Following steep declines in sales and earnings at McDonalds, a former McDonalds executive takes to the pages of the Wall Street Journal to explain what he thinks need to be done at the fast food chain to regain its luster:
Another fast turnaround of the McDonald’s brand is possible—and it is essential for the company’s future. If you don’t take care of the short term, there will be no long term. Here are a few immediate actions that would reignite McDonald’s.
Here are his proposals:
- Make sure you retain your current customers.
- Compete with your actual competitors rather than the companies you wish were your competitors.
- Better food.
- Know what business you’re in: fast food.
- Do a few things better than anyone else rather than a lot of things poorly.
- Restore relevance.
- Dedicate the company to “the right actions executed in the right way to achieve the right results.â€
- Introduce a small number of winning new products rather than a lot of products that mostly fail.
- Rebuild employee pride.
- Rebuild trust.
Most of those are basic Peter Drucker management It’s seems to me that some of them, e.g. “restore relevance” and customer retention, are actually in direct conflict. It’s a tall order.
Mr. Light undoubtedly has more insider knowledge of McDonalds than I do but that might be a problem. I don’t think he gets to the crux of McDonalds’s difficulties which I would see as two-fold. First, McDonalds grew up during a very peculiar period in American history. A very large number of entry level workers were coming into the job market and would do so for the next quarter century. For many Baby Boomers working at McDonalds as a teen was a right of passage. For the last thirty years the situation has been different. Rather than attracting bright-faced teens today’s McDonalds is largely staffed by immigrant adults with very different needs. Rather than expecting to work a few years, gain experience, and move on to something that paid more they expect to be able to live a decent, independent life, raise families, and maybe even send some money home to mama. That’s in direct conflict with McDonalds’s business model.
Additionally, the United States is a saturated market. New franchisees (again supplied by Baby Boomers) just aren’t coming along at the rate they did a half century ago. I don’t have the figures to back this up but I’d guess that most new franchises these days are overseas. Here in the United States McDonalds is a staple for lower income people, young people, and new families. I strongly suspect it serves a different market overseas. Different business models.
IMO McDonalds has encouraged two generations of Americans to prefer mediocre food. That’s the company’s core customer base and they won’t retain them with better food, different menus, or new products. Which is what they’ll need to get new customers.
A noted management guru tells me that if they would just raise wages $2/hr all would be well……
I’d suggest “better food,” different menus and new products (as opposed to temporary promotional items) are not congruent with their core customer’s comfortable price point. And I also think it’s TSM is shrinking. I’d put the Burger King customer in my sights, although the fried vs broiled preference dichotomy seems to be largely set so that may be problematic, and think about adjusting its cost footprint. The latter point sounds defeatist, but a lot of things are different post baby boom and boomlet. Sometimes temporary retrenchment is called for. As for the standard argument that there would be a lifetime loss of a potential customer to the Five Guys / In N Outs etc of the world, that’s a completely different buying decision.
As I understand it, they need to raise wages to at least $15/hr plus a full healthcare and benefits package. If I understand correctly, the only way to make money is to spend more making the product than you earn from it. Your profit is the happiness of the employees, and that has no monetary value.
There are several problems. The physical menu is a mess. The numbered meals are not standardized. The drive thru is slow. The fries are no longer a minimum length, and often, they are allowed to sit out too long. The buns are stale.
One thing they could do is to tear down and rebuild a lot of the older stores. At some point, remodeling does not work. There is dirt and grime in cracks, and you cannot get it out. When it re-opens, it is like a new store opened.
I doubt that paying the workers more money is going to increase the length of the fries, but I am sure the advocates of pay increases know a lot more about physics than I do.
My theory is that Baby Boomers are inherently opposed to spending their consumer dollars at chains and prefer smaller, boutique retail outlets (and thrift stores) and independent, local restaurants and bars that provide an interesting, more unique product and experience.
That’s not supported very well by research. They may patronize chains slightly less than other groups but not dramatically so.
The single age group that tends not to patronize fast food chains is the elderly.
I skimmed the article but didn’t see the definition (by brand) of “fast food.” A number of years ago we seriously considered, before cooler heads prevailed, purchasing a series of Panera Bread franchises. If fast food is defined as low ticket/convenience/brief sit down as opposed to what we all think of, and the subject of this post, our research gave more credence to Susan’s observation. So people who wouldn’t be caught dead in a mcDonalds would patronize the Paneras, Chiles, TGIFs and emergent chains like the buffets (tomatoes ).
By the way, if you ever suffer from temporary insanity and want to buy a restaurant of this nature……don’t. In addition to the operational problems, prevailing economic conditions will have people sliding one notch up or down on average ticket, and you are effed. One reason I can’t conceive of Mcdonalds improving the offering with better ingredients or product intros and moving the price point up. Too elastic.
Now I could be wrong, but I’m thinkin it would take $2.50/hr and not $2.00/ for this guy to become employee of the month….
http://www.zerohedge.com/news/2015-02-12/caught-tape-what-happens-when-you-dont-pay-minimum-wage
Just saw some of the comments. Careful.
The restaurant business is a tough one and fast food is the toughest of the lot. The hours are long, the work is hard and not particularly pleasant, and the margins are very tight. Nowadays franchisees rarely become rich from their investments. I haven’t done the ROI but I’m guessing there are better investments out there.
My key point in this post is that McDonalds’s success was based on distinctive factors of time, the economy, and the personality of Ray Kroc. Today’s managers at McDonalds don’t have his special spark and I think the greatest likelihood is that the business will slowly shrink and fade.
The same people who look down their noses at Joe Six-Pack and his blue collar job march in lockstep with the minimum wage workers for higher wages. They also hate robots which will replace the blue collar minimum wage workers they encouraged to march for higher wages.
These same people are supposed to be the smartest people in the whole wide world, but they cannot think their way out of a wet paper bag. Either they are dumb as a bag of rocks, or it is a setup. Frankly, I have not decided, but I think it could be both. You only need to be cunning for the setup.
I do think you’ve hit on a key change here: that jobs that used to be held by teenagers looking for pocket money are increasingly held by grownups (immigrants and the elderly, yes, but also those unsuited for the more skilled end of the service sector) who need to make a living wage, have health benefits, and the like. Wishing that they could be paid like the unionized manufacturing workers of yore don’t make it so.
I think that’s correct, Dave. Note that the former execs prescription reads more like something from a motivational speaker or one of those 80s era management gurus than a steely eyed assessment of mcdonalds market dynamics.
James – absolutely. To satisfy that wage and benefit objective in the food industry will require a different product offering and price point……and that establishment won’t be called mcdonalds. It might (might) be called Five Guys or something like that. But I doubt it.
Caught an NPR show devoted to this. Was surprised to learn that McD’s has something like 70% of their business overseas and that in foreign markets they are not selling low-priced-foodlike-stuff. They should promote their Indian or Japanese or wherever management to the ‘home’ market.
That’s exactly right, JohnMcC. However phlegmatic our economy is, it’s worse in Europe and Asia. McDonalds was caught in the downturn in the world economy.
I don’t know, guys. I’d be very careful of that. It sounds like New Coke stuff. Further, mcdonalds got to transport itself internationally with a fresh palette, unburdened with what it is known as in the USA, and the competitor set. In India or Japan who is the Burger King, Wendy’s, jack in the Box, Frisch, Steak n Shake, Subway, Jimmy Johns, KFC, Culvers, Taco Bell, Sonic, In N Out, Portillos etc etc.
The power of the McDonalds brand name unburdened by the US brand essence may have allowed it to adopt a different PPP in newly entered foreign markets, but I don’t think it follows that it could reinvent itself here with horribly partitioned and defined segments, and well established branding elements. I’ve seen tired brands polished up. (Keds) I’ve seen iconic brands watered down. (GM) I’ve seen mega brands downsize to a comfortable niche. (Murphy’s Soap/Oil). But I don’t think any management team, Japanese or otherwise, will reinvent Sears or Montgomery Wards as SuperTarget or Wal-Mart. Nor will they The New Mcdonalds.
I read that Starbucks is planning a reboot which I think involves splitting up their stores into two different tiers (I only skimmed the article so I’m not sure about details.) I would think there might be some similarities in the company’s positions in that both have opened a tremendous number of storefronts and couldn’t easily shift up or down market since the locations vary. I wonder if this approach could work, to shift some to a more upscale version and some down, according to the prevailing local demographics? Even so, I have no clue how they deal with the labor issues though.
That’s certainly my view. The franchising model that McDonalds uses makes it really difficult for it to take some of the stores, refurbish them, put in upgraded menus, and re-open them as “McDonalds Gold” or some such without destroying the rest of the franchises.
The upscale buyer does pays to not be around the riff-raff. Whole Food customers only care about minimum wage workers as long as they do not shop at Whole Food stores.
Years ago, Taco Bell figured out that their customers were young, broke, and drunk. They wanted cheap food, and they wanted it fast. Taste was not a high priority, but variety was. Taco Bell stays open late, and they come out with new products frequently.
With few exceptions, their new products use the same ingredients as the old products, but they are packaged in different forms. Take a burrito and pour sauce over it, and voila, it is an smothered burrito. If you remove some ingredients and cover it with sauce, it is an Enchirito.
Burger King looks like it is trying to follow this model, and it may work. KFC looks like they are trying, but they do not want to appeal to the lower demographic.