McD’s looks for answers down under
New commercials may indicate McDonald’s is looking to increase the effectiveness of its "I’m Lovin’ It" ad campaign, but the chain and its investors are certainly not enamored with the fast food giant’s recent performance, which includes a 4.6 percent drop in U.S. sales in November and a one percent decline in October. To its credit, the chain is seeking answers, and many of those, according to reports, are coming from Australia.
Back in October, a YouTube video from a McDonald’s location in the land down under showed a touchscreen with a long list of ingredients enabling customers to create their own burgers, which were then delivered by staff to the table. The process seemed more akin to what you might expect in one of the growing "better burger" chains.
A recent piece on TheStreet website by Brian Sozzi, president of Belus Capital Advisors, suggests that McDonald’s could learn some things from Shake Shack, Five Guys, Smashburger and others in the new generation of burger chains. McDonald’s may have grown delivering fast and cheap meals, but it no longer is all that much cheaper than competitors perceived as offering higher quality products. A cheeseburger at Five Guys sells for $6.79 while a McDonald’s Big Mac sells for $5.
Other options for McDonald’s may lie in new concepts that bear little connection to the chain’s burger past. According to reports, the company is testing a new concept in Sydney, The Corner by McCafé, that doesn’t have a Big Mac or fries in sight. It does have items on the menu that include tofu, brown rice, eggplant salads and Moroccan roast chicken. Instead of selling Coke, the "learning lab" offers craft sodas.
Whether The Corner by McCafé ever becomes a standalone concept remains to be seen, but that is not the point of the test.
"We are committed to serving up real and noticeable change," Becca Hary, a McDonald’s spokesperson, told USA Today. "The Corner by McCafé is yet another example of this."
- What Struggling McDonald’s Could Learn from Shake Shack and Five Guys – The Street
- Why McDonald’s Isn’t Shake Shack and Probably Shouldn’t Be – The New York Times (tiered sub.)
- Are customized burgers and mobile apps the future of McDonald’s? – RetailWire
- This Trendy New Café is Actually a McDonald’s – The Daily Mail
- McDonald’s tests healthy café – USA Today
Discussion Questions
What do you see as the biggest challenges facing McDonald’s in the U.S.? What does it need to do to reverse its recent declines? Are entirely new restaurant concepts an answer for the company?
I still believe that menu complexity is McDonald’s biggest issue in the U.S. Its brand positioning should continue to stand for “consistent, affordable and fast.” So a touch-screen offering more customization—instead of fewer choices—is not a solution to the problem. Neither is the wait time added by having meals brought to the table, Culver’s-style. (And just picture the breakdowns at the drive-through lane.)
Most of the operating improvements discussed recently by McDonald’s are focused exactly in the right place—narrowing the assortment of food offerings and simplifying the operation. Trying to squeeze into the increasingly crowded brand space of the “better burger” chains would not be the right move.
McDonald’s needs to convince patrons that its food is both better and good for you. Not an easy thing to do. Most of their customers who grew up on McDonald’s are either seniors or young adults and they are looking for better choices. The seniors are looking for better taste choices and the young adults want to stay both healthy and thin, something that does not bring to mind Mickie D’s. Another banner may do the trick to start and then ease on into the mainstream of McDonald’s. The new ads on TV are a start but at the end of the ad is the golden arches that brings one back to reality: Oh, it’s McDonald’s.
As was pointed out in a recent Wall Street Journal article McDonald’s other QSRs and fast casual restaurants are facing the challenge presented of changing perceptions of their offers and those of supermarkets and c-stores. The QSRs primary challenge is the customers’ perception of their offer versus that of the fast casuals. As the article points out the price differential between the two is getting smaller but perceived food difference is still large.
It is interesting to note that the idea of customization has finally come to McDonald’s. This trend has been around for some time. C-stores in particular are doing a much better job of allowing their customers to customize their beverage whether it be coffee for fountain drinks. It is also true that companies such as Sheetz (and other) allow their customers not only the convenience of ordering via a kiosk but providing a myriad of alternatives to allow customization. All of this provides the customer the chance to have it their way.
Let’s just get one thing out of the way: You can’t make a good burger on an assembly line, you just can’t. Not any more than a good milkshake comes directly out of a machine. Enough said.
Now then, why are we all so shocked when a corporate icon like McDonald’s, Sears or Walmart find themselves in a struggle? It is nature’s way and it is inescapable.
The enterprise is born out of the heart and dreams of an entrepreneur. It struggles to establish roots and a place in the market. It grows and becomes bureaucratic with multiple levels of administration and an encyclopedia of policies. It matures and becomes boring, though executives think they’re now king of the mountain. And then they begin to deteriorate and slide down that far slope to the valley of death. THAT is how all life works.
The only thing that causes organizations to live beyond the initial life cycle is rebirth, re-invention. Unfortunately the recognition of that necessity comes about two years too late. Meanwhile some whipper-snapper comes along and makes your lunch better than you.
As has been said here before, each stage of that life-cycle requires a different sort of leader. Unfortunately that realization usually comes two years late too.
Sorry for my verbosity this morning. But I went to do the survey on this piece asking if McDonald’s should “borrow” ideas from its competitors. Well sure—if McDonald’s wants to stay behind the leader and be a “me-too” organization. This is the myth of “best practice” that drives me crazy. Looking for the best practice isn’t the best practice.
First, there is no such thing. Second if something becomes known as a best practice, it is already old news and out of date. The ONLY way to lead your market is to see possibilities others don’t see. And once you’ve made that possibility a reality you look for a higher one.
Only one question will fuel your organization to unassailable greatness and that is constantly asking “What is possible?”
I’m with the NY Times author—McDonald’s is who they are and trying to be someone else is likely to fail. Yes, the food could look better and could taste a bit better—but I don’t want to pay $10 for my McRib (and please don’t tell me what’s in it). Maybe if they walked away from “Lovin’ It,” which implies a much better product, and focused on value and speed, which is what they’re great at, things might be better. It’s certainly worth a test.
McDonald’s challenges are many: Better food offerings by competitors, little appeal to a healthier consumer, prices that are not the bargain they used to be, less quality control over franchises, etc. The life cycle of the current iteration is slowly dying and unless new leadership steps in and finds the transition to the next generation of fast food the downward slide in the U.S. will continue.
Not to say they haven’t tried but the solution has yet to be found.
Ian says it all perfectly. There is not much more to add. I especially like his comment on “Best Practices.” In the MBA capstone course I teach on leadership and corporate sustainability my students come having been taught what I call the “best practice myth.” If every company follows the same best practice, everybody ends up in the same place. How many companies do we have to look at to understand that sustainability is all about changing or dying? Should Woolworth have evolved into Walmart? That is the kind of change McDonald’s should be looking at.
In last fall’s class, I gave my students an exercise to determine one company that will not be on the DJI30 in 15 years. They came up with McDonald’s. Other than the business analysis, what is important about that conclusion is that those students are McDonald’s future customers.
First off McDonald’s, for Boomers like me, is the last place I will eat, as their food is horrible. I understand the value of marketing to folks who need a price break, but more and more today people want their food to actually taste good, and are willing to pay more. You can not sell a $4 value meal and have it taste great, although Steak N’ Shake does a way better job of it than most.
Upgrading the quality aspect will cost more, and that is the catch-22, as keeping the price point down almost forces no real change in what they are serving, and until they are willing to offer something awesome, many of us will go somewhere else to eat. There are also many new options to eat elsewhere, and consumers seem to be willing to pay more, and that is how marketing works. Give me a Five Guys burger anytime, and I’ll gladly pay extra.
McDonald’s is experimenting with everything they can find that will not work. A look at low-cost healthy meals is just not on the menu for this fix when it should be on top of the list. The reason for the mess they are in is a 1980s business plan that today is all but irrelevant and overburdening the company’s dwindling profits. What a mess.
Since McDonald’s was the first fast food I ever had, it holds a special place for me. I still think of the Big Mac as comfort food, but with 2 pieces of bread and 2 hamburger patties, whew, the calories!
That aside, McD needs to look at who their customer is. I see them as moms on the go with kids in tow. They just need a place that they can sit and catch up on texts, messages etc while the kiddos play in a safe environment and hey, a little food that fits the budget.
This means fun! A fun environment that is safe with fun food and coffee with free refills. Give them a choice of breads or a no-bread option. Easy, fast, convenient…for my 2 cents.
You know what I find interesting? No grocery store entered the gourmet burger market space. Grocery stores have all the ingredients like A1, fresh mushrooms, blue cheese dressing, black bean patties, tons of cheese from the deli section, but grocery stores still want to sell deli sub sandwiches, baked and fried chicken. Just my observation even though gourmet burgers may be a more profitable and lower cost of operation.
McDonald’s is making the correct move with their gourmet burger line and redesign. $14 at a gourmet burger place is not out of reach for the average customer to spend. McDonald’s early years was gourmet burger and need to return to their roots. I do believe we are in a burger boom period with a burger bust happening in a few years, but I also believe grocery stores are failing to realize they have the biggest advantage to capture a nice share of the gourmet burger market and failing to take advantage.
The labor model in the USA is completely different from Australia. Australia has higher mandated labor costs which tends to force McDonald’s into getting a more productive employee. The result is an improved dining experience compared to the USA. However the QSR experience in Australia is weaker compared to the USA because higher wages take the place of tipping. For McDonald’s in the USA to improve, their biggest challenge is attracting qualified labor that can provide a better dining experience. That would require dropping dollar menus, provide more comfortable seating, and a cleaner environment.
Competing on products, pricing and positioning are clearly the largest issues facing McDonald’s today. Once McD’s overcomes their own restrictions and obstacles, they should be able to grow, in new directions, with new products, and pricing. Where are the deli sandwiches, hot dogs and submarine sandwiches that McD’s keeps ignoring?