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. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  2. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  3. Investing

    5 Up and Coming Social Media Startups

    Although the days of Facebook's dominance aren't close to being over, here are some new creative platforms gaining traction on the worldwide web.
  4. Investing News

    Zika: Study Says This Device Could Protect You

    New research just uncovered an inexpensive, commercially available device that might help fight off the mosquito that carries the dreaded Zika virus.
  5. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s a quick review of what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
  6. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  7. Retirement

    Ipsy Review: Is It Worth It?

    Discover the history of ipsy, how much packages cost, options available for membership, major competition and what the future looks like for the company.
  8. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  9. Investing News

    How Zika Is Infecting the Travel Industry

    The Zika virus is declared a public health emergency as airlines, cruise lines and other travel companies accommodate customers and assess the damage.
  10. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  3. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  4. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  5. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
Trading Center