Fat land : how Americans became the fattest people in the world Page 3

  Only two days after the visit, DeCourcy and Hitam both received messages from Butz. To Hitam he wrote: "May I assure you again that we intend to remain competitive in the edible oil field . . . and that means access to our markets. . . . We are delighted with your plans for product diversification, market development, and market diversification. We feel your interest and our interest in this area are identical." To DeCourcy he wrote that "we are going to stand foursquare for the principles of freer trade."

  In other words, Poage be damned. Palm oil would be welcomed in America.

  Reading his letter and breathing a sigh of relief, DeCourcy couldn't help but chuckle. He had just witnessed a deal that could alter the course of a nation — one that had been pulled off by a quirky man from Purdue who could eat a smelly durian with the relish of a farm boy chomping down on the season's first ripe watermelon.

  Earl "Rusty" Butz, of course, would be remembered by most Americans not for his accomplishments in bringing down the cost of food, but rather for his one great vice: joke-telling. His

  FAT LAND

  most infamous — and last — official transgression took place in September 1976, when Butz was flying from the GOP convention in Kansas City to Los Angeles with a group of friends. It was late. The secretary was tired. Bored, he began telling jokes. Asked by John Dean why Republicans couldn't get more African Americans into their tent, Butz replied with an anecdote he'd heard from an old ward politician, something to the effect that all blacks really wanted was sex, loose shoes, and indoor plumbing. Dean published the remarks in an article he was writing for Rolling Stone. Gerald Ford, in a tight election campaign, castigated Butz. His own party stalwarts urged him to fire Butz. The president refused. The press picked up on the infighting and within a week, Earl Butz had resigned and returned to Purdue.

  By the early 1980s, however, Butz's true legacy was everywhere evident. There were no more shortages of meat or butter or sugar or coffee. Prices on just about every single commodity were down, as were the prices of foods made with such commodities. In what would prove to be one of the single most important changes to the nation's food supply, both Coke and Pepsi switched from a fifty-fifty blend of sugar and corn syrup to 100 percent high-fructose corn syrup. The move saved both companies 20 percent in sweetener costs, allowing them to boost portion sizes and still make substantial profits.

  Meat production worldwide soared as feed costs of soy meal and corn fell. That, in turn, spurred huge increases in the supply of soybean oil, a by-product, leading to even lower prices for that industrial fat. At the supermarket, calorie-dense convenience foods were thus becoming more and more affordable. High-fructose corn syrup made from the growing surpluses of U.S. corn had made it easier and less expensive to make frozen foods. TV dinners and boxed macaroni and cheese were downright cheap. At fast-food stands, portions were getting bigger. Fries were tasting better and better and getting cheaper and cheaper. (McDonald's, which at that time fried its potatoes in palm oil, had built its first Malaysian oil processing plant just months after Butz's

  WHERE THE CALORIES CAME FROM

  visit.) And the very presence of such alternatives as palm oil forced traditional fat suppliers like the soybean growers to lower their prices as well.

  In short, Butz had delivered everything the modern American consumer had wanted. A new plenitude of cheap, abundant, and tasty calories had arrived.

  It was time to eat.

  SUPERSIZE ME

  (Who Got the Calories into Our Bellies)

  If the wobbly economy of the 1970s had left consumers fulminating over high food prices and the forces that caused them, the same economy had driven David Waller-stein, a peripatetic director of the McDonald's Corporation, to rage against a force even more primal: cultural mores against gluttony. He hated the fifth deadly sin because it kept people from buying more hamburgers.

  Wallerstein had first waged war on the injunction against gluttony as a young executive in the theater business. At the staid Balaban Theaters chain in the early 1960s, Wallerstein had realized that the movie business was really a margin business; it wasn't the sale of low-markup movie tickets that generated profits but rather the sale of high-markup snacks like popcorn and Coke. To sell more of such items, he had, by the mid-1960s, tried about every trick in the conventional retailer's book: two-for-one specials, combo deals, matinee specials, etc. But at the end of any given day, as he tallied up his receipts, Wallerstein inevitably came up with about the same amount of profit.

  Thinking about it one night, he had a realization: People did not want to buy two boxes of popcorn no matter what. They

  WHO GOT THE CALORIES INTO OUR BELLIES

  didn't want to be seen eating two boxes of popcorn. It looked . . . piggish. So Wallerstein flipped the equation around: Perhaps he could get more people to spend just a little more on popcorn if he made the boxes bigger and increased the price only a little. The popcorn cost a pittance anyway, and he'd already paid for the salt and the seasoning and the counter help and the popping machine. So he put up signs advertising jumbo-size popcorn.

  The results after the first week were astounding. Not only were individual sales of popcorn increasing; with them rose individual sales of that other high-profit item, Coca-Cola.

  Later, at McDonald's in the mid-1970s, Wallerstein faced a similar problem: With consumers watching their pennies, restaurant customers were coming to the Golden Arches less and less frequently. Worse, when they did, they were "cherry-picking," buying only, say, a small Coke and a burger, or, worse, just a burger, which yielded razor-thin profit margins. How could he get people back to buying more fries? His popcorn experience certainly suggested one solution — sell them a jumbo-size bag of the crispy treats.

  Yet try as he may, Wallerstein could not convince Ray Kroc, McDonald's founder, to sign on to the idea. As recounted in interviews with his associates and in John F. Love's 1985 book, McDonald's: Behind the Arches, the exchange between the two men could be quite contentious on the issue. "If people want more fries," Kroc would say, "they can buy two bags."

  "But Ray," Wallerstein would say, "they don't want to eat two bags — they don't want to look like a glutton."

  To convince Kroc, Wallerstein decided to do his own survey of customer behavior, and began observing various Chicago-area McDonald's. Sitting in one store after another, sipping his drink and watching hundreds of Chicagoans chomp their way through their little bag of fries, Wallerstein could see: People wanted more fries.

  "How do you know that?" Kroc asked the next morning when Wallerstein presented his findings.

  FAT LAND

  "Because they're eating the entire bagful, Ray," Wallerstein said. "They even scrape and pinch around at the bottom of the bag for more and eat the salt!"

  Kroc gave in. Within months receipts were up, customer counts were up, and franchisees — the often truculent heart and soul of the McDonald's success — were happier than ever.

  Many franchisees wanted to take the concept even further, offering large-size versions of other menu items. At this sudden burst of entrepreneurism, however, McDonald's mid-level managers hesitated. Many of them viewed large-sizing as a form of "discounting," with all the negative connotations such a word evoked. In a business where "wholesome" and "dependable" were the primary PR watchwords, large-sizing could become a major image problem. Who knew what the franchisees, with their primal desires and shortcutting ways, would do next? No, large-sizing was something to be controlled tightly from Chicago, if it were to be considered at all.

  Yet as McDonald's headquarters would soon find out, large-sizing was a new kind of marketing magic — a magic that could not so easily be put back into those crinkly little-size bags.

  Max Cooper, a Birmingham franchisee, was not unfamiliar with marketing and magic; for most of his adult life he had been paid to conjure sales from little more than hot air and smoke. Brash, blunt-spoken, and witty, Cooper had acquired his talents while working as an old-fashioned public r
elations agent — the kind, as he liked to say, who "got you into the newspaper columns instead of trying to keep you out." In the 1950s with his partner, Al Golin, he had formed what later became Golin Harris, one of the world's more influential public relations firms. In the mid-1960s, first as a consultant and later as an executive, he had helped create many of McDonald's most successful early campaigns. He had been the prime mover in the launch of Ronald McDonald.

  By the 1970s Cooper, tired of "selling for someone else," bought a couple of McDonald's franchises in Birmingham, moved his split-off ad agency there, and set up shop as an inde-

  WHO GOT THE CALORIES INTO OUR BELLIES

  pendent businessman. As he began expanding, he noticed what many other McDonald's operators were noticing: declining customer counts. Sitting around a table and kibitzing with a few like-minded associates one day in 1975, "we started talking about how we could build sales — how we could do it and be profitable," Cooper recalled in a recent interview. "And we realized we could do one of three things. We could cut costs, but there's a limit to that. We could cut prices, but that too has its limits. Then we could raise sales profitably — sales, after all, could be limitless when you think about it. We realized we could do that by taking the high-profit drink and fry and then packaging it with the low-profit burger. We realized that if you could get them to buy three items for what they perceived as less, you could substantially drive up the number of walk-ins. Sales would follow."

  But trying to sell that to corporate headquarters was next to impossible. "We were maligned! Oh were we maligned," he recalls. "A 99-cent anything was heresy to them. They would come and say 'You're just cutting prices! What are we gonna look like to everybody else?'"

  "No no no," Cooper would shoot back. "You have to think of the analogy to a fine French restaurant. You always pay less for a table d'hote meal than you pay for a la carte, don't you?"

  "Yes, but-"

  "Well, this is a table d'hote, dammit! You're getting more people to the table spending as much as they would before — and coming more often!"

  Finally headquarters relented, although by now it hardly mattered. Cooper had by then begun his own rogue campaign. He was selling what the industry would later call "value meals" — the origin of what we now call supersizing. Using local radio, he advertised a "Big Mac and Company," a "Fish, Fry, Drink and Pie," a "4th of July Value Combo."

  Sales, Cooper says, "went through the roof. Just like I told them they would."

  FAT LAND

  Selling more for less, of course, was hardly a revolutionary notion, yet in one sense it was, at least to the purveyors of restaurant food in post-Butzian America. Where their prewar counterparts sold individual meals, the profitability of which depended on such things as commodity prices and finicky leisure-time spending, the fast-food vendors of the early 1980s sold a product that obtained its profitability from a consumer who increasingly viewed their product as a necessity. Profitability came by maintaining the total average tab.

  The problem with maintaining spending levels was inflation. By the early Reagan years, inflation — mainly through rising labor costs — had driven up the average fast-food tab, causing a decline in the average head count. To bring up the customer count by cutting prices was thus viewed as a grand and — despite the anecdotal successes of people like Wallerstein and Cooper — largely risky strategy. But one thing was different: Thanks to Butz, the baseline costs of meat, bread, sugar, and cheese were rising much more slowly. There was some "give" in the equation if you could somehow combine that slight advantage with increased customer traffic. But how to get them in the door?

  In 1983 the Pepsi Corporation was looking for such a solution when it hired John Martin to run its ailing Taco Bell fast-food operation. A Harley-riding, Hawaiian shirt-wearing former Burger King executive, Martin arrived with few attachments to fast-food tradition. "Labor, schmabor!" he liked to say whenever someone sat across from him explaining why, for the millionth time, you couldn't get average restaurant payroll costs down.

  But Martin quickly found out that, as Max Cooper had divined a decade before, traditional cost-cutting had its limits. If you focused on it too much, you were essentially playing a zero-sum game, cutting up the same pie over and over again. You weren't creating anything new. And all the while there were those customers — just waiting to chomp away if you could give them just a nudge to do so.

  But did Americans really want to eat more tacos? "We had al-

  WHO GOT THE CALORIES INTO OUR BELLIES

  ways viewed ourselves as a kind of 'one-off' brand," Martin recalled in a recent interview. Tacos — or, for that matter, pizza — would always be the second choice to buying a burger. "That caused us to view ourselves as in a small pond — that the competition was other Mexican outlets."

  Then Martin met a young marketing genius named Elliot Bloom. A student of the so-called "smart research" trend in Europe, which emphasized the placing of relative "weights" on consumer responses so as to understand what really mattered to a customer, Bloom had completely different ideas about the market for Mexican food. Almost immediately he began running studies on Taco Bell customers. What he found startled: Fast-food consumers were much more sophisticated and open to innovation than previously thought. In fact, they were bored with burgers. Martin loved the idea of competing with McDonald's, and immediately launched a $200 million national ad campaign, the centerpiece of which was a commercial depicting a man threatening to jump off a ledge if he had to eat another hamburger. The results of the campaign were mixed. Sales of some new products, most notably the taco salad, blossomed, but overall customer counts remained vexingly low.

  Meantime, Bloom was still playing with consumer surveys, which now revealed something even more surprising: While almost 90 percent of fast-food buyers had already tried Taco Bell, the repeat visit rate of the average consumer was flat. "Reach" wasn't the problem. Frequency was. And when you started studying the customers who were coming back — the "heavy users" — price and value — not taste and presentation — were the key. "That was shocking," Martin recalls. "Value was the number-one issue for these guys — and there were a lot of them — 30 percent of our customers accounted for 70 percent of sales. For a lot of us, that was disturbing. Our whole culture was sort of 'out of the kitchen,' you know, the notion that taste, cleanliness, and presentation was the key. But that's not what this new kind of customer was about. His message was loud and clear: more for less. So the

  FAT LAND

  business question became — how do you create more of these guys?"

  One way, of course, was to give them what they wanted. But that was discounting, Martin's financial people warned. "I argued with them. I said, 'Look, this isn't stupid discounting, this is a way to right-price the business after a decade of inflation.'"

  Bloom suggested an unscientific test of the idea. Let's not make a lot of national noise about this, he said. Let's go someplace where we might get some clean data. There was, in fact, an ideal place to do so. It was Texas, which in the mid-1980s was suffering from one of the worst recessions the oil patch had seen for decades. "We went in and really cut prices and got a dramatic increase in business," Martin says. "We did not make money but it showed us the potential for upping the number of visits per store."

  After Martin widened the test, Bloom reported something even better. "Everyone had thought that if we cut 25 percent off the average price of, say, a taco, that the average check size would drop," Martin says. "I never believed that — that satiety was satiety — and, in fact, I was right. Within seven days of initiating the test, the average check was right back to where it was before — it was just four instead of three items." In other words, the mere presence of more for less induced people to eat more.

  To get the profit margins back up, Martin turned to what he knew best: cost-cutting. He fired whole swaths of middle managers, then looked at the stores themselves. In them he found what he called a "just plain weird thing, when
you thought about it: 30 percent of the typical Taco Bell store was dining area, 70 percent was kitchen. What was that about?" Martin reversed the ratio, ripping out old-fashioned kitchens and sending the bulk of the cooking to off-site preparation centers.

  With his margins back up enough to quell upper management fears, Martin took the value meal concept nationwide in 1988. The response was rapid, dramatic, and, ultimately for Taco Bell, transformative. Between 1988 and 1996 sales grew from $1.6 billion to $3.4 billion.

  WHO GOT THE CALORIES INTO OUR BELLIES

  And the value meal was spreading — to Burger King, to Wendy's, to Pizza Hut and Domino's and just about every player worth its salt except. . . David Wallerstein's McDonald's Corporation.

  Not that McDonald's was hurting. Its aggressive advertising and marketing had by the late 1980s turned it into a global force unparalleled in the history of the restaurant business. It could, in a sense, afford to call its own tune. (Or at least deal with PR disasters, as was the case in the late 1980s, when the firm was under attack by nutritionists and public health advocates for its use of saturated fats.) But by 1990, Martin's Taco Bell value meals were taking their toll on McDonald's sales. Worse, McDonald's lack of a value meal had become a hot topic on Wall Street, where its stock was slumping. Analysts were restless. On December 17, 1990, one of them, a sharp-eyed fast-food specialist at Shearson Lehman named Carolyn Levy, gave an uncharacteristically frank interview to a reporter at Nation's Restaurant News. "McDonald's must bite the bullet," she said. "Some people I know in Texas told me it's cheaper to take their kids for a burger and fries at Chili's than to take them to McDonald's." In McDonald's board meetings, Wallerstein and his supporters used the bad press to good effect. Two weeks later the front page of the same newspaper read: "mcdonald's kicks off value menu blitz!"