McDonald's says it's holding line on prices, making menu healthier

Oak Brook-based McDonald's Corp. said Thursday that it's expanding its menu with healthier foods, holding down prices for money-conscious consumers and planning even more restaurants to choose from here and abroad.

Addressing roughly 550 shareholders at the company's Oak Brook campus, Chief Executive Officer Jim Skinner said the company, long criticized for artery-clogging foods, has completed its roll-out of transfat-free French fries, hash browns, chicken and Filet-O-Fish sandwiches. The restaurants in the United States and Canada are using canola, corn and soy-blend oils.

Skinner said the baked items, including pies and cookies, should be converted to transfat-free oils later this year.

"One thing for certain: the public likes to eat out, and there are plenty of healthy dining options available from quick-service restaurants and fine dining establishments," said Sheila O'Grady, president of the Illinois Restaurant Association. "McDonald's use of transfat-free oil is one of the examples of the industry being responsive to the dining public."

While McDonald's conversion continues, it will retain its popular $1 menu in about 90 percent of its restaurants, despite rising costs for the company, said Ralph Alvarez, chief operating officer.

The $1 menu was introduced in 2002 and now makes up 14 percent of sales, he said.

Some areas of high-cost cities, like downtown Chicago, don't have the $1 menu but slightly higher offerings instead.

"We've seen our commodity costs rising faster now than in the last dozen years," Alvarez said, "… but we cannot pass all our costs in the supply chain and costs related to growth onto the consumer."

McDonald's likely will find ways to provide high-quality foods and offer more new drinks, which have greater margins for profit. Frappes and smoothies will be rolling out soon.

Alvarez told reporters later he wasn't worried about the higher price of gasoline and its effect on consumers, because McDonald's restaurants are close to the neighborhoods they serve.

"We have about 14,000 locations around the United States, and we're very close to our customers," he said. "And that's our core -- and this provides us with some insulation."

Another form of "insulation" is nearly $5 billion in cash from operations. McDonald's plans to use about $2 billion for new restaurant openings and reinvestments, such as remodeling some restaurants and other opportunities in the beverage business in the United States.

In addition, the fast-food restaurant chain remains committed to sponsoring the Olympics in Beijing, China, despite political protests worldwide.

"We operate in a completely transparent world," Skinner said. "The actions we take -- no matter where -- are analyzed, reported on, and judged by millions. For McDonald's, every day is judgment day."

Some shareholders expressed concern that worldwide protests about China would hamper McDonald's profits, since it's been a sponsor for about 40 years.

"We're proud to provide our support to the Olympics and intend to support the spirit of the games and the development of the athletes," said Skinner. "We've even fed the Olympics athletes on site. This is a political issue around the games, and should be handled by the government."

Other news from the meeting:

• McDonald's plans to open about 1,000 new restaurants worldwide, including China and Russia. However, the United States likely will see about 200 to 300 more. Growing Chicago-area suburbs could see 10 new restaurants.

• Angus beef burgers are still being test-marketed in New York and Columbus, Ohio, and some locations in Southern California. McDonald's Canada just launched its Angus menu.

• When the new animated film "Kung Fu Panda" reaches theaters on June 6, McDonald's will roll out its corresponding Happy Meals with character toys inside. Other Happy Meal promotions coming up include "Madagascar II" and the newest "Star Wars" epic. To date, "Shrek"-related toys have been the most popular.

• And speaking of Happy Meals, a retiree shareholder suggested that Skinner consider offering a Doggie Happy Meal, since so many cars rolling through the drive-throughs have dogs.

"My marketing people are here, and I know they heard that," said Skinner. "Sounds like an opportunity."