[music in background] It's part of the American landscape and a global icon. 50 years in the making. 50 million customers a day.
31,000 stores around the world. [faint chatter of store employees]
Tonight, CNBC's Carl Quintanilla shows you McDonald's like you've never seen it before.
[chef speaking:] We've got oven dried tomatoes, poblano peppers, lime, cilantro, really elegant flavors.
Go inside the secret test kitchen where new creations live - [woman:] "we are testing the seasoning today" - or die.
[Woman:] Unfortunately there's some work that needs to be done. [Narrator:] See how McDonald's trains its army of workers and just how profitable a franchise can be.
[Carl Quintanilla:] Its made you a rich man? [Man:] Absolutely. [Narrator:] From a few small hamburger stands, see how a visionary named Ray Kroc created a
food empire. [Man:] They were serving hamburgers for 15 cents, french fries for 10 cents, and I said that's for me.
[Narrator:] 21 billion a year in revenue, 2 million pounds of beef a day, and a lot of controversy.
[Quintanilla:] A big mac, a large fry, and a large coke: 1,430 calories. [Man:] Yeah. [Quintanilla:] 59 grams of fat. [Man:] Well, you have to make choices about what you eat.
[Woman:] McDonalds is a business and its job is to sell more food, not less. It doesn't care what kind of food it sells.
[Narrator:] And take a journey to McDonald's next frontier where it's out with the old and in with the new.
[Man:] I just look at China's 1.3 billion population. The opportunity is endless.
[Narrator:] Now the CNBC original documentary: Big Mac - Inside the McDonalds empire.
[Quintanilla:] You're looking at hallowed ground for the McDonalds corporation.
Today this place, just outside Chicago, is a museum, but in 1955 this was a working McDonalds. In fact, it's the first store ever
opened by company founder Ray Kroc. Good evening, I'm Carl Quintanilla. Back in the 50's, you could open a McDonalds with
about $30,000. You would have been in on the ground floor for what would become the biggest, most successful, most
powerful fast food chain in the world. Today it could cost 1 million dollars or more to buy a McDonalds franchise, but it can still
pay off big time, as we found out when we began our behind the scenes look at the McDonald's corporation with a visit to one
of its busiest locations in the world. [Narrator:] It's one of the busiest, most congested roads in America:
Interstate 95 in Darien, Connecticut. 120,000 vehicles travel
North on this stretch of highway each and every day. 120,000 reasons the McDonald's restaurant near exit 13
is one of the busiest stores in the busiest chain in the biggest
and most successful commercial food enterprise on planet Earth. [Man:] Can I help you sir? [Narrator:] George Michelle is the Owner-Operator.
A second-generation Mexican-American and graduate of Northwestern University, Michelle took over this struggling franchise in 1990, the first of six stores he now owns.
And where he still does his share of windows and the register.
[Michelle:] This little baby, I take it home with me. [Quintanilla:] You probably have the keypad memorized, don't you? [Michelle:] In my dreams, yeah.
[Michelle:] Can I help you, ma'am. [Narrator:] Like thousands of other McDonald's Owner-Operators, years of working 80-plus hour weeks have made George Michelle a wealthy man. [Michelle:] Come on, son.
[Narrator:] Today he strolls his beachfront property on Connecticut's gold coast.
That is, when he's not on the phone. [Michelle:] Okay, what about the crew? Everyone show up on time? [Narrator:] Or working 14 hour days. [Michelle:] Can I help you?
[Narrator:] And like all successful Owner-Operators, he has a key partner in his top manager. [Man:] Give me a few seconds to fix it for you.
[Narrator:] In Darien, Connecticut, that's Tyrone Davis. [Davis:] We do a lot of volume and we do a lot of sandwiches and you know like fries is the number one thing at McDonalds.
We do a lot of fries! [laughter] We do a lot of fries!
[Narrator:] Davis was a rookie crew member when George Michelle took over in 1990. [Michelle:] 18 years ago, we weren't absolutely sure we wanted to work with each other.
[Narrator:] But Davis did stay, and 18 years later he is operations manager, overseeing all six of Michelle's McDonalds stores.
Taken together, it's an $18 million business with more than 300 employees.
Working at McDonalds is commonly dismissed as a McJob: Low wages with a staggering turnover. But a good McDonalds manager can earn $100,000 a year or more.
And soon, Davis will run his own McDonalds.
After nearly two decades with George Michelle, he's set to become an Owner-Operator himself. And he expects to do very well.
[Davis:] You might not be a billionaire rich. You might not be a Bill Gates rich, but you're going to be rich enough for you to retire early if you want and be comfortable.
[Quintanilla:] It's not out of the question that you might be a millionaire? [Davis:] No, it is not.
[Davis:] Always check quality. [Narrator:] Davis' workday is a marathon of crew supervision... [Davis:] Okay, 167 that's perfect. Beautiful. [Narrator:] ...and customer service.
[Davis:] I'm going to give you a refund, okay? Because you waited for your food so long, alright?
[Narrator:] Davis also keeps vigil over what he says is the most important element in any McDonalds. And it's not the fries.
The number one thing? [Davis:] The bathrooms. [Quintanilla:] Why? [Davis:] The number one thing, if the bathroom is dirty, no matter what, you have lost a customer.
[Narrator:] It's that obsession with detail and efficiency that has made McDonald's corporation bigger and more profitable than any of its competitors.
Its also made it a global behemoth with more than 31,000 stores in 118 countries. Financially, McDonalds is soaring with annual revenues of more than $21 billion.
But that's a major turnaround from where the company was just a few years ago.
[News Reporters:] The world's largest restaurant company is not enjoying a happy meal tonight. McDonalds warned that it would post a quarterly loss for the first time ever.
[Narrator:] In 2002, after years of unchecked growth and a lack of attention to basics, McDonalds announced its first ever quarterly loss.
[Man:] We like to say we took our eyes off our fries. [Narrator:] Jim Skinner is McDonalds chief executive officer.
[Quintanilla:] In 2002 same-store sales were sliding. [Skinner:] Right. [Quintanilla:] Margins were sliding. [Skinner:] Right. [Quintanilla:] First quarterly loss ever. [Skinner:] Right.
[Quintanilla:] What went wrong in that period?
[Skinner:] Well, first of all, I call 2002 the year of the perfect storm, where all of the things and the strategies that we were pursuing, the growth strategy, we basically hit the wall in 2002.
[Narrator:] A growth strategy that included opening more than 2,000 new restaurants a year. It was unsustainable even for the golden arches.
[Skinner:] We invested $4 billion in new store growth over the previous 3 or 4 years. No incremental income growth
That's a formula for... [Quintanilla:] Bankruptcy. [Skinner:] Failure. [laughter]
[Narrator:] Skinner can laugh now, but in 2002 that was a formula for unhappy customers. Instead of a happy meal, they often found dirty stores, cold food, and a detached staff.
On Main Street McDonalds was out of favor, and on Wall Street McDonalds stock was getting hammered.
[Man:] All we knew was that we had to change something.
[Narrator:] For company executives like USA President Don Thompson, it was a wake-up call.
[Thompson:] The first thing we went back to was, we've got to be better in our existing facilities. So we've got to get quality service and cleanliness shored up. First thing.
[Narrator:] The kitchen was revamped. Sandwiches were no longer stockpiled but instead were made to order. They added more chicken and salads to reflect evolving tastes and heal concerns.
They spent less time building new stores and more time focusing on the ones they had. But amidst the turnaround, McDonalds weathered a double blow.
[Narrator:] Ceo Jim Canalupo, co-architect of the so-called "Plan To Win", died of a heart attack while at a McDonald's convention.
His successor, Charlie Bell, was diagnosed with cancer and died soon afterwards.
Jim Skinner, who started out flipping burgers at McDonalds in 1971 became the third CEO in just seven months.
[Skinner:] I think that the mood of the company was one of sorrow, one of disbelief that we would go through two such situations in such a short period of time.
[Narrator:] But the plan was in motion.
McDonads began renovating older stores, and in one of its most successful moves it launched a line of premium coffees that lured many customers back from Starbucks and helped it solidify its stronghold on breakfast.
For McDonalds, breakfast is huge and delivers a quarter of every dollar it makes in the U.S.
Getting back on track has been good news for the company and for store owns like George Michelle, who keeps a reminder of how easily success can be derailed.
[Michelle:] Look at this. [Quintanilla:] This is from USA Today when the company was in trouble. [Michelle:] Yes, absolutely.
[Quintanilla:] And the number one suggestion was to fix the food. [Michelle:] Yes, and we have. It's great food. It's hot. It's made for you. We went back to the basics.
[Narrator:] 50 Years ago company founder Ray Kroc took a small hamburger business and transformed it into a global food empire.
His stroke of genius was in tapping the drive and ambition of thousands of individual store owners like George Michelle.
[Michelle:] The golden arches are golden. [Quintanilla:] You've made more money and can make more money with them than without them? [Michelle:] Absolutely. It's a beautiful relationship. It's a marriage.
[Quintanilla:] It's made you a rich man? [Michelle:] Absolutely.
[Narrator:] Coming up, Ray Kroc knew a good thing when he saw it. [Kroc:] I was amazed. They were serving hamburgers for 15 cents and french fries for 10 cents and milkshakes for 20 cents, and basically that was the menu.
And I said, "That's for me." [Narrator:] The man who turned a hamburger stand into a worldwide obsession.
And when 1.3 billion people get a taste for cheeseburgers, watch out. [Quintanilla:] It could be the number one market in the world. [Skinner:] It could be.
[Narrator:] When Big Mac: Inside the McDonalds Empire continues.
We now return to Big Mac: Inside the McDonalds empire.
They were California's golden girls of the 40's and 50's: The carhops. Drive-in restaurants were all of the rage in car crazy southern California back then.
In San Bernardino, everybody stopped at the drive-in run by the McDonald brothers. Yes, there really were two guys named McDonald.
But even with the cutest carhops around, Dick McDonald realized customers wanted even faster service.
[McDonald:] We were kind of getting to an age of jet propulsion and this was really a horse and buggy operation. We knew we had to do something to speed things up.
[Narrator:] That something was getting rid of everything on their menu except the big moneymakers, and then making those the way Detroit made cars, on an assembly line.
Former CEO Fred Turner explains. [Turner:] They got it down to nine items. The production system on the hamburgers, the cheeseburgers, the fries, the milkshakes, they developed all of that.
[Narrator:] In 1948 the brothers Drive-in reopened as McDonalds custom-built hamburgers, featuring their speedy service system.
[McDonald:] We began to get sales clerks, construction workers, cab drivers, and they loved the speed of it. Boy, they could come in and bingo!
Another big factor, the youngsters loved it, so of course when we had the kids we had mama and papa too.
[Narrator:] By the early 1950's, the McDonald brothers were earning nearly $500,000 a year in sales. For a Chicago salesman named Ray Kroc, it was a bonanza.
Kroc sold Multimixers, a machine that could make five milkshakes at a time, and he had just gotten an order from the McDonalds for eight machines.
[Kroc:] In those days nobody had eight Multimixers in one business. So I went out there, and I was amazed.
They were serving hamburgers for 15 cents and french fries for 10 cents and milkshakes for 20 cents, and basically that was the menu. And I said, that's for me.
[Narrator:] In 1955, Kroc signed a contract with the McDonald brothers to be their exclusive franchise representative. John Love is the author of "McDonalds: Behind the Arches."
[Love:] It was not a very good contract from Ray's vantage point. The McDonald brothers made a lot of money for doing nothing, and Ray made very little for doing everything.
[Narrator:] That didn't stop Kroc. He opened his first McDonalds in Des Plains, Illinois. back then, it was a calling card.
[Turner:] Ray had something he could show and demonstrate and people could come and look at and get a sense of what the potential was.
[Narrator:] In 1957, Al Golen became McDonalds first PR man. He's still doing it a half century later.
[Quintanilla:] He talked a lot about getting big, having 1,000 stores, for instance. Do you think he actually believed it was going to happen?
[Golen:] No, I don't think so. Because when I would sit with him in an interview in the early days and a reporter would ask him, well, how many of these can you really open, Ray?
And he'd say, we're going to open 1,000 of these someday. Then we'd go outside and he'd give me a little wink and say yeah, that'll be the day.
[Narrator:] Even in his wildest dreams, Kroc didn't think that kind of growth would happen anytime soon. He started slow, demanding consistency.
[Kroc:] Getting that meat centered on the bun is about the toughest thing that we have to contend with.
[Love:] He was intense about good operations. He was intense about quality of food. Intense about fast service, but most intense about cleanliness.
[Narrator:] Quality, service, cleanliness became the McDonalds mantra, enforced by a management team led by former grill man Fred Turner.
[Golen:] Fred was sort of the son that Ray never had, and Fred was extremely important to the company.
[Narrator:] It was Turner who started a very serious management training program with a very silly name: Hamburger University.
While Turner's Hamburger U indoctrinated franchisees...[Teacher:] Tom, Congratulations. [Student:] Thank you. [Narrator:] ...Kroc's financial wizard Harry Sonneborn came up with a plan to give the company complete authority over its operators.
McDonalds became every franchisees landlord. [Love:] You charge rent on the basis of what the franchisee sold, and that put Ray's interest in parallel with his own franchisees.
[Narrator:] And his franchisees became the real marketing innovators within the McDonalds system. [Commercial:] There he goes!
[Narrator:] A Washington D.C. owner started using a clown in his commercials. It was the birth of Ronald McDonald, played by none other than Willard Scott.
[Ronald McDonald:] Well, hi! Isn't that McDonalds hamburger delicious? [Child:] Mom told me to never talk to strangers. [Ronald:] Well, your mother is right as always, but I'm Ronald McDonald!
Give me a McDonald shake! [horn noise]
[Narrator:] Franchisees were also menu innovators, sometimes out of necessity. Cincinnati owner Lou Groun had his store in a Catholic neighborhood, and McDonalds had nothing on its menu for meatless Fridays.
[Groun:] So I got the idea I was going to make a fish sandwich. I told ray about it, he said, "I don't want your damn fish sandwich, it's going to stink up my restaurants!"
[Narrator:] Kroc didn't want the fish sandwich because he thought he had a better idea. [Kroc:] I said, well we'll take a slice of pineapple--
and incidentally this is a great sandwich at home. Fix it up. [Host:] You haven't given up on it, have you? [laughter]
[Kroc:] You grill it in butter and put a slice of cheddar cheese on top, one on the bottom. Put it on a toasted bun or bread and they call that a hula burger.
[Narrator:] A showdown was arranged for Good Friday. The hula burger versus Lou Groun's fish sandwich.
Whichever sold the most would be put on the menu. [Groun:] I called out and I said, "How many sandwiches did Ray sell? He said, "I can't tell you.
He says, "How many did you sell?" I said, "350."
He said, "It's on the menu."
[Narrator:] Filet-o-fish was born, the very first addition to the original menu. [Music:] ♪♪ We're going to do it with style. We do it for you. ♪♪
[Narrator:] Under Kroc and his management team, McDonalds kept growing and growing. What started out with one hamburger stand in San Bernardino was on it's way to becoming an American institution.
After buying out the McDonald brothers in the early 60's, the company went public with its first stock offering in 1965.
The very next day, Ray Kroc officially became a millionaire.
[Quintanilla:] What would he say if he walked in here today and just saw the scope of the operations? [Golen:] I don't think he would have dreamt it would come to all this.
Although I must say, he did say something. He said, "I don't know what we'll be selling in the year 2500, but I know we'll be selling more of it than anybody else."
[Narrator:] Coming up, go behind closed doors at McDonalds test kitchen.
[Chef:] Would you have ever thought that you'd see orange glazed chicken with roasted almonds with edamame and snowpeas a sesame ginger vinaigrette at McDonalds?
[Narrator:] A sneak peek at what's coming soon to a McDonalds near you when Big Mac: Inside the McDonalds Empire returns.
Big Mac: Inside the McDonalds Empire continues.
[Narrator:] Armed with an array of utensils, these chefs are on the go. Slicing, dicing, peeling, mincing, sautéing, searing, and grilling. Mixing robust flavors.
[Chef:] It's got a good viscosity. [Narrator:] And feeling the air with zesty aromas. But this isnt the kitchen at Spago.
[Chef:] If you guys smile, the food tastes better. You know that right? [laughter] [Narrator:] This is McDonalds.
[Quintanilla:] When you tell people that McDonalds has a head chef and it's you, are they surprised? [Chef:] Yeah, they are surprised, and I think I'm a hero to a lot of people, like the 5 year olds and the 7 year olds, I'm like, you know.
[Quintanilla:] Dan Coudreaut, better known here as Chef Dan is McDonalds director of culinary innovation, and if you think McDonalds and culinary innovation don't go together, consider this.
Chef Dan graduated at the top of his class from the Culinary Institute of America.
He served up some of the fanciest dishes at some of the finest restaurants, including the four seasons resorts.
When you told people, I'm going to go work for McDonalds, what was their reaction? [Chef Dan:] Why McDonalds? It's just burgers. Their menu hasn't changed in so many years.
That's what I don't think people really notice. I don't think people notice that the fruit and yogurt parfait was introduced or the triple thick shakes and different flavorful files have been introduced or the salads were introduced.
[Narrator:] Those new items took the fast food giant beyond its core staples of Big Macs, Quarter Pounders, and Fries.
Here in their gleaming test kitchen in the McDonalds headquarters outside of Chicago, Chef Dan has cooked up a few dishes to lighten McDonalds meat and potatoes menu, like the Southwest Salad.
[Chef Dan:] You've got fire-roasted corn, you've got oven dried tomatoes, poblano peppers, lime, cilantro, really relevant, relevant flavors.
[Narrator:] And the Asian Salad. [Chef Dan:] Would you ever have thought that you would see orange glazed chicken with roasted almonds with edamame and snow peas and a sesame ginger vinaigrette at McDonalds.
That's a product that's on our menu today.
[Narrator:] But salads aren't all Coudreaut has rolled out. Their new creation, the snack wrap, has quickly become a hit.
[Customer 1:] Can I get two snack wraps? [Customer 2:] Can I get 1 snack wrap, crispy with no lettuce?
[Chef Dan:] We're seeing a trend of people doing what we call grazing, or having five smaller meals. So the snack wrap just fits in beautifully in that whole arena. That was a good, good product for us.
[Narrator:] The snack wrap was unwrapped only after it passed a battery of tests and met some important criteria. [Chef Dan:] Is there a market, is there supply, and is there the ability within our restaurants to produce it?
[Narrator:] And with more that 13,000 restaurants around the country, preparation must be easy to duplicate.
[Chef Dan:] We can come up with those great ideas very quickly in this kitchen, because we are trained culinarians, but how do we take that product and transition it into our restaurants so that
an 18 year old or a 20 year old can do it that is working in our restaurants?
[Narrator:] That's just the beginning. Creating fast food is actually not so fast. Every item goes through intense scrutiny and an exquisitely detailed development process.
Each year, some 1,800 menu ideas are tossed around in Chef Dan's kitchen. [Chef Dan:] Let's just start throwing ideas out.
[Chef 1:] Breakfast biscuit. [Chef Dan:] Biscuit. [Narrator:] Only three of four make it to the stores.
By the time a product reaches the menu, it's gone through upwards of 200 tests and years in the pipeline. [Woman:] How's it looking?
[Narrator:] Debra McDaniel is head of McDonalds food innovation and menu management. Her team is currently developing a third-pound premium angus burger.
[Quintanilla:] This is not the first time it's been through here being tested? [McDaniel:] No. We've used our panels for a lot of different aspects of the development of this particular product.
This is probably about our 15th panel.
[Narrator:] There are 34 suppliers for this one product. Panels test each supplier's product to make sure they all match precisely.
This ensures that every customer at every McDonalds gets the exact same taste.
[Quintanilla:] Can you let us know what characteristics you are testing? [McDaniel:] We are actually testing a seasoning today.
We are really understanding whether a secondary supplier has matched the target product and if they're ready to move forward to potentially be a supplier if this product were to move forward.
[Quintanilla:] Two of these burgers have the approved seasoning while the third has the test seasoning.
Sampling burger after burger after burger, panelists attempt to discern any inconsistency and determine if the seasoning supplier has made a match, taking detailed notes after every bite.
It's been an hour or two since the panels were done. What did you find out?
[McDaniel:] Well, unfortunately, the panel showed us today that there was a difference in the two products. So our test product did not match our control product, which means that there's some work that needs to be done on the supplier's side to try to match this product.
[Quintanilla:] It's not like they're in trouble that they didn't pass this round? [McDaniel:] No, we work very closely with the supplier parters and so we need them.
And we'll just continue to work with them to identify how to fix it.
[Quintanilla:] With 15 tests behind them, many more evaluations lie ahead for the angus burger before it's rolled out nationally. The scrutiny isn't limited to the food.
Even their hottest items undergo this dissection. McDonald's sells more than 2 million cups of hot coffee each day in the U.S.
They've recently added gourmet coffee to their lineup. At the test kitchen, each new flavor is analyzed and deconstructed by the most refined palates.
[Taster 1:] And you feel the velvety smooth texture, get a little bit of that cocoa residue on your tongue? [Tester 2:] Yes.
Okay, sample 901. [Narrator:] It's an exacting process that has produced some of McDonalds biggest hits and a few famous failures.
[music in the background] McDonalds reportedly kicked out hundreds of millions of dollars for research, production, and marketing of the arch deluxe.
[children excitedly chattering in background] [Man in commercial:] Yes, I even get to make the arch deluxe.
[Narrator:] And it flopped. [children groaning in disgust]
[Narrator:] With all of the testing that goes on here, how does something like the arch deluxe or the McLean deluxe or McPizza happen and then not do well?
[Chef Dan:] I don't know. You know, its--you try and do all of your up front work, you make judgement calls, you know, some things maybe hit. Some things don't.
[Narrator:] But failures don't stop Chef Dan and his team from whipping, kneading, and spicing up the next big thing.
[Chef Dan:] You are going to see things that maybe haven't been around.
Lemongrass, is that out of the realm? I don't know. It's going to be whatever our guests are asking for. We're going to listen to them, we're going to develop with them and we're going to be very guest-centric.
I think we're scratching the surface, but I think people are waiting and ready for McDonalds to really catapult to that next level. [music in the background]
[Narrator:] Coming up, millions of American kids overweight. Is McDonalds to blame?
[Man:] There's very clear research showing that when people are served large portions they eat large portions. [Narrator:] And take a journey to McDonalds next frontier.
[group screaming] [Man:] And it means? [Group:] I'm loving it. [Narrator:] When Big Mac: Inside the McDonalds Empire continues.
Big Mac: Inside the McDonalds Empire continues.
[Quintanilla:] Over the years, as McDonalds has expanded, its portion sizes have expanded too.
This McDonalds training film from the 1950s shows the only size burger offered. That was then. Today's largest offering, the double quarter pounder, contains 500% more hamburger meat.
Their largest serving of fries has increased by 250%.
Facts that stick in the throat of critics like Kelly Brownell, director of Yale University's Rudd Center for food policy and obesity, which is conducting a multi-year study of McDonalds food.
[Brownell:] The products have grown and grown and grown. There's very clear research showing that when people are serves large portions, they eat large portions.
[Quintanilla:] Today in the U.S., those large portions, available at McDonalds and elsewhere, so easy, cheap, and tasty, contribute to what is widely seen as an epidemic of obesity.
Since 1960, obesity among children and adolescents has more than tripled, and today more than 9 million children in the U.S. are obese.
And poorer children face the greatest risk of all, says Brownell.
[Brownell:] If you're hungry and you need to fill up and you don't have much money, you want to go for the greatest number of calories per dollar, and the fast food industry offers a lot of that.
[Quintanilla:] CEO Jim Skinner says people don't eat at McDonalds often enough for it to be blamed for obesity, and he says the menu offers lots of items that fit a healthy lifestyle.
But the fact of the matter is for McDonalds its bread and butter is still meat and potatoes.
[Quintalilla:] Big mac, large fry, and a large coke: 1,430 calories. [Skinner:] Yeah. [Quintanilla:] 59 grams of fat. [Skinner:] Right.
[Quintanilla:] How is the public supposed to take your directives to make healthy choices when so much of the bread and butter of the business is that kind of food, which is clearly not healthful?
[Skinner:] Well you have to make choices, you know, and personal responsibility and make decisions about what you eat.
[Quintanilla:] The fact is, every day millions of people choose burgers and fries. Marion Nestle is a professor of nutrition, food studies, and public health at New York University.
As a nutritionist, explain what happens to your body when you eat too much of the kind of food McDonalds serves.
[Nestle:] Blood pressure goes up, blood sugar goes up, blood cholesterol goes up. All those bad things happen, and people gain weight. And people cannot handle that on a daily basis.
[Quintanilla:] As the movie "Super Size Me" famously portrayed, filmmaker Morgan Spurlock lived exclusively on McDonalds meals for one month.
The company has since eliminated its super size portions, though it says that's not a result of the movie. McDonalds acknowledges it isn't tone deaf to criticism.
[Skinner:] We don't have all the answers, and if you're going to be part of the solution and you're going to be a credible company, you have to listen. And you have to listen to the critics too.
[Quintanilla:] As big as they are, McDonalds largest portions are smaller than two of its competitors, Burger King and Wendy's. And while many critics credit McDonalds for adding healthy items, some argue that burgers and fries are still the heavyweights.
[Nestle:] I think it's great that it's selling apples. I think it's great that it's selling salads. But it's main focus is on hamburgers, french fries and sodas.
[Quintanilla:] Do you think they're interested in seeing their salads sell or their apples sell well? Or do they just want it on the menu so they can say, look, we're trying?
[Nestle:] I think both. McDonalds is a business, and its job is to sell more food, not less. It doesn't care what kind of food it sells.
[Quintanilla:] Can you envision a day when you don't sell hamburgers? [Skinner:] No, I think we're a hamburger company and we'll always be selling hamburgers.
[Quintanilla:] McDonalds spends $2 Billion in advertising aimed at every demographic imaginable, including, of course, children.
McDonalds executives claim Ronald McDonald is one of the most recognizable characters on the planet, second only, they say, to Santa.
[Nestle:] Ronald McDonald is a means of marketing directly to kids.
[Ronald McDonald:] Did somebody say.... [Kids in unison:] McDonalds!
[Nestle:] That is brilliant marketing. [Quintanilla:] Is it brilliant or is it manipulative? [Nestle:] Of course it's manipulative.
[Quintanilla:] Recent research finds that children under the age of 8 can't yet discern the manipulative intent of commercials.
[Nestle:] The most insidious is to get kids to think that McDonalds happy meals, for example, are what kids are supposed to be eating. It is extremely subversive to parental authority.
[Quintanilla:] Parents: Does not the responsibility lie with them? [Nestle:] Of course the responsibility lies with parents. Parents are busy, they're tired, they may not see anything wrong with it.
[Quintanilla:] Plus those happy meals feature a constantly changing array of toys.
[Customer:] We come here for my son, who really likes the toys. [Quintanilla:] This mother says she and her son frequent McDonalds twice a week.
[Customer:] He starts yelling, "McDonalds, let's go to McDonalds," and he won't stop screaming until we agree to stop, and he eats often.
[Quintanilla:] But McDonalds says it's marketing to children is headed in a healthier direction.
Mary Dillion, global chief of marketing, says it hasn't marketed burgers and fries directly to children in two years. And she points to their promotional tie-in with the movie Shrek the Third.
[Shrek:] Okay kids, now go outside and play already.
[Dillion:] The Shrek promotion, frankly, represents the single biggest promotion we've ever done on fruits and vegetables and milk.
[Quintanilla:] So how much of an answer or a retort is that to critics who say you're still pushing the core products, which are hamburgers, fries, and shakes.
[Dillion:] Well first of all, you know, we're proud of our core products. What I would say to those critics, judge us on our actions. We are selling more fruits and vegetables and milk than we ever have before.
[Quintanilla:] Do consumers get it yet, what you are trying to do when it comes to healthy choices? [Dillion:] I think frankly, you know, consumers don't really understand what we are about. [Quintanilla:] Why? Why don't they understand it?
You've got a billion dollars at your disposal every year. Why hasn't it sunk it? [Dillion:] Not really sure why. Except to say that we know we have opportunities to help make, for example, moms even more aware of the offerings that we have.
[Narrator:] Like this commercial featuring healthy choices for happy meals. But unless you specify the alternatives, McDonalds Happy Meal still comes with the fries.
And some studies are finding that most people have no idea of the calorie content of their meals.
Like these guys, who told us they've eaten lunch at McDonalds every weekday for two weeks.
They've never seen any of the calorie or nutrition information that McDonald's provides on the backs of tray liners. [Man:] I never knew that was there.
[Quintanilla:] In brochures, at their website, a toll-free number, even directly on the packaging. [Man:] Most people don't take the wrapper and read it. They crumble it up and throw it to the side just like I did.
[Quintanilla:] Critics say that once the burger is in your hands, you've already bought the calories. [Man:] 600 calories, and that was just a cheeseburger and chicken nuggets. [laughter] Wow.
[Quintanilla:] There's a growing movement fueled by scientists and city and state governments to require McDonalds and other fast food chains to list calories right up on the menu board, but McDonalds is fighting back hard.
After New York city mandated that restaurant chains list calories, McDonalds joined a lawsuit to block the regulation.
Still, Skinner says McDonalds wants to be part of the solution.
[Skinner:] If the obesity issue in America is something that needs to be solved, McDonalds is big and powerful. We can make a decision and be helpful relative to those solutions.
[Brownell:] I will give McDonalds credit for making some positive changes, and in some ways they've been ahead of their competitors in that regard.
But you can't overlook a tidal wave of bad food that they're selling to the world with a few drops of goodness that they're doing.
[Narrator:] Coming up: communism meets capitalism--[speaking in a foreign language]-- on McDonalds next frontier. When Big Mac: Inside the McDonalds Empire returns.
We now return to Big Mac: Inside the McDonalds Empire.
[Quintanilla:] Same hamburgers, same fries, same drinks. You might think you're in Dallas or Detroit, but this--[speaking in a foreign language]--is China. [music]
Two decades ago, McDonalds was largely unknown here except as a symbol of the decadent West. But a capitalist revolution has swept through the people's republic.
And today mainland China, still officially communist, is home to 800 McDonalds restaurants, with 200 more in Hong Kong. [foreign language speaking]
[Man and woman in unison:] Mojosichuan! And Mojosichuan means "I'm loving it."
[Quintanilla:] Jeff Schwartz is loving it too. He's CEO of McDonalds China.
When you look at the map, can you imagine how many stores might be in China one day? [Schwartz:] I don't need to look at the map to imagine that. I just look at the 1.3 billion population. You know easily we're talking 10,000 restaurants, 15,000 restaurants as it continues to develop. So the opportunity is endless.
[thunder noise] [Quintanilla:] Endless, but not effortless. That's why Schwartz and his boss, Tim Fenton, spend so much time in China, on the road, in the air, and on the move.
[Fenton:] Three weeks out of four. [Quintanilla:] Fenton is president of McDonalds for Asia, the Middle East, and Africa.
There's no one at McDonalds with more experience moving in the new markets.
[Fenton:] Mistakes we've made in the past: You don't open just one store. You get three or four or five deals done, build them consecutively, train the crew consecutively so you save on the money.
So when a truck goes out from the distribution center it's not carrying one store, it's carrying the products for three to five. [truck noise in background]
[Quintanilla:] When McDonalds first opened in China in 1990, these streets were clogged with bicycles. But prosperities brought an explosion in car ownership.
However many headaches that may mean for Chinese drivers, McDonalds saw an opportunity called "Drive-thru."
[Schwartz:] This is the very first drive-thru we opened in November of 2005, so it has been about 18 months.
Very very successful. [Quintanilla:] First drive-thru not just for the company. [Schwartz:] For anywhere in China. So anywhere at all in China.
Drive-thru was a brand new concept anywhere in China. [Quintanilla:] In fact, drive-thru was such a new concept in 2005 that many Chinese didn't know how to use it.
[Schwartz:] We have a lot of traffic and I'm walking around. They pick up the food and then they went in the--they went and they parked their car, they brought the bag of food and they went inside.
And I watched this happen several times and I said I think we might have a problem here on how the Chinese use the drive-thru. [laughter]
[Quintanilla:] Which meant that Chinese crews not only had to learn how to run a drive-thru, but had to teach their customers how to use one.
[Schwartz:] They're very good about holding their hands out to, you know, stop here. Is this something that you train your crew on? [translator repeats in Chinese]
[Translator:] She trains her crew to greet customer with the hand out of the window, this way they train their customers how to use the drive-thru.
[Quintanilla:] But still, some customers don't catch on as fast as others. [Fenton:] Oh he is coming in the exit side, this BMW here.
That's part of the training sometimes about where to drive-thru. [Quintanilla:] McDonalds is up to 26 drive-thrus in China, so far. But if most Chinese drivers still aren't familiar with the idea, that's about to change dramatically.
[Chinese speaking] [Quintanilla:] In 2006 McDonalds signed an agreement with the Chinese state oil company, Sinopec, granting it the right to open McDonalds stores at any of Sinopec's new and existing gas stations: 30,000 of them.
The very first one opened in July of 2006 is this store in a surprisingly run down neighborhood outside of Beijing.
[Fenton:] Obviously it's on the fringe. [Quintanilla:] Meaning? [Fenton:] It's off the beaten path of main Beijing. So it's a suburb coming out.
[Quintanilla:] It's a little grittier. [Fenton:] Yeah, it's a little grittier, but it's like an oasis to me. I'm guessing we might be a little pre-mature here on the McDonalds side, but on the upside with potential.
[Quintanilla:] That, in a nutshell, has become a key part of McDonalds expansion strategy in China. The willingness to bet on an area that may not be ready for a McDonalds yet. [chattering]
But with China the worlds fastest growing economy McDonalds is banking on neighborhoods like this being a good gamble.
[Fenton:] It's really not that difficult. You look at a developing area, you see where it's going. You see the corners, you see the retail, you see the apartments and the condos coming in.
[Quintanilla:] You can spot an up and comer? [Fenton:] Yeah, we've done a lot of real estate. We've done it like 34,000 times. [laughter]
[Quintanilla:] Tell me about what this neighborhood looked like before this store was built.
[Schwartz:] Nothing was around. These buildings right here were half built and there was nothing behind there. But you looked at the site layout and it said, well the shopping mall is going here,
there's going to be, you know, 5,000 residents here and down the street here will be another 5,000 residents. It was amazing.
[Quintanilla:] But for all of China's potential, the learning curve for McDonalds here has been steep, and they've had to play catch up.
When McDonalds opened it's first mainland store in 1990, rival KFC had already been there for 3 years. Today there are more than 1,900 KFC stores in China, more than twice as many as the golden arches.
McDonalds has a lot of competition here in China, not all of it from big name U.S. brands like KFC. You can find mom and pop food stands like these all over the country.
And although dishes like scorpions and seahorses on a stick may not be your idea of a meal, here they are traditional, they are convenient, and they are cheap.
[food cutting and pouring noises]
[Quintanilla:] A short walk through any Chinese city reveals a kaleidoscopic array of foods, tastes, and textures.
Adapting the McDonalds menu to palates used to foods like these is the job of McDonalds corporate chef: Leslie Bailey.
[Bailey:] Now this is the value pork burger. [Quintanilla:] He spends his days in a Hong Kong food lab that McDonalds calls the forbidden kitchen.
[Bailey:] We're going to test this in 40 stores. [Fenton:] Hmm, this has a good kick to it. [Man:] What makes it hot? Is that the sauce or the patty? [Bailey:] No, the patty itself is seasoned with Szechuan pepper. [Fenton:] That is good!
[Fenton:] That is a good sandwich. [Quintanilla:] Taste, convenience, and price are important in China, just like the U.S.
But the issue here that trumps them all is food safety. It is a nightmarish problem in a developing country where corruption is rampant and safe food handling practices are still largely unknown.
How much do you live in fear of waking up some morning and seeing a headline about McDonalds food safety being called into question?
[Fenton:] I don't live in fear of it. It's always in the back of your mind because of the area we live in and particularly the history that this part of the world has had with Avian Influenza and Sars.
[Quintanilla:] Food safety concerns are one reason all Chinese McDonalds stores have hand washing stations and hand sanitizers right out in the main restaurant.
And behind the scenes, McDonalds says it's stores and it's Chinese suppliers, like this bun factory near Beijing, meet the same standards as those in the U.S.
[Schwartz:] We do have quality control inspection unannounced and surprised.
All of a sudden our QA people will show up at your door and say "Now, tour! Let's go."
[Quintanilla:] Food safety is one more strength McDonalds is hoping to market in China. It's also a major sponsor of the 2008 Olympics in Beijing, where chairman Mao still keeps watch over Tiananmen Square.
But two blocks away, Big Macs have become the latest Chinese food. [music]
With more than half of its stores in foreign countries, McDonalds has long since given up on trying to count how many burgers it has sold. What it is counting on is a future where the golden arches continue to spread across the globe,
generating more french fries, income, visibility, and quite possibly more controversy than Ray Kroc could ever have imagined.
I'm Carl Quintanilla for CNBC. Thanks for watching. [Music]