For decades, quick service restaurants made no pretense to offering anything other than an easy way for diners on a budget to consume dense calories. Get in, get full and get out for little money. But with the nation's collective body mass index ascending ever higher and public pressure coming to bear, fast food chains started expanding and refining their menus. Has that strategy had a noticeable impact on profits?

Fast Food Is Profitable on the Street
When cornered, most people won't admit to eating fast food. Doing so sounds somewhere between gauche and juvenile. But someone must be spending that $170 billion annually, and thus placing McDonald's Corporation, Yum! Brands (parent of Taco Bell, KFC and Pizza Hut, among others) and their competitors among Wall Street's most profitable companies.

Few will argue that fast food's primary selling point is nutrition. Rather, fast food's popularity somewhat obviously derives from its convenience. Even price is far less of a criterion for consuming fast food than is the length of time that elapses between craving and satiation. (If you really do want to save money, instead of eating lunch at Taco Bell, cook it yourself.)

Adapt or Die
Adapt or die is the first rule of the marketplace and, presumably, the worse off a company is, the more likely it is to embrace change. Take Burger King, the formerly longstanding runner-up burger chain, but which in recent quarters has slipped to the bronze medal position behind Wendy's.

SEE: 7 Reasons Wendy's Surpassed Burger King

In April Burger King drastically overhauled and enhanced its menu, adding items not heretofore classified as fast food. Tropical mango smoothies and Quaker oatmeal are outliers for Burger King, the kinds of things someone eats on their way to and from the gym. Nor do blended fruit drinks and hot cereal warrant apologies or justifications to passersby, even when sold in Burger King packaging. It's part of a slow but relentless shift in branding, as fast food restaurants disassociate themselves from being perceived as nothing more than catalysts of general-purpose weight gain.

Legal Concerns
One objective of that strategy is to quiet the catcalls from advocacy groups. But that will always be less important than focusing on the bottom line. As the perennial market leader, McDonald's received more than its share of brickbats for its then-limited menu a decade ago. The Dow Jones stalwart responded by becoming the most prominent chain to offer salads, fruit and yogurt parfaits and even apple slices. Wendy's recently followed suit, and today apple slices seem to be the definitive "healthy option" for the fast food chain looking to distance itself from the long-held connotation of dealing in grease and other lipids.

For Profits or for PR?
So does revamping the menu make a difference? That is, beyond any public relations value? Well, for Burger King it's clearly too early to tell. McDonald's doesn't disclose per-item revenue and profit data, but it's fair to assume that the innovative non-traditional menu selections at McDonald's aren't there purely as loss leaders.

A company spokeswoman gives it a positive spin: "We would not have (smoothies, oatmeal, et al.) on the menu if we were not selling them at a rate that we could sustain them at." In other words, it (probably) isn't costing McDonald's anything to keep such items available. At best, they're there for the benefit of the niche customers, not the clientèle at large.

Other POVs
Perhaps the frankest breakdown of fried versus fresh comes from Andy Puzder, the CEO of Carl Karcher Enterprises. His company is the parent of twin burger chains Carl's Jr. and Hardee's, the latter of which sells the infamous 10 one-third ounce, 1,290 calorie Thickburger. Hardee's does also sell a side salad slathered with cheese, which makes Mr. Puzder's comment particularly noteworthy: "We have wonderful, healthy foods if people want to buy them. But they don't sell particularly well."'

Profit Margins Are Increasing
They might not sell well, but as larger chains have proven they don't need to. Fruit smoothies might not be biggest sellers at McDonald's, but the smoothies have some of the highest profit margins on the menu. This isn't surprising, given that a fruit smoothie has fewer ingredients than a hamburger, takes fewer steps to create and doesn't require anyone to cook it. All told, the newer, less fattening menu items at McDonald's provided much of the impetus for a 7% boost in profits over the most recent quarter. (That figure excludes sales from new locations, thus keeping numbers normalized year-over-year.)

SEE: How To Analyze Restaurant Stocks

The Bottom Line
A change in response to market demand almost always results in a better product (and by definition, a more popular one.) When former Kentucky Fried Chicken franchisee Dave Thomas founded Wendy's in 1969, it's doubtful that apple pecan chicken salads were the first things on his mind. Today, it's hard to imagine a major chain not offering low-fat, nutritionally sound choices to discriminating customers. For the fast food industry's market leaders, "healthifying" the menu across the board seems to make prudent business sense, too.

Related Articles
  1. Budgeting

    Just the Right Book Review: Is It Worth It?

    Take an in-depth look at Just the Right Book, a subscription service that delivers personalized book selections based on your reading history and preferences.
  2. Entrepreneurship

    ‘Happy Birthday to You’ Belongs to Everyone Now

    A class action lawsuit over the copyright to the iconic American song “Happy Birthday to You” ends by placing the ubiquitous ditty in the public domain.
  3. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  4. Budgeting

    The Honest Company Bundles Review: Are They Worth It?

    Learn more about The Honest Company and its bundle subscription services, which deliver discounted diapers, formula and other baby products to your doorstep.
  5. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  6. Investing

    Don't Freak Out Over Black Swans; Be Prepared

    Could 2016 be a big year for black swans? Who knows? Here's what black swans are, how they can devastate the unprepared, and how the prepared can emerge unscathed.
  7. Economics

    The Oscars and Golden Globes: Worth Their Weight In Gold!

    The Oscars and Golden Globes set off a wave of spending that creates new flows of funds in the economy and has major financial impact.
  8. Budgeting

    Blue Apron Review: Is It Worth It?

    Read about one of the top meal-kit delivery services in the United States, and learn more about what it offers and how much it costs.
  9. Stock Analysis

    Analyzing Sirius XM's Return on Equity (ROE) (SIRI)

    Learn more about the Sirius XM's overall 2015 performance, return on equity performance and future predictions for the company's ROE in 2016 and beyond.
  10. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center