McDonald's Corp., pleased with the early returns on its diner experiment in central Indiana, will expand the concept to other Indiana cities next year.

The fast-food giant will convert 12 of its traditional restaurants, including 10 in Evansville, into diners that serve such American standards as meatloaf and chicken fried steak--as well as McDonald's hamburgers and fries. Similar units, called McDonald's with a Diner Inside, will be opened in Lafayette and Tipton.

The first such combination, which opened in March in Kokomo, is "on track to move from $1.4 million to $2.3 million in annual sales," Tom Ryan, McDonald's chief U.S. marketing officer, told Wall Street analysts Tuesday during the second day of a two-day briefing in Oak Brook.

The diner concept is one of several marketing initiatives McDonald's is testing to boost stagnating U.S. sales. In the first nine months of 2001, U.S. systemwide sales, which include company-owned and franchised restaurants, rose just 2 percent, to $15 billion. Same-store sales, a key measure of performance for restaurants open at least a year, grew less than 1 percent in the third quarter, analysts said.

McDonald's is responding by casting a wide marketing net that includes new sandwiches, more value promotions and new restaurant concepts in an effort to broaden its appeal. The aggressive push also features Ronald McDonald, the company's clown character, more prominently in future brand advertising.

Investors were cool to McDonald's message on Tuesday, dropping its stock price $1.29, or nearly 5 percent, to $25.99. The stock price has fallen by more than $20 in less than two years.

One marketing strategy that appears to be resonating with customers is the diner, Ryan said. The concept is a risky trial because it tinkers with the tried-and-true McDonald's format by adding a 1950s-style diner under the same roof.

Although it's still early in the test, the lone diner has exceeded sales targets. Moreover, it has had "no negative impact on sales of other McDonald's in the Kokomo market," Ryan said.

With the expansion, the company seeks to gather more evidence to decide whether the diner is a viable business, he said.

Trying other concepts

At the same time, McDonald's is slowly rolling out other restaurant concepts under the Golden Arches umbrella. It opened its first McSnack Spot outlet in a Wal-Mart store in Houston. The small unit, which serves a limited McDonald's menu in addition to munchies such as popcorn and pretzels, is designed for locations that can't support a full-size restaurant.

McDonald's also is testing dessert kiosks called McTreat Spots in similar high-traffic locales. The company plans to open 25 McTreats and McSnacks next year in the U.S.

Ryan sounded less bullish about the future of McCafe, a coffeehouse experiment launched in downtown Chicago, inside an existing McDonald's last spring. McDonald's borrowed the concept from its Australian operations, where there is less competition for coffee drinkers. Because of Starbucks' U.S. dominance, the company is "taking a hard look" at opportunities for further expansion of McCafe, Ryan said.

Although analysts applaud McDonald's risk-taking, they fear that the restaurant concepts will end up in the trash heap next to such past experiments as the Golden Arch Cafe and Hearth Express.

"I don't think the diner or snack concepts are big ideas," said Allan Hickok, a restaurant analyst at U.S. Bancorp Piper Jaffray.

Cautious growth plans

Outside of the Golden Arches, McDonald's will maintain its cautious growth plan for the other restaurant brands it recently acquired.

The company will add about 70 Chipotle Mexican food outlets in 2002, about the same number as this year. The Chipotle openings will account for the bulk of additions in the other chains, which include Boston Market, Donatos pizzeria and the British-based Pret a Manger.

Those restaurant brands will lose money again next year but less than the $41 million expected loss in 2001, McDonald's said. Also, McDonald's confirmed it would abandon its Aroma Cafe outlets in the United Kingdom.

Inside its fast-food mainstays, McDonald's continues to tinker with the menu. It intends to roll out a line of premium-quality beef and chicken sandwiches next year, including a chicken Parmesan. The products will be launched under its rotating "New Tastes" menu.

The company also is testing the possibility of letting customers choose which entrees and side dishes they want in a combination meal, called McPick Value Meals.

The future of McDonald's prize promotions is uncertain. After being rocked this year by a scandal involving its Monopoly game, McDonald's "is in the bunker looking at new architectures" for games, Ryan said. He did not specify when the promotions might return.