McDonald's Move May Make Healthy Business Sense

Jul 26, 2011

When McDonald's announced Tuesday that it would make the standard child's Happy Meal more healthful, company officials said they were responding to the desires of its customers. But the move also makes business sense, analysts say.

"This is good publicity and if you sell more happy meals, you're likely selling more Big Macs to the parents," said Peter Saleh, a restaurant analyst with Telsey Advisory Group in New York.

Sam Oches, an associate editor with QSR Magazine, a fast-food industry trade journal, said McDonald's won't say how many Happy Meals they sell, but they're rumored to account for about 10 percent of sales.

"They do more than $32 billion in sales every year, so Happy Meals are potentially a $3 billion chunk of that," Oches said. "That alone is more revenue than a lot of big restaurant chains."

For McDonald's, it's about holding on to a loyal customer base, one that has grown up being exposed to the golden arches.

"McDonald's has done great through the recession, they continue to grab market share and have had the cash to remodel their restaurants, while some of the other fast food restaurants have struggled to keep up," Saleh said.

But the competition hasn't been standing still. The National Restaurant Association launched a similar initiative for healthier kids' choices earlier this month, pre-empting McDonald's. Among those signing on to the "Kids LiveWell" campaign are Burger King, IHOP, Denny's, Cracker Barrel and Sizzler.

And somewhere out there is an apple supplier who is even happier than the kids.

"The sheer size of McDonald's supply chain is kind of nuts, really," said Oches.

"You've got 14,000 stores, serving apples in every Happy Meal," he said. "You do the math. It's huge."

To be sure, healthier options at McDonald's have long been there for the asking. A parent could request fruit or milk instead of a soft drink, but most opted for the traditional meal by default. The big change is that the new Happy Meal will automatically include a quarter cup of apple slices and about half as many French fries as before. Fat free milk (white or chocolate) replaces a soft drink. Upon request, parents can hold the fries and get twice as many apple slices instead.

The move also should help ease criticism the company long has faced. In a study released in November, the Rudd Center For Food Policy And Obesity at Yale University listed McDonald's most nutritious Happy Meal at only 30th on a list of the healthiest meal combinations. The study was critical of the fast food industry for its unhealthy kids' menus and for directing the power of its marketing at children.

"We found some pretty remarkable things," said Kelly Brownell, the center's director. "The average preschooler is subjected to 1,000 advertisements for fast food. No amount of education from school or from parents can compensate for that."

"It's a reasonable first step," Brownwell said of the changes.

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