Tarnish on the Golden Arches

McDonalds storefront

Tarnish on the Golden Arches
| published August 26, 2014 |

By Thursday Review staff


Hamburgers have been back in the news lately, and the news has not been entirely good.

Burger King announced a proposed deal wherein it would purchase the Canadian restaurant giant Tim Hortons Inc, and--so the narrative goes--likely move its corporate headquarters and operations staff to Canada, where the newly-merged mega-restaurant could avoid U.S. taxes. Burger King hit back hard today, saying its headquarters would remain in Miami, Florida, but most Wall Street analysts point out that Burger King will surely move its tax domicile to Canada anyway, thus avoiding U.S. corporate taxes. Though the merger was popular with investors (both companies saw their stock value rise immediately), the deal is already facing withering criticism from consumer groups, regulators and politicians. Several members of Congress have already called for nationwide boycotts of Burger King.

Meanwhile, longtime industry leader McDonalds may be facing tougher pressures.

McDonald’s, the largest restaurant chain in the world, has lost so much ground in the last two years that this year it fell behind others in terms of overall sales and sales per location—a pretty shocking setback for a company with generations of institutional culture and connection with a fast-food loving U.S. public. This year Chick-fil-A surpassed both KFC and McDonalds to best the iconic firms in several categories, and sending McD’s into a worrisome period of self-analysis over a reputation for poor customer service and unhealthy food.

Making things tougher for McDonald’s has been the quick rise of many more middle-tier competitors, especially among the so-called fast-casuals. Chains like Chipotle Mexican Grill, Five Guys, Moe’s and Panera Bread have challenged the long-standing dominance of McDonald’s, largely by taking away younger customers.

The irony for McDonald’s is that many of those same younger generation customers—those born after 1990—grew up eating fast food. Now, thanks to more options and decidedly healthier choices, those once-loyal kids have grown into young adults who have turned their back on the house of Ronald McDonald and the great empire built by Ray Kroc.

It’s a tough convergence of circumstances for the Golden Arches. Decades of news about healthy versus unhealthy eating has, finally, taken hold in the minds of many younger consumers. Millennials have been especially prone toward healthier eating habits, and McDonald’s menu—which has never been a model for sensible eating or healthy diet—has been slow to adapt to this change of heart. Many fast-casual restaurants offer decidedly better menus, and often at prices highly competitive with McDonald’s. Even those restaurants without the healthier choices, such as Five Guys (which serves primarily traditional burgers and fries), offer pricing and service which undercuts McDonald’s business model.

Younger diners also like the new options out there. According to surveys conducted by the consumer research group Technomic, even though the total number of non-traditional restaurants has more than doubled in the last 10 years, McDonald’s growth has been slow—rooted as it is in an older model of location and revenue, and especially linked to traditional family driving habits. These factors have changed, but McDonald’s has not kept up.

McDonald’s also suffers from its longstanding reputation for fair-to-middling or poor service. Its empire, once built on speedy service and exceptionally polite customer relations, has watched as its reputation has become deeply tarnished in the last two decades. Many of the middle-tier and fast-casual restaurants make their priority friendly customer service and point-of-sale professionalism. McDonald’s menu, many restaurant analysts have argued, has become too complex and lengthy— crucial problems which can slow service and create long lines. Confusion over items and pricing can delay fulfillment of orders, and can create point-of-sale tensions.

But health factors have taken such a measurable toll on McDonald’s sales that the company recently implemented several new menu items (chicken and veggie McWraps, for example), and it plans to begin to experiment with other healthy food items in the near future. Some business analysts point out that McDonald’s has taken its share of beatings in the past and has generally bounced back. McDonald’s has also proven to be flexible with its menu items—ditching those items which do not sell and willing to experiment with new items.

McDonald’s has recently endured its worst sales decline since the early aught years. Last week it replaced its chief of its U.S. division, appointing Mike Andres as the new boss. Andres will be the third in that post in as many years—a sign, some say, that McDonald’s is getting impatient for the turnaround to begin.

McDonald’s operates more than 35,000 restaurants worldwide, with just under half that number in the United States.

Related Thursday Review articles:

Red Lobster, Red Ink; Thursday Review staff; Thursday Review; June 19, 2014.

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