Salads Days for Burger Joints


By Eric Wahlgren

SPECIAL REPORTEATING OUT IN AMERICA

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Like many Americans, Howard Richman has gotten the message that eating lots of fast food is unhealthy. "It's too fattening," says Richman, as he finishes a double cheeseburger and fries at a McDonald's (MCD) outlet in San Francisco's Mission District.

But the 35-year-old technical-support specialist, who describes himself as "a little overweight," still eats at McDonald's regularly. "It's cheap and convenient," he says with a shrug. Richman has, however, cut back on his visits to the Golden Arches. He goes once a week now instead of twice. "I'm trying to eat better," he says. But he may be in the minority.

Despite all the negative publicity about what fast food and fatty edibles in general do to their waistlines and health, Americans don't seem to be easing up on the greasy stuff much at all. The top three items ordered at restaurants in 2004? Burgers, french fries, and pizza, according to the NPD Group, a Port Washington (N.Y.)-based research outfit. "The truth is, we aren't eating any healthier," says Harry Balzer, an NPD Group vice-president. The fastest-growing food last year, in terms of restaurant sales, Balzer adds, was fried chicken.

CRUNCHY MAIN COURSE. Yet, before concluding that Americans have totally blown off the fat-is-bad message, here's some surprising news: Sales of salads and other healthier items are rising, too. The high-profile "fat lawsuits" that raised questions about the nutritional value of McDonald's food, along with the unflattering documentary Super Size Me, helped persuade Ronald McDonald and his peers to boost salads, fruit cups, and other lighter fare on their menus (see BW Online, 7/5/04, "McDonald's: Fries with That Salad?".)

Since McDonald's launched its new salad line two years ago, these offerings have jumped to about 8% or 9% of its sales from essentially nil in 2003, says Howard Penny, a restaurant analyst at Friedman Billings Ramsey in New York City. "They're now a big percent of their mix," Penny says.

Same goes for Wendy's (WEN) and other fast-food players that have all broadened their salad offerings, Penny adds. Nationally, main-course salads now account for 5.5% of all lunches ordered in U.S. restaurants vs. 4.1% in 2000, the NPD Group says. That's way off the 9% peak in 1989, when salad bars were all the rage, but at least the trend is going in the right direction.

MORE GREEN. At first glance, the two trends seem contradictory: Sales of fattier and healthier fare are rising at the same time. So, what's going on? Turns out that the move to lighten menus sparked by the growing concern about extra pounds -- one-third of Americans are obese -- has been a boon for fast-food restaurants. More women and health-conscious eaters are wandering into such outlets than in the past. "The companies have taken the fat lawsuits to their advantage," Penny says. "They've turned a negative into a positive."

Sales at the big burger chains like McDonald's have taken off again after the slow-growth doldrums of three years ago. And it doesn't hurt that folks are eating out more than ever before (see BW Online, 6/4/05, "That's Eatertainment!"). In 2005, Americans will spend 47% of their food budgets at restaurants, vs. 25% in 1955, according to the National Restaurant Assn.

Still, there's little doubt that "one of the pillars of McDonald's successful turnaround in the last two years has been the introduction of higher quality salads," says Dean Haskell, a director at JMP Securities in San Francisco.

UNCONCERNED ABOUT HEALTH. Fast-food outfits don't break out profit margins for individual items, but restaurant experts suspect the salads are probably big moneymakers. "The majority of a salad is lettuce, so they're more profitable than the burgers," says Linda Lipsky of Linda Lipsky Restaurant Consultants, based outside of Philadelphia. "It's not like they're using mesclun greens."

But the not-so-secret reality is: Salads sold by the fast-food biggies aren't really big calorie-savers at all. For instance, Wendy's Homestyle Chicken Strips salad totals out at 670 calories and 45 grams of fat, including the creamy ranch dressing. That's a lot richer than the chain's Big Bacon Classic burger that weighs in at 580 calories and 29 grams of fat.

And in the end, that's probably just fine with a lot of consumers. A strong segment of the market -- much of it composed of the 18-to-34-year-old males who are the fast-food chains' most loyal customers -- doesn't give a hoot about eating healthy, says Dennis Milton, a restaurant analyst at Standard & Poor's in New York City. "There may also be a little bit of a backlash," says Milton. "People who don't care don't want to be constantly told about healthy food."

INDULGING ANYWAY. Backlash indeed. Doughnut-maker Krispy Kreme (KKD) saw its sales rise 35% in 2004, and that was well after everyone heard from Dr. Robert C. Atkins that carbs were practically carcinogenic. Meantime, Weight Watchers (WTW) said attendance was down again in North America in the first quarter of 2005 after declines in 2004.

Could it be that people are sick of all the pressure to be thin? As if a balm to starving stomachs, the Centers for Disease Control released a study in April suggesting that a little extra heft may actually increase longevity. But confusing the matter, the CDC held a press conference on June 2 that seemed to back away from the April study's findings. The latest word from the nation's top doctors: "It is not O.K. to be overweight."

It's unclear what effect these messages might have on diners' habits. More than 80% of Americans say they're concerned about their fat intake, according to a recent survey by Technomic, a Chicago-based restaurant consultancy. But many aren't ready to stop pigging out, at least not when they're at a restaurant. Only 6% of those surveyed suggested that they didn't want restaurants to have indulgent offerings.

HEDGING THEIR BETS. In the meantime, fast-food chains are cooking up splurge food that sets new extremes in decadence. The Monster Thickburger sold by CKE Enterprises' (CKR) Hardee's and Carl's Jr. comes loaded with 1,420 calories and 107 grams of fat, nearly twice the Food & Drug Administration's recommended daily fat allowance. McDonald's introduced its diet-busting McGriddle sandwich, and Burger King has answered with its Enormous Omelet Sandwich. Critics call this type of fare "food porn," but Americans call it delicious and are gobbling it up.

"Customers are much more concerned about eating healthy at home than when they go out to eat," says Ron Paul, Technomic's president. "Consumers are trying to do better, but when you have 365 days a year, it's not always easy."

Mindful of Americans' conflicted eating habits, restaurants are tossing up more salads, just as they fry up more horrifically fattening concoctions. They're hedging their bets, and profiting while they're at it.

Coming Monday: Burger flippers go upscale Wahlgren is a writer for BusinessWeek Online in San Francisco


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