McDonald’s is the largest restaurant chain in the world. It has 14,350 restaurants in the United
States, with the largest market share of any such chain (7.3 percent). In total, it has more than
36,000 restaurants worldwide. Over the years, McDonald’s was a leader, not only in market
share, but also with the introduction of new menu items to the fast food market. For example,
it first introduced breakfast items to this market, and its breakfast menu now accounts for
about 25 percent of its sales. It successfully introduced Chicken McNuggets to this market,
and currently, McDonald’s is the single largest restaurant customer of Tyson Foods, the largest
distributor of chicken products. In more recent years, McDonald’s successfully introduced
gourmet coffee products and began to compete against Starbucks. With all of this success,
what is the problem?
The problems revolve around competition and changing consumer tastes. Consumers
have become more health-conscious, and competitors have been more attuned to
customer desires.
As a result, McDonald’s
suffered a decline in
its total sales revenue
of 2.4 percent and a
drop in net income of
15 percent in 2014.
This was the first de-
cline in both figures in
33 years. It seems that
McDonald’s did a poor
job of analyzing its
environment and espe-
cially its customers and
competitors. During
this same time, some
of McDonald’s com-
petitors flourished. For
example, Sonic enjoyed
a 7 percent increase in
its sales, and Chipotle
recorded a large
20 percent increase. Other specialty burger restaurants, such as Smashburger, have stolen
business from McDonald’s even though their burgers are priced a little higher than
McDonald’s burgers. The quality of these competitors’ products is perceived to be higher
and many are “made to order” and thus customized to the customer’s desires. And, partly
because the volume and complexity of the McDonald’s menu items have grown, the
time required for service has also increased. This change has been most evident in the
drive-through lanes in which the wait time has grown by approximately 20 percent in
recent years.
Because of the lack of understanding the changing market and competitive landscape,
McDonald’s was unable to be proactive and now is in a reactive mode. For example, in 2013, it
decided to add chicken wings to its menu. Wings were sold successfully at McDonald’s in Hong
Kong, and it imported its “cayenne-and-chili-pepper coating” used there. The market test for
the wings in Atlanta was successful, so the firm implemented a major campaign to sell them
at its restaurants throughout the United States. The eight-week campaign was a miserable
failure (some referred to it as the “mighty wings debacle”). Perhaps they were too spicy for the
broad market, but some believe that they were also too expensive at $1.00 per wing, with a
box of five wings costing $1.00 more than a similar number at KFC. Because of these problems,
McDonald’s hired a new CEO in 2015, hoping to overcome its woes.
The new CEO must act quickly. McDonald’s has recently announced that it is changing to
use only chickens raised without antibiotics to be sensitive to human health concerns. It has
also market tested custom hamburgers in Australia with success. In fact, Australia is one of
ARE THERE CRACKS IN THE GOLDEN ARCHES?
Ruaridh Stewart/ZUMA Press/Newscom