10 McStakes McDonald's Made

With Don Thompson stepping down March 1st from his role as McDonald’s CEO, investors gave a resounding sigh of relief. Steve Easterbrook, formerly McDonald’s chief brand officer, still has his work cut out for him as he prepares to step up and fill Thompson’s role. Following recent 2014 brand setbacks in the Asian QSR market, McDonald’s global same-store sales were down 0.9 percent this last quarter, with overall global traffic down 3.6 percent. In the U.S., same-store sales dropped 1.7 percent as traffic dropped 4.1 percent.

Even with yesterday’s anticipated stock jump, McDonald’s stock is still down 14.5 percent from its highest point in 2014, culminating in an overall 3.4 percent year-end decrease in the brand’s stock prices. In Q4 2014, McDonald’s saw a 21 percent decrease in earnings.

Fixing the Problem:

McDonald’s bleak financial performance points to one obvious fact: at 66 years old, McDonald’s has failed to evolve with its guests. Today’s consumer expects more from its fast-food restaurants. There are, at present, 10,000 people for every hamburger restaurant. The market is immensely crowded, and even the world’s largest chained burger concept is beginning to feel the pinch.

McDonald’s Top 10 “McStakes”:

1. Two Kicks to the Chest In China: Since 2014’s Chinese chicken supplier scandals, bad press that shook McDonald’s to its core. China, Japan and Hong Kong collectively account for 10 percent of McDonald’s system-wide sales. In total, by the end of 2014, McDonald’s Asia-Pacific, Middle East and African segment saw a 4.8 percent year-over-year decline.

   Why did sales drop so sharply? Because McDonald’s failed to restore guest confidence through correct crisis communications and responses. Confidence in the product quality was so shaken that in Japan, McDonalds branches had to substitute Tofu and fish as the protein for their “chicken” nuggets. [Related: Our list of the 21 Biggest Restaurant Crisis Communications Case Studies in Restaurant History]

2. Cause-Marketing: Once an industry leader in cause-marketing initiatives, McDonald’s charitable programs have since decreased dramatically. The brand now apparently sees charitable work as a cost rather than an investment in brand positioning. It’s an expensive mistake, particularly for a chain seeking to win over cause-oriented Millennials.

   Guests consistently buy from brands that reflect their self-image, and for Millennials, brands that position themselves as a force for good hold immense appeal. With 87 percent of Millennials donating to charity in 2013, brands like Starbucks and Chipotle have seen huge returns on their investments in purpose. Today, Chipotle is valued at $22 billion, reports Yahoo! Finance, with annual revenue clocking in at $3.2 billion.

3. Bloated Menus: When McDonald’s first opened, they had roughly 14 items on the menu (remember that number). Today, the chain pushes 121 menu options at guests – a complex list suffering from morbid obesity. From 2004 to 2014, the McDonald’s menu grew a whopping 75 percent. It’s a symptom of the brand trying to be too many things to too many people – one that has decreased efficiency. While McDonald’s seeks to have guests in and out of the drive thru in under 90 seconds, research shows that off-brand items like a McWrap can take as long as 85 seconds to make. In 2013, McDonalds had its slowest drive thru times to-date, with the average order taking 189 seconds to complete.
   
   All of this boils down to a few very compelling numbers. On average, each of the 121 McDonald’s menu items generates $23,966 in revenue per restaurant. At Shake Shack – a chain pulling in the big-bucks with a sleek 14-item menu – each item generates $285,714 in sales per store. That’s lean, mean and efficient, and people are taking notice. This muscular financial model is bound to attract long lines of customers and investors alike.

4. Failure to Evolve: Before stepping down, Don Thompson finally admitted a truth that has been obvious to our team for years: McDonalds has failed to evolve with its customers. Coming from the (soon to be former) CEO, that is enough said.

5. Picking Too Many Fights: McDonald’s has seemingly made it the brand’s mission to offer everything its competitors do, and more. And it’s failing, showing insecurity and a lack of brand discipline. By super-sizing its menu, McDonalds has lost sight of the core concept that made the brand an industry giant in the first place: burgers. Off-brand items like the McWraps (implemented as a response to the success of McDonald’s competition) aren’t selling. According to a Wall Street Journal interview, one McDonald’s franchise owner reports that, while his unit sells 1,000 cheeseburgers each week, they only serve 140 McWraps. Similarly, after McDonald’s Mighty Wings failure in 2013, the brand was left with 10 million pounds of unsold chicken.

6. All Things to All People: By broadening the scope of its brand purpose and positioning, McDonald’s has dramatically injured its ability to offer competitive differentiation. The brand’s “golden arches” do not represent a company built on breakfast burritos or coffee. They signify a brand built off of French fries, burgers and shakes. Yet of the 121 menu options, only 15 are burgers.

7. The Industry’s Biggest Lightning Rod: Size was once one of McDonald’s strongest competitive advantages, with more than 36,000 locations. No other burger chain in the world has seen the scale McDonald’s has achieved. Today, however, being the biggest is starting to become a disadvantage as guest seek out the “anti- chain” chain with greater frequency.
   
   Being the largest has also made McDonald’s the biggest target. Today, consumers see the brand as synonymous with everything that is wrong with the Western foodservice industry. To put the brand’s size into perspective, the U.S. currently has military bases in 66 countries; and McDonald’s is fighting local competitors in over 100 countries.

8. Dumping Chipotle: When McDonald’s and Chipotle parted ways in 2006, the world’s biggest burger chain lost a huge opportunity. McDonald’s compensation: $1.5 billion – that’s 14 times less than what Chipotle is worth today (and that’s all because of Chipotle’s spot-on sense of purpose).

9. Jealousy – The Golden-Arched Monster: While emerging global markets might not be ready for LSR restaurants, here in the U.S., fast-casual concepts account for 55 percent of the U.S. market share, reports Market Realist. McDonald’s is not a fast-casual restaurant, but it is trying to compete with LSR brands like Chipotle. The result? An overly complicated menu and a diminished guest experience.

10. All of the above mistakes lead to one simple fact: McDonald’s is a 66 year-old brand being schooled by direct competition like Burger King and the 33 year-old CEO at the helm. Burger King, just so we’re clear, is the third largest burger chain in the U.S.. In May 2014, when McDonald’s sales were down 0.6 percent worldwide, Burger King saw a 150 percent increase in net income.

What We Recommend:

• Focus, Focus, Focus: McDonald’s must reassess the values on which it was built. It must revisit its sense of purpose. Without these adjustments, the brand is lost at sea. [Here are a few more of our tips on How to Refresh a Stale Brand]

• Win Digital: Anyone worth their salt in the restaurant industry has seen the statistics on digital, social and mobile engagement. It’s an evolution that is inescapable. As the largest hamburger chain in the world, McDonald’s can (and must) have more success stories for digital campaigns than any other restaurant.

• Speed and Convenience: You can never make it too fast or too convenient for consumers to buy your product. McDonald’s has, done the opposite, creating a menu so complex it confuses guests and takes twice as long industry standards to prepare.

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