Last year the chain's stores--now numbering 4,230--rang up sales of $3.1 billion, 24% more than in 1975. Most of that was kept by franchise operators, but their rent and royalty payments, plus sales of company-owned stores, gave McDonald's $1.2 billion in revenues; the company converted $110 million into profit, about 27% above that of a year earlier. That was enough to permit the company, which had plowed all previous profits back into expansion, to declare its first cash dividends (2 1/2-c- a quarter). In early May McDonald's signs will be changed to read: OVER 22 BILLION SOLD; at present rates a billion hamburgers are sold every 4 1/2 months.

There are some easily identifiable reasons for McDonald's success, though. One is that in recent years inflation has jacked up the cost of meals eaten at home more than of those eaten out, spurring a growing willingness among Americans to eat almost anything so long as they do not have to cook it themselves. Industry marketing studies indicate that in ten years fully one-half of the nation's food budget will be spent for meals eaten outside the home, v. one-third spent now. McDonald's expects to benefit handsomely from this trend.

Loyal Crowd. McDonald's has also been willing to change its stores and products. Breakfasts, introduced last year, have won an older and loyal crowd. In one Southwestern store the local manager opened a drive-through window to serve G.I.s from a nearby base who were forbidden to enter any public place in their fatigues; the chain has now opened such windows in 400 stores and plans them in another 500. Says Schmitt: "A woman will drive through in housecoat and curlers, when she wouldn't come into the store that way."

McDonald's tries to turn its stores into homes away from home. One restaurant in Villa Park, Ill., caters 600 birthday parties a month in a special room for children whose parents do not want kids spilling ice cream on the dining-room rug. Most stores now have "activities representatives" who organize kiddie and senior citizen programs and manage nearby playgrounds; this approach has disarmed communities that initially objected to a McDonald's in the neighborhood. In general, says President Schmitt, "we used to think you needed 50,000 people to support a McDonald's, but now we're discovering that you can do it with a lot fewer." How few? To find out, this summer McDonald's will open a shop in Gibson City, Ill. (pop. 3,700).

Overseas, the going has been a bit rougher. In Europe, McDonald's management learned belatedly that, in contrast to the U.S., the customers are nearly all in the cities. Though McDonald's now has 467 stores in 22 foreign markets, the majority are company-owned or joint ventures, and the international operation will not become truly profitable until franchising begins in earnest --as it is about to in Germany, Australia and Japan. Says Chairman Fred Turner: "Who [in Europe] is marketing to the family for a reasonably priced meal away from home? There isn't anyone. There's our opportunity."

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