Can McDonald's Halt its Decline?

McDonald's store front

Photo: Thursday Review

Can McDonald's Halt its Decline?
| published March 10, 2015 |

By Thursday Review staff


Though it is officially blaming its competition, which it characterizes as “aggressive,” McDonald’s is facing more tough times this winter and spring as its overall sales and profits decline, again. The iconic restaurant chain—which operates more than 35,000 restaurants worldwide—reported a four percent drop in February, one of its worst declines in a long period of slippage among the major fast food chains.

McDonald’s has seen a steady hemorrhage of normally reliable customer numbers as its competitors clobber it from various directions.

On the one hand, McDonald’s is losing ground to other fast food giants, especially Chick-fil-A, which has taken throngs of customers not only from McD’s, but also from one-time chicken leader KFC. Chick-fil-A has asserted itself as the preeminent customer service leader—shorter wait times on orders, reliably better employee-to-customer interaction, and generally healthier food—amongst the major fast food players. Though Chick-fil-A’s rise has caused erosion across the board, most notably when viewed alongside the decline of KFC, it has had its effect of McDonald’s as well—especially among parents of younger children, as well as young adults, groups whose eating habits have been steadily and measurably shifting over the last decade.

But McDonald’s is also losing many of its younger diners to the fast-casual category: Chipotle, Moe’s, Panera, The Shake Shack, Five Guys, and at least a dozen others. Again, a trend toward healthy eating may be partly responsible, though it is hard to see how a massive cheeseburger with fries from Five Guys is any healthier than a similarly-packaged meal at McDonald’s. Largely, experts say, the shift is demographic: an entire generation of diners have found the fast-casual formula more attractive than the time-honored McD’s template. And McDonald’s even loses the battle with the fast-causual chains on price (once McD’s most reliable feature, aside from speedy service), as restaurants like Moe’s and Chipotle offer better food at roughly the same cost as a meal from McDonald’s.

McDonald’s recent declines have surprised even seasoned restaurant analysts: McD’s had spent many millions of marketing and advertising over the last months to try to woo people back to the Golden Arches, including a high-profile, feel-good ad campaign called “Loving It,” in which customers could on occasion pay for their meal through positive or upbeat interaction with employees and other customers. The widely deployed marketing gimmick was linked to a barrage of retro ads which harkened back to the days of Coca-Cola’s “I’d Like to Give the World a Coke,” in which happy feelings and warm associations were ascribed to the simple act of sharing a soft drink. And the declines came despite a massive internal push to improve the point-of-sale interactions which had driven some customers away—long lines, lengthy delays in order fulfillment, unpleasant waits at the drive-through.

McDonald’s announced the slippage this week alongside acknowledgments that the company needs to change—quickly—to adapt to the massive shift in customers’ shifting preferences and the barrage of new, innovative challengers. Investors are worried, and the iconic company considers the situation an emergency: it will commence a series of meetings, which it calls “Turn-Around Summits,” in Las Vegas this month. In those meetings, McDonald’s top execs hope to spur brainstorming and out-of-the-Happy-Meal-box thinking. That’s the “happy” part of the news for the top brass. At the end of January it announced the ouster of CEO Don Thompson, who was replaced by Steve Easterbrook.

One marketing method Easterbrook hopes might take hold with tech-savvy younger customers: soon-to-be-tested touch screen kiosks in restaurants where customers can customize their burgers and their orders. There is also talk of a phone app which will allow customers to pre-order using much the same touch-screen process. Other fusions of technology and social media can be expected to be tested later this year as well. The touch-screen system, tentatively called “Create Your Taste,” will roll out in roughly 2000 locations by the end of 2015.

But business analysts question whether digital tools and social media alone will be enough to spark the turnaround. Healthier eating has become a major concern for many individuals and families, and McDonald’s—the brunt of documentaries, investigations, and scandals involving its use of processed foods, preservatives and antibiotics—remains the poster child for bad eating and poor diet. Acknowledging the severity of the health issue, McDonald’s will begin the slow, arduous process of restructuring its menu: fewer antibiotics, fewer steroid-enhanced meats, new recipes which require less use of preservatives.

Related Thursday Review articles:

Tarnish on the Golden Arches; Thursday Review staff; Thursday Review; August 26, 2014.

The Worst, and Best Fast Food; Thursday Review staff; Thursday Review; July 14, 2014.