Rebuilding the Golden Arches

McDonald's should take some cues from the processing side of the business.

By Lauren R. Hartman, Product Development Editor

Golden Arches Lauren ColumnMcDonald's, the world's biggest restaurant chain, is hurting in the U.S. Despite promises of change, what was once an inexorable force in business -- that year after year enjoyed soaring sales and profits -- continues to slump. Nearly a year ago, its third-quarter profit fell 30 percent, as U.S. sales slumped for the fourth straight quarter, reports Bloomberg Business. McDonald's 2015 second-quarter results indicate revenue dropped 10 percent, to $6.5 billion.

We're talking about the world's largest fast-food hamburger chain, with at least14,000 U.S. restaurants, that serves some 68 million customers daily in 119 countries. This isn't something to be taken lightly. But the luster of the Golden Arches has faded. The big question is, can it be restored?

Many say Big Mac could self-destruct if it doesn't start examining new strategies. Consumers have changed, so it's up to Big Mac to change with them. CEO Steve Easterbrook announced in May a plan to revive the company. That could happen if the company does a deep dive into its "hipster" Australian operation. In June, McDonald's Australia posted 10 consecutive months of positive sales numbers following a year where it rolled out expanded menu offerings and cafe redesigns.

The edgier Australian counterpart takes a different approach to the way it serves food, experimenting with hipster-style cafes and different ingredients to reflect popular tastes in Australia. Other initiatives the Australian team has taken include rolling out a do-it-yourself burger service, relaunching a loose-change value menu and offering barista-quality coffee. While it's perhaps too soon to tell if the success will last, customers currently approve.

Easterbrook says the company can learn a lot about how the Australian model works. "The business has turned in Australia, and the market is focused on sustaining positive performance," he said during the company's second quarterly earnings call in late July. "And when something works, we can then transport it from market to market at pace."

The sooner the better. Even the biggest of fast-food chains can fall, and fall hard. About 40 percent of McDonald's total business is in the U.S., and it has suffered against fast-casual competitors like Chipotle and ShakeShack, which are viewed as healthier or up-market alternatives.

Staying relevant to what customers want and giving them what they want has always been paramount in doing business. When did McDonald's forget that? It has tried emphasizing its commitment to variety, but its overwhelming amount of menu items can be mind boggling. It also changed the look of its restaurants and started closing weak stores − for the first time in its history − and gave raises to workers at company-owned stores. So far, however, those efforts haven’t paid off.

It could take a lesson from Arby's and Burger King, which are differentiating themselves in the market and seeing improvements after years of declining sales. Arby's recently reported same-store sales growth of 7.6 percent, versus last year's second quarter. Burger King's sales are up 7.9 percent. Arby's also strives for the food quality of fast-casual restaurants with the price and convenience of fast food, its CEO Paul Brown has said.

Perhaps if it remembers one of its main strengths is value, things will change. And if it steps up quality and cleanliness and focuses on its core products, it might also boost sales. Focusing on core products helped Arby's.

Some of its improvement strategies include offering all-day breakfasts, which may start nationally this fall. The timing isn't the best, considering the country faced one of the worst avian flu outbreaks in three decades. The flu greatly affected the U.S. egg supply, which is now much lower than usual. But if the Egg McMuffin is available all day, people may come in more, which could significantly boost profits.

It did increase the size of Quarter Pounders from 4 to 4.25 oz., and modified how the patties are seared and grilled to make them juicier. It's also said to be toasting its burger buns for an additional five seconds, making them warmer, all of which are supposed to make the food tastier.

I especially like its customizable burger concept in New York City called Create Your Taste, an option that lets customers select artisan buns, more exotic toppings, sauces and other items not typically found on McDonald's burgers.

Only time will tell if McDonald's can turn this serious slide around, but it could take a cue from many of the big food processors, which are replacing artificial ingredients in response to rising consumer interest in ingredients and how food is produced.

This month, our product development section explores just how various food companies are keeping pace with changing consumer tastes by developing safer, cleaner flavors and food colorants. With the replacement of synthetic flavors and colors with more healthful, natural versions, processors are listening to consumers. McDonald's should, too.

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