Fat land : how Americans became the fattest people in the world (4 page)

"But Ray," Wallerstein would say, "they don't want to eat two bags — they don't want to look like a glutton."

To convince Kroc, Wallerstein decided to do his own survey of customer behavior, and began observing various Chicago-area McDonald's. Sitting in one store after another, sipping his drink and watching hundreds of Chicagoans chomp their way through their little bag of fries, Wallerstein could see: People wanted more fries.

"How do you know that?" Kroc asked the next morning when Wallerstein presented his findings.

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"Because they're eating the entire bagful, Ray," Wallerstein said. "They even scrape and pinch around at the bottom of the bag for more and eat the salt!"

Kroc gave in. Within months receipts were up, customer counts were up, and franchisees — the often truculent heart and soul of the McDonald's success — were happier than ever.

Many franchisees wanted to take the concept even further, offering large-size versions of other menu items. At this sudden burst of entrepreneurism, however, McDonald's mid-level managers hesitated. Many of them viewed large-sizing as a form of "discounting," with all the negative connotations such a word evoked. In a business where "wholesome" and "dependable" were the primary PR watchwords, large-sizing could become a major image problem. Who knew what the franchisees, with their primal desires and shortcutting ways, would do next? No, large-sizing was something to be controlled tightly from Chicago, if it were to be considered at all.

Yet as McDonald's headquarters would soon find out, large-sizing was a new kind of marketing magic — a magic that could not so easily be put back into those crinkly little-size bags.

Max Cooper, a Birmingham franchisee, was not unfamiliar with marketing and magic; for most of his adult life he had been paid to conjure sales from little more than hot air and smoke. Brash, blunt-spoken, and witty, Cooper had acquired his talents while working as an old-fashioned public relations agent — the kind, as he liked to say, who "got you into the newspaper columns instead of trying to keep you out." In the 1950s with his partner, Al Golin, he had formed what later became Golin Harris, one of the world's more influential public relations firms. In the mid-1960s, first as a consultant and later as an executive, he had helped create many of McDonald's most successful early campaigns. He had been the prime mover in the launch of Ronald McDonald.

By the 1970s Cooper, tired of "selling for someone else," bought a couple of McDonald's franchises in Birmingham, moved his split-off ad agency there, and set up shop as an inde-

WHO GOT THE CALORIES INTO OUR BELLIES

pendent businessman. As he began expanding, he noticed what many other McDonald's operators were noticing: declining customer counts. Sitting around a table and kibitzing with a few like-minded associates one day in 1975, "we started talking about how we could build sales — how we could do it and be profitable," Cooper recalled in a recent interview. "And we realized we could do one of three things. We could cut costs, but there's a limit to that. We could cut prices, but that too has its limits. Then we could raise sales profitably — sales, after all, could be limitless when you think about it. We realized we could do that by taking the high-profit drink and fry and then packaging it with the low-profit burger. We realized that if you could get them to buy three items for what they perceived as less, you could substantially drive up the number of walk-ins. Sales would follow."

But trying to sell that to corporate headquarters was next to impossible. "We were maligned! Oh were we maligned," he recalls. "A 99-cent anything was heresy to them. They would come and say 'You're just cutting prices! What are we gonna look like to everybody else?'"

"No no no," Cooper would shoot back. "You have to think of the analogy to a fine French restaurant. You always pay less for a table d'hote meal than you pay for a la carte, don't you?"

"Yes, but-"

"Well, this is a table d'hote, dammit! You're getting more people to the table spending as much as they would before — and coming more often!"

Finally headquarters relented, although by now it hardly mattered. Cooper had by then begun his own rogue campaign. He was selling what the industry would later call "value meals" — the origin of what we now call supersizing. Using local radio, he advertised a "Big Mac and Company," a "Fish, Fry, Drink and Pie," a "4th of July Value Combo."

Sales, Cooper says, "went through the roof. Just like I told them they would."

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Selling more for less, of course, was hardly a revolutionary notion, yet in one sense it was, at least to the purveyors of restaurant food in post-Butzian America. Where their prewar counterparts sold individual meals, the profitability of which depended on such things as commodity prices and finicky leisure-time spending, the fast-food vendors of the early 1980s sold a product that obtained its profitability from a consumer who increasingly viewed their product as a necessity. Profitability came by maintaining the total average tab.

The problem with maintaining spending levels was inflation. By the early Reagan years, inflation — mainly through rising labor costs — had driven up the average fast-food tab, causing a decline in the average head count. To bring up the customer count by cutting prices was thus viewed as a grand and — despite the anecdotal successes of people like Wallerstein and Cooper — largely risky strategy. But one thing was different: Thanks to Butz, the baseline costs of meat, bread, sugar, and cheese were rising much more slowly. There was some "give" in the equation if you could somehow combine that slight advantage with increased customer traffic. But how to get them in the door?

In 1983 the Pepsi Corporation was looking for such a solution when it hired John Martin to run its ailing Taco Bell fast-food operation. A Harley-riding, Hawaiian shirt-wearing former Burger King executive, Martin arrived with few attachments to fast-food tradition. "Labor, schmabor!" he liked to say whenever someone sat across from him explaining why, for the millionth time, you couldn't get average restaurant payroll costs down.

But Martin quickly found out that, as Max Cooper had divined a decade before, traditional cost-cutting had its limits. If you focused on it too much, you were essentially playing a zero-sum game, cutting up the same pie over and over again. You weren't creating anything new. And all the while there were those customers — just waiting to chomp away if you could give them just a nudge to do so.

But did Americans really want to eat more tacos? "We had al-

WHO GOT THE CALORIES INTO OUR BELLIES

ways viewed ourselves as a kind of 'one-off' brand," Martin recalled in a recent interview. Tacos — or, for that matter, pizza — would always be the second choice to buying a burger. "That caused us to view ourselves as in a small pond — that the competition was other Mexican outlets."

Then Martin met a young marketing genius named Elliot Bloom. A student of the so-called "smart research" trend in Europe, which emphasized the placing of relative "weights" on consumer responses so as to understand what really mattered to a customer, Bloom had completely different ideas about the market for Mexican food. Almost immediately he began running studies on Taco Bell customers. What he found startled: Fast-food consumers were much more sophisticated and open to innovation than previously thought. In fact, they were bored with burgers. Martin loved the idea of competing with McDonald's, and immediately launched a $200 million national ad campaign, the centerpiece of which was a commercial depicting a man threatening to jump off a ledge if he had to eat another hamburger. The results of the campaign were mixed. Sales of some new products, most notably the taco salad, blossomed, but overall customer counts remained vexingly low.

Meantime, Bloom was still playing with consumer surveys, which now revealed something even more surprising: While almost 90 percent of fast-food buyers had already tried Taco Bell, the repeat visit rate of the average consumer was flat. "Reach" wasn't the problem. Frequency was. And when you started studying the customers who were coming back — the "heavy users" — price and value — not taste and presentation — were the key. "That was shocking," Martin recalls. "Value was the number-one issue for these guys — and there were a lot of them — 30 percent of our customers accounted for 70 percent of sales. For a lot of us, that was disturbing. Our whole culture was sort of 'out of the kitchen,' you know, the notion that taste, cleanliness, and presentation was the key. But that's not what this new kind of customer was about. His message was loud and clear: more for less. So the

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business question became — how do you create more of these guys?"

One way, of course, was to give them what they wanted. But that was discounting, Martin's financial people warned. "I argued with them. I said, 'Look, this isn't stupid discounting, this is a way to right-price the business after a decade of inflation.'"

Bloom suggested an unscientific test of the idea. Let's not make a lot of national noise about this, he said. Let's go someplace where we might get some clean data. There was, in fact, an ideal place to do so. It was Texas, which in the mid-1980s was suffering from one of the worst recessions the oil patch had seen for decades. "We went in and really cut prices and got a dramatic increase in business," Martin says. "We did not make money but it showed us the potential for upping the number of visits per store."

After Martin widened the test, Bloom reported something even better. "Everyone had thought that if we cut 25 percent off the average price of, say, a taco, that the average check size would drop," Martin says. "I never believed that — that satiety was satiety — and, in fact, I was right. Within seven days of initiating the test, the average check was right back to where it was before — it was just four instead of three items." In other words, the mere presence of more for less induced people to eat more.

To get the profit margins back up, Martin turned to what he knew best: cost-cutting. He fired whole swaths of middle managers, then looked at the stores themselves. In them he found what he called a "just plain weird thing, when you thought about it: 30 percent of the typical Taco Bell store was dining area, 70 percent was kitchen. What was that about?" Martin reversed the ratio, ripping out old-fashioned kitchens and sending the bulk of the cooking to off-site preparation centers.

With his margins back up enough to quell upper management fears, Martin took the value meal concept nationwide in 1988. The response was rapid, dramatic, and, ultimately for Taco Bell, transformative. Between 1988 and 1996 sales grew from $1.6 billion to $3.4 billion.

WHO GOT THE CALORIES INTO OUR BELLIES

And the value meal was spreading — to Burger King, to Wendy's, to Pizza Hut and Domino's and just about every player worth its salt except. . . David Wallerstein's McDonald's Corporation.

Not that McDonald's was hurting. Its aggressive advertising and marketing had by the late 1980s turned it into a global force unparalleled in the history of the restaurant business. It could, in a sense, afford to call its own tune. (Or at least deal with PR disasters, as was the case in the late 1980s, when the firm was under attack by nutritionists and public health advocates for its use of saturated fats.) But by 1990, Martin's Taco Bell value meals were taking their toll on McDonald's sales. Worse, McDonald's lack of a value meal had become a hot topic on Wall Street, where its stock was slumping. Analysts were restless. On December 17, 1990, one of them, a sharp-eyed fast-food specialist at Shearson Lehman named Carolyn Levy, gave an uncharacteristically frank interview to a reporter at Nation's Restaurant News. "McDonald's must bite the bullet," she said. "Some people I know in Texas told me it's cheaper to take their kids for a burger and fries at Chili's than to take them to McDonald's." In McDonald's board meetings, Wallerstein and his supporters used the bad press to good effect. Two weeks later the front page of the same newspaper read: "mcdonald's kicks off value menu blitz!"

Though it is difficult to gauge the exact impact of supersizing upon the appetite of the average consumer, there are clues about it in the now growing field of satiety — the science of understanding human satisfaction. A 2001 study by nutritional researchers at Penn State University, for example, sought to find out whether the presence of larger portions in themselves induced people to eat more. Men and women volunteers, all reporting the same level of hunger, were served lunch on four separate occasions. In each session, the size of the main entree was increased, from 500 to 625 to 750 and finally to 1000 grams. After four weeks, the pattern became clear: As portions increased, all par-

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ticipants ate increasingly larger amounts, despite their stable hunger levels. As the scholars wrote: "Subjects consumed approximately 30 percent more energy when served the largest as opposed to the smallest portion." They had documented exactly what John Martin had realized fifteen years earlier: that satiety is not satiety. Human hunger could be expanded by merely offering more and bigger options.

Certainly the best nutritional data suggest so as well. Between 1970 and 1994, the USDA reports, the amount of food available in the American food supply increased 15 percent — from 3300 to 3800 calories or by about 500 calories per person per day. During about the same period (1977-1995), average individual caloric intake increased by almost 200 calories, from 1876 calories a day to 2043 calories a day. One could argue which came first, the appetite or the bigger burger, but the calories — they were on the plate and in our mouths.

By the end of the century, supersizing — the ultimate expression of the value meal revolution — reigned. As of 1996 some 25 percent of the $97 billion spent on fast food came from items promoted on the basis of either larger size or extra portions. A serving of McDonald's french fries had ballooned from 200 calories (i960) to 320 calories (late 1970s) to 450 calories (mid-1990s) to 540 calories (late 1990s) to the present 610 calories. In fact, everything on the menu had exploded in size. What was once a 590-calorie McDonald's meal was now . . . 1550 calories. By 1999 heavy users — people who eat fast food more than twenty times a month and Martin's holy grail — accounted for $66 billion of the $110 billion spent on fast food. Twenty times a month is now McDonald's marketing goal for every fast-food eater. The average Joe or Jane thought nothing of buying Little Caesar's pizza "by the foot," of supersizing that lunchtime burger or supersuper-sizing an afternoon snack. Kids had come to see bigger everything — bigger sodas, bigger snacks, bigger candy, and even bigger doughnuts — as the norm; there was no such thing as a fixed, immutable size for anything, because anything could be made a lot bigger for just a tad more.