Saturday, February 1, 2014

Has McDonalds become irrelevant?

Its a scary thing when the CEO of a fortune 500 company uses the word "relevance," 20 times during their quarterly conference call with investors.  It begs the question whether McDonalds remains relevant in the eyes of the consumer.  Speaking from personal experience, I never "set out" to go to McDonalds, instead I "give up" and go to McDonalds.  With new competitors such as Chipotle, Five Guys Burgers and Qdoba providing equally fast, higher quality food, at a similar price point, we must ask what value is McDonalds providing to its adult customers.

From the Happy Meal, to the playgrounds, to Ronald himself, McDonalds has always found success with children.  However, has the need for growth driven McDonalds to target market segments which run contrary to its business strategy?  Has McDonalds found itself trying to be all things to all people?  Are they still focused on children with menu options such as the Hot and Spicy Sandwich & Salads? Or the price conscious consumer, as the Dollar Menu now contains items costing five dollars? With over 140 items on the menu (up from 80 in 2007), has offering such a variety of menu choices increased restaurant complexity and removed the "fast" from "fast food?"  In fact a recent study found the average customer waits 188 seconds at McDonalds to be served, but only 106 seconds at Chipotle.  Can we even guess who McDonalds sees as their target market?

It appears as if investors have become wise to the troubles McDonalds is facing. Over the past two years, McDonalds' stock has remained flat. Even as the S&P rose nearly 40%.

Donald Thompson, McDonalds' CEO has only had his job for about 18 months. For the sake of his investors I hope he can ensure McDonalds' relevancy in to the future.

1 comment:

  1. Great post, Michael.

    I have also seen CEO Don Thompson in the media several times in recent months. Lately, he's been touting the McDonalds smartphone application which has been released. The app offers consumers targeted offers based on location and will eventually allow consumers to order and pay as well. I can see this idea being popular amongst tech savvy adults looking for added convenience, but it's hard for me to imagine that a ten year old will be ordering an iced coffee and paying with their credit card using the "McD" app anytime soon.

    Perhaps, in the heat of competition, McDonalds is trying to be too many things to too many people:
    It has followed others' success in offering coffee and a smartphone application (see Starbucks and other coffee chains)
    It has noticed the consumer trend by offering healthier menu options like salads (see Chioptle and Subway)
    It even recently flopped in its effort to offer buffalo wings (see Buffalo Wild Wings)

    McDonalds has seen net income remain flat or decline for the last five years. How can such a dominant player for decades be under such pressures? The American economy is one without feelings or compassion. It's a dog eat dog world.