McD’s is in the throes of a full-blown mid-life crisis. It’s time to refocus on the basics
(Mladen Antonov/AFP/Getty)
Late last year, McDonald’s opened an aggressively hip café in Sydney, Australia. Called The Corner, it has a decor of white subway tile and natural wood, a menu filled with quinoa salads and balsamic-strawberry sodas, and a vague mission to serve as a “learning lab” for the company. But the presence of chipotle pulled pork betrays the café’s real purpose: McD’s aims to be more like a certain surging burrito-shilling rival.
There’s no denying McDonald’s has to do something bold. Last year its revenues fell 7% and profits dropped 21% worldwide, prompting the departure of CEO Don Thompson in January. As McDonald’s stumbles, Chipotle is hitting its stride. Last year, the Mexican chain boosted revenues by 26.7% while profits rose by 52.3%. Its promise of hormone-free meat and locally grown produce is the epitome of the “fast-casual” trend. By using higher quality ingredients, places like Panera Bread, Five Guys and Shake Shack produce food that still comes quickly but somehow feels virtuous. Total sales for fast-casual restaurants grew by 10.5% last year in the United States, compared with 6.1% for traditional fast food, according to Mintel, a market research firm.
McDonald’s now strains to join this trend. New CEO Steve Easterbrook’s first big announcement was a move to using only hormone- and antibiotic-free chicken in its U.S. restaurants. The increasingly baffling menu now boasts 32 different sandwiches. Add the opportunity for customization—last year the chain experimented with allowing diners to add 22 different toppings, including guacamole and chili-lime tortilla strips, to their burgers—and wait times have pushed past seven minutes. It looks more like a mid-life crisis than a business strategy.
The problem is, McDonald’s and Chipotle aren’t really fighting—in fact, they’re standing on different battlefields. The average fast-food meal in the United States costs $5; a fast-casual meal is at least nine. That $4 spread is big enough to make them completely different market segments. So the immediate concern for McDonald’s should be defending against fast-food rivals like Wendy’s, Burger King and Taco Bell, all of which have seen significant growth in the past few years.
While industry experts swoon over Chipotle, Taco Bell thrives by offering cheap food that’s decidedly down-market in both concept and execution. (It sells a million Doritos Locos tacos—their shells made of the popular corn chip—each day.) The chain knows what its role in the fast-food ecosystem is, and it executes relentlessly within those greasy parameters.
The solution for McDonald’s isn’t to become more like Chipotle. It needs to be more like BlackBerry. The smartphone maker nearly imploded fighting Apple for the consumer market. Only by focusing on the security and business-friendly features that built the company has CEO John Chen given it a chance at survival. Or look at Lego, which nearly went bankrupt trying to build high-tech toys; it refocused on its basic blocks and is now the world’s largest toy maker by revenue.
While McDonald’s chases fads and competitors, the core of its business remains remarkably simple. A handful of items—Big Macs, fries, soft drinks—drive the bulk of its sales. Consumers come not because they want a fancy burger, but because they want a fast one. If McDonald’s is going to recover, it needs to stop asking, “How can we woo new customers?” and instead ask, “What made people love us in the first place?” And then, it needs to stop doing everything else.
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What McDonald’s could learn from BlackBerry
McD’s is in the throes of a full-blown mid-life crisis. It’s time to refocus on the basics
By James Cowan
(Mladen Antonov/AFP/Getty)
Late last year, McDonald’s opened an aggressively hip café in Sydney, Australia. Called The Corner, it has a decor of white subway tile and natural wood, a menu filled with quinoa salads and balsamic-strawberry sodas, and a vague mission to serve as a “learning lab” for the company. But the presence of chipotle pulled pork betrays the café’s real purpose: McD’s aims to be more like a certain surging burrito-shilling rival.
There’s no denying McDonald’s has to do something bold. Last year its revenues fell 7% and profits dropped 21% worldwide, prompting the departure of CEO Don Thompson in January. As McDonald’s stumbles, Chipotle is hitting its stride. Last year, the Mexican chain boosted revenues by 26.7% while profits rose by 52.3%. Its promise of hormone-free meat and locally grown produce is the epitome of the “fast-casual” trend. By using higher quality ingredients, places like Panera Bread, Five Guys and Shake Shack produce food that still comes quickly but somehow feels virtuous. Total sales for fast-casual restaurants grew by 10.5% last year in the United States, compared with 6.1% for traditional fast food, according to Mintel, a market research firm.
McDonald’s now strains to join this trend. New CEO Steve Easterbrook’s first big announcement was a move to using only hormone- and antibiotic-free chicken in its U.S. restaurants. The increasingly baffling menu now boasts 32 different sandwiches. Add the opportunity for customization—last year the chain experimented with allowing diners to add 22 different toppings, including guacamole and chili-lime tortilla strips, to their burgers—and wait times have pushed past seven minutes. It looks more like a mid-life crisis than a business strategy.
The problem is, McDonald’s and Chipotle aren’t really fighting—in fact, they’re standing on different battlefields. The average fast-food meal in the United States costs $5; a fast-casual meal is at least nine. That $4 spread is big enough to make them completely different market segments. So the immediate concern for McDonald’s should be defending against fast-food rivals like Wendy’s, Burger King and Taco Bell, all of which have seen significant growth in the past few years.
While industry experts swoon over Chipotle, Taco Bell thrives by offering cheap food that’s decidedly down-market in both concept and execution. (It sells a million Doritos Locos tacos—their shells made of the popular corn chip—each day.) The chain knows what its role in the fast-food ecosystem is, and it executes relentlessly within those greasy parameters.
The solution for McDonald’s isn’t to become more like Chipotle. It needs to be more like BlackBerry. The smartphone maker nearly imploded fighting Apple for the consumer market. Only by focusing on the security and business-friendly features that built the company has CEO John Chen given it a chance at survival. Or look at Lego, which nearly went bankrupt trying to build high-tech toys; it refocused on its basic blocks and is now the world’s largest toy maker by revenue.
While McDonald’s chases fads and competitors, the core of its business remains remarkably simple. A handful of items—Big Macs, fries, soft drinks—drive the bulk of its sales. Consumers come not because they want a fancy burger, but because they want a fast one. If McDonald’s is going to recover, it needs to stop asking, “How can we woo new customers?” and instead ask, “What made people love us in the first place?” And then, it needs to stop doing everything else.
MORE ABOUT FAST FOOD: