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Happy Birthday, McDonald's!
The fast-food king is turning 50, but will customers still be "lovin' it" for another five decades?
April 15, 2005: 11:55 AM EDT
By Parija Bhatnagar, CNN/Money staff writer
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NEW YORK (CNN/Money) - The Golden Arches hit a golden milestone this week.

Hamburger house McDonald's (Research) turns 50 on Friday, which is odd in a way since it feels like the chain's been around much longer than that. Maybe the feeling has something to do with the company's meteoric growth.

Founder Ray Kroc took a hamburger stand and built it into a global business empire. But recently, McDonald's burger kingdom has battled against obesity lawsuits and the fast-spreading low-carb diet fad.

McDonald's is one of the most recognized consumer brands in the world. The company ranked seventh last year in brand consultant InterBrand's annual ranking of the top 100 global brands, up a notch from 2003. Coca-Cola (Research) held the top spot followed by Microsoft, IBM, General Electric, Intel and Disney.

"McDonald's is an American icon," said Charles Brymer, chairman and CEO of InterBrand. "At the same time, it's a ubiquitous part of the American as well as the global landscape."

From the time Kroc opened his first McDonald's restaurant on April 15, 1955 in Des Plaines, Ill. to today, Golden Arches have sprouted in more than 30,000 restaurants worldwide, in more than 119 countries.

Said Brymer, "You can't ignore the power of the brand. Just the other day I was with a four-year-old child who doesn't yet read. When he saw the arches he immediately said 'McDonald's.' It's not a stretch to say that McDonald's is woven into the fabric of society."

That may well be but the weave had been showing signs of strain.

The world's largest restaurant chain was struggling with sluggish sales, falling earnings and a stale menu. It didn't help that people were starting to sue McDonald's for making them fat either

"When a brand gets as big as McDonald's, it has to be very well managed," Brymer. "The company has to constantly update its product and its image if it wants to keep its place at the table."

Fighting for a place at the table

To management's credit, industry watchers say McDonald's has steered a well-orchestrated turnaround.

"We're beginning to see concrete evidence that McDonald's relationship with consumers is improving, and the rewards are filtering down to the bottom line," Morningstar analyst Carl Sibiliski wrote in a recent research note.

In February, the chain posted its 22nd consecutive month of sales growth at restaurants open at least a year. Shares of the Dow component have cooled slightly after running up 30 percent last year. Its profits last year jumped 55 percent from the previous fiscal year.

In addition to fresh salads and Happy Meals for adults, Mickey D's introduced Wi-Fi access for customers as well as a "contactless" payment option called MasterCard PayPass, which lets customers simply wave or tap the card to complete a quick transaction.

"As we celebrate this 50-year milestone, I'm proud to say that our U.S. business continues to be very strong," Ralph Alvarez, president of McDonald's North America, said in a statement emailed to CNN/Money.

"Although I never knew Ray Kroc, his vision and legacy lives within all of us," Alvarez said. "By focusing our full-time best efforts on operations excellence, we can keep Ray's vision alive for the next 50 years."

Earnings are expected to grow about 8 percent a year over the next few years. That's lower than the expected 13 percent annual growth rate for the overall restaurant industry.

But the stock price already reflects this. McDonald's trades at just 15.7 times 2005 earnings estimates, a discount to its restaurant stock peers.

Despite its recent success, analysts say McDonald's could be in danger of backsliding. Among the challenges it still faces: rapid CEO changes over the past year, stiff competition from other fast-food chains, tough sales comparisons, and exposure to more obesity-related lawsuits.

John Glass, analyst with CIBC World Markets, says the company has to keep its eye on the ball and stay committed to its current strategy.

"Instead of focusing on opening new stores, the company is investing on improving its existing stores," said Glass. "Second, McDonald's is doing a good job with product innovation and improving quality. It's a philosophical change whereby instead of selling burgers cheaply, it's now selling better menu items at a higher price and consumers are paying for it."

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