As tastes shift, fast-food giants swallow hard

ED WHOLLY is the kind of man one might expect to eat a cheeseburger and fries with little hesitation, and without remorse.

Thick chested, with legs the size of young oak trees, Mr. Wholley (pronounced woolly) stokes his afternoon hunger by installing wooden pilings in and around Boston. He is a self-proclaimed "blue-collar guy."

During a recent lunch break, however, Wholley did not even consider filling up at a nearby McDonald's, but instead opted for a gourmet sandwich from a trendy bakery-cafe.

"I just can't accept the grease anymore," says Wholley, of Hulland, Mass.

Time was, consumers like Wholley would head to a fast-food joint at lunchtime as easily as night follows day. But after a half-century of devotion, many Americans, from brickyard roustabouts to suburban moms, appear weary of the routine.

It's not that consumers have lost their taste for good value and quick service. But tastes are shifting, with the mood captured in a TV advertisement in which a diner wants "anything that's not round and greasy."

That not-so-subtle dig at hamburger chains comes as McDonald's stock is already down 60 percent in three years. The golden archetype of reliable meals on the run has seen its same-store sales fall 2.5 percent globally in the second quarter. Revenues at rival Burger King are stagnant. Jack In The Box warns that same-store sales may drop 3 percent.

Experts credit the downturn largely to consumers' boredom with monotonous menus, as well as rise of health-conscious eating. The slow, steady shift in consumer sentiment, say observers, has left McDonald's and its peers with a mandate: Reform, or be deep fried.

A current effort to diversify menus by adding more-sophisticated items marks a significant turning point for the fast-food industry, which has built a food empire, and changed American culture, squarely on the back of burgers and fries.

Still, analysts are quick to affirm fast food's fundamentals. More consumers than ever, they say, are looking for someone else to cook a meal for them quickly and cheaply.

"The goal of eating in this country now is to have somebody else prepare the food," says Harry Balzer, vice president of the market-research firm NPD Group.

The dynasties of fast food were destined for a dramatic makeover, say experts, in an era in which the organic food business is growing by 20 percent each year.

A flurry of lawsuits claiming the fast food companies failed to pay overtime to employees and hastened the obesity of their customers have contributed to the industry's stigma as profit-hungry, careless, and unhealthy. On the run, McDonald's recently said it would sharply cut fat levels in its food.

"People are beginning to think twice about ordering a tub of Coke and trough of fries," says Dennis Reynolds, a professor of food management at Cornell University.

When consumers do choose fast food, a growing number are looking beyond beef and potatoes: Sales at KFC, Subway, and Taco Bell, for example, are all on the rise.

Wendy's, the only burger-centric chain to show a significant uptick in sales the past year, credits its success largely to newer items like pita-bread sandwiches and salads.

Other consumers are beginning to spurn fast-food altogether. "Fast casual" places like Baja Fresh and Panera Bread – with fresher food and upscale atmosphere – are the fastest-growing restaurant category. The burger behemoths view such premium services as models for reform.

Just last month, McDonald's unveiled a $1 billion renovation plan. It also plans to diversify its menu, permanently adding items like flatbread sandwiches and yogurt parfaits. And Burger King announced the largest new product launch in its history, including tacos and oven-baked potatoes.

"Americans are saying they're willing to pay a dollar more for a little ambience and a burger that isn't just a remnant of what a true burger should be," says Professor Reynolds.

The growing distaste for cheap eateries is a byproduct of a larger shift in habits. In the 1950s, consumers spent 25 percent of their food dollars on food prepared by others. They now spend 45 percent – a number some see rising 8 more points by the end of the decade.

And when they dine out, Americans expect more out of the experience.

For all its challenges, the fast-food industry has historically shown the ability to adapt.

From the late 19th century, when urban workers needed meals prepared quickly in order to work increasingly long hours, to the 1950s, when Americans required a source of nourishment amid the vast reaches of the national highway system, the model of cheap, quick, widely available food has endured. "It is deeply rooted in the American past," says Keith Sculle, coauthor of "Fast Food: Roadside Restaurants in the Automobile Age."

Indeed, over the long term, Americans have largely ignored their own complaints about the failings of fast food.

"When we did our first study in 1977, McDonald's was the No. 1 restaurant consumers went to. It was the same in 1987, and 1997," says Balzer. "Does anyone want to guess what it will be in 2007?"