A trail of red and yellow balloons leads guests down a spiral staircase into the basement of a suburban Toronto hotel. A meeting room lays chockablock with red leather couches, cubist white ottomans and chrome bar stools, the growing crowd picking away at tables filled with yogurt parfaits, salads and tiny bags of apple slices. “Like a Virgin” plays on a far-too-loud sound system; red and yellow roses sprout from vases adorned with the Golden Arches. This is how McDonald’s throws a party for some of its most-valued customers: moms.
It’s lunchtime at BlissDom, a convention in Mississauga, Ont., last October for “mommy bloggers”: women (and, indeed, a few men) who run websites devoted to parenting. This mama-palooza offers a chance for McDonald’s to both seduce and interrogate. There is a new product line to promote—McWraps, offering both grown-up ingredients (feta! hummus! cucumbers!) and innovative packaging that prevents sweet chili sauce from dripping on your shoes. But McDonald’s isn’t just hustling a new menu item. It’s looking for a progress report on a half-decade, billion-dollar turnaround plan. Sunny representatives circle the room, inviting attendees into the hallway, where they are wired for sound, positioned in front of a video camera and gently questioned: Do you eat at McDonald’s? What do you like? What would you change?
“I definitely take my kids there,” says Christella Morris, who writes a blog called Crawl the Line. “I think that sometimes McDonald’s gets a bad name.”
Others offer up conditional praise (“The main pull for us is the playground”), criticism (“There’s a shortfall in the food quality”), and baffling requests (“Can you cater my wedding?”). But if McDonald’s executives are looking for validation, it comes not from the diehard fans—which are rare—but the recent converts. “It’s perfect for my family that’s always on the go to hockey or whatever,” one mother tells the camera. “My overall opinion of McDonald’s has come around. It’s relatively new that I take my kids there.”
Changing people’s minds about a 66-year-old brand is a minor miracle. But John Betts has made it his mission at McDonald’s Canada. When he became CEO in 2008, the company was at a nadir. The 2002 book Fast Food Nation and the 2004 film Super Size Me had battered, then fried, the chain’s reputation. Stuck in a price war with its competitors and accused of failing to evolve its menu, the global company announced a $344-million loss for the final quarter of 2002, the first in its history. (A second followed in 2007.) In Canada, the situation was equally dispiriting, with Tim Hortons overtaking McDonald’s as the largest quick-service chain in the country in 2002. When Betts arrived, the company’s market share sat at 14.9%, the lowest in its history and efforts to modernize the Canadian operation had only lodged it deeper in the grease trap. Its plan to entice more sophisticated palates with “toasted deli sandwiches” proved so foolhardy that in 2007 McDonald’s was forced to write off $16 million in related assets. As Tim Hortons continued its expansion spree, McDonald’s brought its growth to a halt. Between 2008 and 2012, the company opened so few restaurants, Grimace could practically count them on one hand. McDonald’s, Betts readily admits, had a crisis on its hands.
To reconstruct the Arches, Betts needed to combat a litany of deeply entrenched notions: that the coffee was crummy, the fluorescent lighting and neon decor was abhorrent and the food was loaded with salt, sphincters, beaks and pink slime. Everyone believed that was the McDonald’s dining experience because everyone had eaten at McDonald’s—not recently, not often and never without the benefit of a kid, road trip or a hangover to justify the visit. Betts hatched a made-in-Canada reconstruction plan, stealing and then honing ideas from around the global chain. This strategy was simple: to earn back our trust, the company needed to give honest answers to some tough questions. A decent cup of java wouldn’t hurt either. After all, it was time to talk to the grown-ups for a change.
John Betts is holding a cup of coffee. John Betts is always holding a cup of coffee. He wields a medium-sized takeout cup like a preacher does a Bible, brandishing it during on-camera interviews and using it to punctuate conversations with his staff. If it is a prop—and not just evidence of a raging caffeine addiction—it’s an apt one, a symbol of Betts’s big plan, built on a few common-sense ideas. At this particular moment the cup dangles at his side as he chats with students at Ryerson University’s business school. He’s just finished a speech on his two favourite subjects: what McDonald’s did wrong, and how they fixed it. “If we go back a decade, we were not in the strong position we are in today,” Betts explains. “We were launching too many new products—like toasted deli sandwiches and pizza—remember those? We made decisions that reflected our own needs and cost controls and efficiencies: things like Happy Meal bags instead of boxes. What kid wants to play with a bag?”
Betts’s candour is typical not only of him but his entire team. There is nothing cynical about the inhabitants of McWorld—the internal nickname for McDonald’s corporate culture—or their devotion to their brand. Despite what Super Size Me told us, these are not people keen to make easy cash from childhood obesity. They believe in their products, acknowledge a daily Big Mac habit might be unhealthy and fess up to past mistakes.
“We just weren’t listening to our customers,” Betts tells the assembled students, many juggling McCafé cups with their notebooks. “Keeping an established brand refreshed is always a challenging task, but it’s achievable when you stay relevant to customers and connect with them in meaningful ways.”
The most meaningful way to connect with diners in this country? Coffee. On any given day, almost half the population visits a restaurant, according to the NPD Group, a market research firm. The No. 1 item is coffee, with two billion cups consumed every year. Yet McDonald’s share of the market was “tiny” before Betts arrived, according to Robert Carter, NPD’s executive director of food service. “What McDonald’s did was make a strategic decision to focus on that core item,” says Carter. “It was a way to really connect—it gave Canadians a reason to visit.”
There was a big wrinkle, of course: the coffee at McDonald’s sucked (or at least Canadians thought so). Fortunately, Betts had a solution for that particular problem. He’d spent more than four decades in the company, going from part-time line cook in Southhampton, N.Y., to senior vice-president of global operations. In 2003, while running the chain’s Michigan operations, he responded to growing competition with better coffee, along with precision milk and sugar dispensers for staff, which meant drivers no longer had to wrestle with sugar packets and creamers in their cars. He even hired the world-famous Wallendas to drink the improved coffee on a tightrope strung over the streets of Detroit. Importing that success to Canada required a mixture of product development and marketing prowess. Mother Parker, the company’s coffee supplier, not only developed a new blend but worked with McDonald’s to ensure front-line employees knew how to brew it. McDonald’s developed a nifty double-walled coffee cup and a lid that could easily be opened in the car.
But McDonald’s still needed to entice people into trying its sexy new brew. “We needed to do something bold to disrupt the market and get people talking—and nothing works like free,” says Betts. Since April 2009, the company has given away 113 million cups of coffee, tripling its coffee sales in the process. It now controls 11% of the brewed-coffee business in Canada, still puny in comparison to the 77% held by Tim Hortons, but outpacing the industry as a whole.
Slinging more brewed coffee expanded McDonald’s reach into a different segment of the fast-food sector. The chain now competes against “coffee-doughnut” players as well, says NPD’s Carter, particularly with the launch of espresso-based beverages and pastries under the McCafé brand. In other words, McDonald’s no longer just competes with Wendy’s and Burger King, it increasingly goes toe-to-toe with Tim Hortons. That’s a fight where McDonald’s is David, not Goliath. “When you compete against Tims, it’s so well entrenched, you’ve got to improve what you’re doing, because Tims is a dynamite competitor,” says Jack Russo, an analyst with Edward Jones. Perhaps the most important aspect of McDonald’s caffeinated success is proving the skeptics wrong. That creates the possibility that they’re wrong about other long-held notions as well.
On a warm June day in Montreal, the super-sized Palais des congrès convention centre offers all the resources needed for a successful McD’s franchise: chicken suppliers, software makers, stale grease disposal companies and even a truncated indoor playground. But should any of the 1,900 employees and franchise owners in attendance at the McDonald’s Canada Convention 2013 get a hankering for a Quarter Pounder, they’d have to leave the building: today’s lunch is limited to catered sandwiches and pasta salad.
“If we can’t do it to the highest quality, we don’t,” explains a company executive, noting the difficulty of keeping so much food fresh for the throng. (The quality of McDonald’s food might offer an easy punchline to comedians, but the inhabitants of McWorld treat it very seriously.) As such, the only McDonald’s menu items available are experimental—baked goods being tested as possible extensions to the McCafé line. Conventioneers queue for tapas-sized servings of dulce de leche pound cake, chocolate croissants, two-kinds of cheese danish and a raspberry-swirl cheesecake. Like so much on the Canadian menu, the inspiration for many of these prototypes come from elsewhere. “Europeans will eat bread with just jam or butter,” explains Anne Parks, McDonald’s’ director of menu management. “For Canadians, that becomes a cinnamon raisin stick.” (Those are on offer, too.) Parks imports ideas from across the McGlobe and then tunes them to the Canadian palate.
Thus, when Canada brought McWraps over from Europe last spring, there were changes—the sweet chili sauce was made spicier, and tortilla chips were added to the Fiesta wrap because Canadians apparently appreciate multiple textures in a single bite. While U.S. customers tended toward sickly sweet flavours like chocolate and caramel for their iced frappés, Canadians were more inclined to vanilla chai tea and coffee. (At the time of the convention, a matcha green tea frappé was close to market-testing.)
Customers who would balk at ordering a McPastry five years ago will now consider it, thanks in part to the coffee. “It just made people say, ‘Maybe their other food products are emulating this change to quality as well,’” explains Carter of NPD. “Once you get that trial, the goal is to convert people into regular customers through new menu offerings. And McDonald’s has done that.”
But unrelenting novelty is a fraught strategy. Only 30% of diners will ever try a new offering at a restaurant, according to research conducted by NPD in the States. There are also logistical challenges with adding new menu items—like fitting them into a carefully calibrated kitchen without adding clutter or slowing things down. McDonald’s Canada committed $1 billion to renovate its existing restaurants in 2011. The promise of flat screen TVs and leather furniture garnered the most attention, but it was the kitchen renovation that has made spiralling menu options possible. The new kitchen also allows the burger purveyor to customize orders more easily—on the morning Canadian Business spoke with Richard Ellis, senior vice-president of McDonald’s Canada, his order consisted of an Egg McMuffin “hold the margarine, hold the meat.” Every one of the new McWraps, for instance, is made to order, sliding along a heated counter designed to keep food from losing heat as it’s prepared. “We couldn’t have done this before. So we had to fix the engine,” Betts says.
Since the renovations, the chain has churned out new products at a speed that astonishes observers. “If you look at innovative companies like the Googles and the Apples, their products are always game-changers in the market. In the food industry, it’s safe to say that McDonald’s is leading the charge on innovation,” says Carter. “And they keep doing it month after month. They just keep pumping out new products and creating buzz.”
Yet Betts argues that the company is ever mindful of its high profile failures—he mentions the pizza fiasco of the early ’90s more than anyone—and says they’ll only launch a product if they’re certain. “There’s parts of the world where there’s a fried chicken product on the [McDonald’s] menu because the consumers want it. For us in Canada, it’s not on the radar anywhere.” In fact, the U.S. chain revealed in December that it had 10 million pounds of chicken wings it simply couldn’t sell, saying they were too expensive and too spicy for its customers. McDonald’s Canada hasn’t suffered the same flops. When it introduced two vegetarian wraps last summer—Sante Fe and Mediterranean—the initial plan was to retire the less popular variation in favour of another option. Both proved so popular, they stayed on the menu. That’s not to say plenty of products don’t make it out of the laboratory. Of eight new treats previewed for McDonald’s employees in Montreal, only three—the chocolate croissant and fruit danishes—have made it to restaurants. In fast food, slow and steady is sometimes the best strategy.
Headquarters for McDonald’s Canada is a brown, seven-storey building just off Toronto’s Don Valley Parkway. It has a McCafé as well as Golden Arches. There is also a man-sized coffee cup at its entrance. On a windy, rainy day in mid-September, 40 dieticians make their way past the giant Muskoka chair in the building’s lobby (there’s another large cup of coffee on its armrest) and into the small McDonald’s restaurant that serves as the building’s cafeteria. The health-care professionals have been invited to meet with McDonald’s executives as part of a year-long Listening Tour. As they wait on their lunch orders—there is much suspicious fiddling with the McWrap packaging—the group is encouraged to scrawl suggestions on chalkboards attached to one wall:
“Smaller portion sizes,” writes one woman. “Why can’t ‘snack size’ be the norm?”
“Carrot sticks and celery as an option over fries.”
“Add baked fish instead of fried fish.”
McDonald’s director of global nutrition, Julia Braun, has flown in from head office in Illinois to participate in the session, but the real point is to let the dietitians speak—and perhaps prove none of the executives have cloven hooves. For the past two years, McDonald’s Canada has engaged in a campaign of aggressive honesty and occasionally gruesome transparency. It started with “All-Access Moms,” where four mommy bloggers were given backstage access to the company’s test kitchens and suppliers, reporting back on what they saw. Communications honcho Ellis had seen a variation called “Moms Quality Correspondents” while working in the U.S., but the idea originated with Germany’s “Quality Scouts.” Interacting with the moms, who became favourites of Betts, provided a catalyst for transparency.
“The aha moment was that being open and honest propelled our brand,” explains Ellis, “because when people feel good about a brand, they frequent it more often, their average cheque goes up and they tell two friends, who tell two friends, who bring their kids. That’s what comes with brand trust.”
All-Access Moms proved to be a pilot project for “Our Food, Your Questions,” a social media and advertising campaign started in June 2012. Inspired by a website run by McDonald’s U.K. called “Ask Us Anything,” the company committed to answering any query about how its food is prepared. The Canadian version fielded 6,000 questions in its first four months (the number now stands at 20,000). Several early video answers became online phenomena: director of marketing Hope Baggozi’s guided tour of a photo shoot to explain why the food looks better in the ads has been viewed 9.7 million times since being posted on YouTube two years ago.
The campaign proved so popular, many assumed the program was a worldwide initiative, not a Canadian product gone viral. While its use of social media and YouTube made it decidedly a campaign born of the moment, it also served to settle long-standing urban myths. “After 44 years into the business, the No. 1 question I get is ‘Is it 100% beef?’” says Betts. “And yes, it is absolutely. But I get that question whether it’s in a classroom or sitting beside someone on an airplane. And we get it quite a bit on that site. And we can now show the answer and address it more readily than in any other vehicle we’ve had.”
The campaign returned this year on Canadian stations during the Super Bowl under the modified moniker “Our Chicken, Your Questions.” One video shows a “deboning stakeholder” from Cargill, their chicken supplier, separating a bird into pieces to demonstrate which components are used in McDonald’s’ products (breast meat, tenders, thighs and a bit of skin as a binder) and those that aren’t (wings, legs and everything else).
It may be gruesome, but that’s the only way a big company can convince its customers that it’s actually being transparent, says Scott Stratten, the president of Un-Marketing and the author of the upcoming book UnSelling. “You can’t go half-transparent. If you only show some of it, you’re leaving room for your loudest and angriest critics to say, ‘Yeah, but they didn’t show this, this or this.’ You might as well go all the way.’”
As they continued on their headlong march into transparency, McDonald’s Canada conceived of the Listening Tour, based on town halls held by the company’s former U.S. president Jan Fields, to build relationships with key, sometimes antagonistic, constituencies.
Being open and forthcoming, however, sometimes involves saying impolitic things. While the dietitians today are keen for healthier options for kids, the stark truth is only 1% of Happy Meals are ordered with milk and 4% with apple slices rather than french fries (this, despite the fact that advertisements only feature the milk-and-apples option). But there are areas of surprising agreement. One dietician agrees with the company’s reluctance to post calorie data on its menu boards: “If you tell some of my clients that there are x-number of calories in a Big Mac, they just translate that into the number of minutes they need to exercise to work it off.”
Called Behind the Golden Arches, the final report on the listening tour, obtained by Canadian Business, is as much a commitment to keep going as it is a summary of what’s happened so far. Keeping constantly engaged with all constituencies is a wise decision, says Stratten. “The power of word-of-mouth is so strong now, with Facebook and Instagram, that you can’t outspend a rumour. No matter how often you air a commercial on NBC, it can’t out-viral the outlandish claims. So McDonald’s needed something that was equally worth talking about, and that was transparency.” A little honesty goes a long way to get people talking about McDonald’s again.
The McDonald’s Canada booth at Toronto’s Royal Winter Fair is positioned between the Dietitians of Canada and the Ontario Ginseng Innovation Research Consortium, not far from the petting zoo and within sight of some prize-winning 4-H Club wheat sheaves. Manning the booth is David Ford, who normally leads the “Our Food, Your Questions” response team. Handing out apple slices—made from 100% Canadian Empire apples, he says again and again—Ford also prods passersby into asking him questions. Even when a question is novel (“Why do we need to wear socks on your play equipment?”), there’s a fast answer (“Because we don’t know where your feet have been”). The borderline hokey display—with its rows of apples, potatoes and onions, not a burger to be seen—is a useful symbol of McDonald’s new image. Ford demands to be engaged with, then responds with honesty, humour…and apple slices. By peddling better quality and less guff, McDonald’s Canada has thrived. In 2013, the company posted system-wide sales of $3.83 billion, up nearly $200 million from the previous year. It has also seen double-digit growth in breakfast sales for five years in a row; guests visiting its restaurants have grown steadily over 27 consecutive quarters; and U.S. executives have been visiting to see how it’s done.
After years of holding steady at roughly 1,400 restaurants across Canada, Betts has recently started talking about planting new Arches across the country. “There’s no question that we’ll be growing in a much more significant way,” he says. “We’ve earned the right to, because we’ve fixed the fundamentals.” The trick now, as McDonald’s adds stores and products to its lineup, is to keep talking.