Health fears eat into profits at McDonald's

The fast-food giant McDonald's is used to serving up super- size profits for its shareholders as well as bulging cartons of burgers and fries to a hungry public. But yesterday it was explaining away a significant decline in reported profits as it revealed its restaurants had been hit by a big drop in turnover last year.

The fast-food giant McDonald's is used to serving up super- size profits for its shareholders as well as bulging cartons of burgers and fries to a hungry public. But yesterday it was explaining away a significant decline in reported profits as it revealed its restaurants had been hit by a big drop in turnover last year.

The UK arm of the global chain, which owns two thirds of the 1,235 McDonald's restaurants across Britain, reported operating profits were down £61m on the previous year. However, the company insisted that across the UK group as a whole, which includes its lucrative property holdings, the figure was closer to a £5m fall. Profitability, it said, had been steadily falling since 2000.

The company blamed the decline in operating profits on financial restructuring and claimed that results were in line with expectations.

Turnover at the company's restaurants, excluding its 470 franchises for which details are not provided, was down £42m - 3.6 per cent - to £1.09bn in 2003.

Never before has the lustre of the Golden Arches appeared so dim. The company has enjoyed three decades of phenomenal growth since launching its first restaurant in Britain 30 years ago. But this latest bad news comes at a critical time for the burger empire as it is involved in a rearguard action to defend its menu against a barrage of criticism from health and nutrition campaigners as well as a raft of litigation in the courts.

Chief among its tormentors is Morgan Spurlock, a film director, whose attempt to exist on a pure diet of McDonald's for a month in the hit documentary Super Size Me saw him pile on 30lbs and suffer a falling sex drive. Meanwhile, the so-called McLibel Two have reopened the scars left by the longest trial in English legal history by taking their case to the European Court of Human Rights. The company is also braced for compensation claims from obese former customers who claim their health suffered by eating too many burgers.

McDonald's yesterday conceded it had faced two challenging years in Britain but insisted the future was bright. Last March, it announced the most significant change to its menu ever by introducing salads in all its restaurants and providing more nutritional information to an increasingly health conscious public.

The Salad Plus initiative has seen outlets offer fruit, yoghurts and mineral water alongside the more traditional menu of Big Macs and french fries.

McDonald's also recently signed a lucrative deal with the vegetarian brand Quorn, and will offer a vegetarian option to its three million customers a day. The company hopes this will boost sales by £40m a year. A new recipe for Chicken McNuggets has also been launched which reduces the salt content.

Amanda Pierce of McDonald's said this changing pattern was a similar to that seen in the United States and Australia, where efforts to lure people back into their outlets were proving successful.

The company is confident of continuing success and plans to open a further 22 restaurants in Britain this year and a 24 in 2005, she said. Industry analysts believe McDonald's' current problems are compounded by an explosion in choice in the proliferating fast food outlets in Britain's towns and cities. According to Sue Baic of the British Dietetic Association, we can now choose lunch from a range of specialised sushi, bagel and soup bars, all of which offer a healthier alternative to McDonald's. She welcomed the burger giant's attempts to change its menu but said there was still room for improvement. "The healthy options must be equally as attractive, available and affordable as the less healthy one," she said.

Ian Tokelove of the Food Commission said consumers had woken up to the choices available. "McDonald's have tried to convince us that they are making their food more healthy but their salads have been shown to have more fat than a burger when you take into account the dressing," he said.