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Tuesday, March 19, 2024
March 19, 2024

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McDonald’s slump no easy fix; focus is on food and branding

The Columbian
Published:

McDonald’s probably won’t be sorry to see 2014 come to a close.

The world’s largest restaurant company has posted three consecutive months of declines in global sales at long-standing locations, its longest such slide since early 2003.

McDonald’s itself, under the leadership of CEO Don Thompson since July 2012, knows it has work to do.

“There is no one silver bullet or single solution for driving sustained growth,” Thompson said on a July 22 conference call when Oak Brook, Ill.-based McDonald’s posted another quarter that disappointed Wall Street.

“We’re moving forward thoughtfully and with a sense of urgency,” he said.

Some of McDonald’s troubles can be traced to the changing tastes of American consumers. Critics say it has been slow to offer products that satisfy consumer preferences for fresher ingredients and adventurous flavors. McDonald’s also has been a prominent target of union and fast-food workers, who are pushing the company and its peers to raise wages.

To be sure, some of McDonald’s other challenges remain largely out of its control. Among them: a food safety scandal at a key supplier in China and some Russian restaurants being shut after unscheduled inspections — retaliation, some suggest, over U.S sanctions imposed in the wake of the Ukraine crisis.

McDonald’s has been through a prolonged slump before. Global same-store sales, a measure of retail health, declined in 2001 and 2002 and were down in early 2003. But the 2002 launch of a Dollar Menu in the United States (now known as the Dollar Menu & More) and the 2003 kickoff of the internal “Plan to Win” strategy, which included a global push to remodel restaurants, helped it rebound.

What follows is a look at what officials are planning, and steps that industry watchers said could help bring some shine back to the golden arches.

STEP 1: IMPROVE OPERATIONAL EXECUTION

In the United States, McDonald’s same-store sales have fallen in seven of eight months this year, after declines in five months during 2013.

“We think they’ll overcome this, but it looks pretty dark right now. This is not a unit growth story. This is a same-store-sales story, and they have to somehow get more sales out of the existing (locations) that they have in place,” said Jack Russo, an analyst at Edward Jones.

McDonald’s has efforts underway to reduce wait times and improve customer ratings. One part of that includes ways to speed payments with digital options. That’s why McDonald’s joined with other national retailers to announce that it would participate in Apple Pay, a new iPhone-based payment system launching in October.

“If we can take out any of the friction in a McDonald’s experience, any of the inconvenience of visiting McDonald’s, then clearly, that’s an improvement from the customer perspective,” said Steve Easterbrook, McDonald’s global chief brand officer. “Speed is one of those things.”

STEP 2: MAKE THE FOOD STAND OUT

For decades, McDonald’s well-known Big Macs, Quarter Pounders, fries, Chicken McNuggets and Egg McMuffins were enough to keep the company growing. In fact, those five menu items account for about 40 percent of sales today.

McDonald’s is focusing on what it knows has worked. It is reinvigorating its marketing on those items to help drive sales. Such efforts include the current 20 McNuggets for $5 promotion.

At the same time, McDonald’s is pushing new and limited-time items in four categories in which it believes its growth will outpace the overall industry. Those categories are beef, chicken, breakfast and beverages such as coffee and blended ice drinks.

“We’re placing great emphasis on the balance between our core classics and the number of new products that are being introduced,” Thompson said in July. “And this is to ensure that they can be delivered at the speed and convenience that customers expect from McDonald’s.”

STEP 3: BOOST BRANDING EFFORTS

To connect with today’s consumers, McDonald’s is taking part in the launch of Apple Pay, the new mobile payment system offered by Apple Inc. It’s testing everything from customized burgers to loyalty programs in various parts of the world.

And it sends out messages on Twitter and other social media platforms on topics ranging from free coffee to sustainable sourcing.

“I think it’s fair to say that we pushed the reset button on really working hard to truly put the customer at the heart of what we’re planning,” said Easterbrook, who said the company is working “to truly understand what matters to customers most.”

At the same time, McDonald’s multiyear focus on value, a key message for a large chunk of its customers, could be hurting them, some suggested.

On the surface, McDonald’s has the right formula, in terms of the four P’s; product, place, price and promotion, Passikoff said. People know the product, they know where to find it, they know it has low-priced items, and the brand is a major advertiser. Still, it no longer stands out, Passikoff suggests.

Lang, the franchisee, said he can deal with issues such as operational execution and employees, “but I’m not quite as much in control of the bad halo, so to speak, of brand image,” pointing to issues such as wage protests staged outside restaurants.

“We’ve gone through funks, or downturns, before and been able to come out of it,” Lang said. “We’re not satisfied by the trends. But we’re not in denial. We enthusiastically accept the challenge.”

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