McDonald's Has Fallen Arches

From 2001 to 2011, the burger giant's income almost doubled and profit almost tripled.  Ah, but how the mighty have fallen.  The business quarter ending Sept. 30, 2014 saw a 30% decline in net income- a drop that shook McDonald's to the very core of its corporate culture.  The first casualty was the President of its American operation, but the root of the Big M's problems goes far deeper than management.  Younger customers have defected to other fast-food chains that offer fresh ingredients, more popular selections and customized food.  Competitors like Chipotle Mexican Grill,  Five Guys and Panera Bread Co.  present a young, fresh image that makes McDonald's look like an old fshioned grandfather.

But the Big M is fighting back.  Under the new slogan "McDonald's Experience of the Future"  Chief Executive Don Thompson thundered:  "Customers want to personalize their meals with locally relevant ingredients.  They want to enjoy eating in a contemporary, inviting atmosphere.  And they want choices in how they order, choices in what they order and how they're served".  He then rolled out a new business model.  First, 4 zones will be created - Northeast, South, Central and West.  The key to this strategy will centre around local consumer tastes and preferences.  Second, simplify the menu by removing low-selling products.  Third, new technology to make it easier for customers to order, pay digitally and customize their orders.

Some analysts want McDonald's to add healthier food to help America in its war against obesity.  But Edward Jones analyst Jack Russo pointed out:  "There's a huge portion of the population that could care less about health and wellness.  McDonald's already tried adding salads, fruit smoothies and oatmeal to its menu - it didn't work.  They need to get lower middle-income consumers back to their stores".

Roughly 40% of McDonald's 35,000 global restaurants are in the American market.  But the over-seas operations are not off-setting American losses.  They have their own problems.  In China, for example, a national scandal at one of McDonald's meat suppliers caused deep losses in sales.  A weak economy in Europe has hit the bottom line hard.  And in Russia, restaurant inspectors are harassing the Big M's restaurants and shutting down many on the pretext of "unsanitary kitchens".  Why?  Probably in retaliation for American sanctions against Russia because of Putin's invasion of Ukraine.

Can McDonald's overcome these challenges?  Will the new business plan turn red ink into black?  Perhaps, but in my view, sometimes a Brand has simply outlived its sell-by date.