What led to McDonald's decline?

by Monica Watrous
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McDonald’s may have lost some of its customers by moving away from the dollar menu, the c.e.o. said.

NEW YORK — McDonald’s chief executive officer admits some of the chain’s challenges in the United States over the past two years were “self-inflicted.” The fast-food company’s sales results fell 11 straight quarters through April, when McDonald’s reported a 0.6% decline in global comparable sales.

“I think when you look at performance, you look at what you can manage and then you look at the outside world,” said Steve Easterbook, president and c.e.o. of Oak Brook, Ill.-based McDonald’s Corp., during a May 27 presentation at the Sanford C. Bernstein Strategic Decisions Conference in New York.

McDonald’s may have lost some of its customers by changing its value menu, he said.

“We moved away from the dollar menu for a variety of reasons, (which) is not necessarily the wrong thing to do, but we didn’t replace it with sufficient enough value in the eyes of the consumer to enable that transition to go without getting some resistance from the customer on that,” Mr. Easterbrook said. “And then, when the momentum of the business starts to be challenged, sometimes … the day-to-day operation then becomes impacted.”

Meanwhile, McDonald’s coffee beverage platform and other growth engines initiated in recent years have started to sputter.

“The reality is you tend to get diminishing returns from them over time,” Mr. Easterbrook said. “They’re kind of just baked into your baseline, and you need new incremental growth drivers. And probably one of the criticisms we have of ourselves in the business is we didn’t see the tailing of those growth platforms early enough to start to generate the growth platforms in the future.”

As part of its recently announced turnaround plan, McDonald’s has restructured its business into four segments with new leadership and plans to refranchise 3,500 restaurants.

But the efforts go much deeper. McDonald’s has changed the way it grills its beef and toasts its buns to create hotter, juicier burgers. The chain has dropped half of the items from its drive-thru menu boards for faster service and has rolled out new training programs to improve order accuracy and reduce complaints.

McDonald’s has changed the way it grills its beef and toasts its buns to create hotter, juicier burgers.

These little things add up to a big difference for McDonald’s customers, Mr. Easterbrook said.

“Clearly the U.S. is a burning priority,” Mr. Easterbrook said. “We’re working hard and fast to stabilize and then reverse the guest count and sales declines…

“We have new structures with regional focus, fewer layers, stronger accountability, and already we are seeing an acceleration in the testing of new concepts and product innovation. Things that would previously have been held back by the system are now being championed by the different regions.”

Customers may order an Egg McMuffin for dinner in San Diego or have a Big Mac delivered in the Big Apple. The chain also is offering such regional menu items as a lobster roll in Boston and pressure-cooked chicken in Atlanta.

“We’re moving fast in the U.S. to address the challenges before us in a way that 27 million customers daily will notice,” Mr. Easterbrook said. “I’m confident we have the strong foundations in place to win back customers and grow share.

“However, progress will be bumpy and uneven.”
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READER COMMENTS (3)

By Jim Carter 6/11/2015 11:53:20 AM
All of these changes may have been given a great deal of thought and may be good, but the big reasonwhy McDonald's slipped off my radar was SLOW SERVICE. When the wait exceeds the value of the savings your customers and I are off to somewhere else.

By Robert Tracy Thomas 5/29/2015 11:31:51 AM
An open letter to Mr. Easterbrook: As a one-time global supplier to and shareholder of McDonald's, I have several observations: 1) Too often, Operations controls McDonald's success, not marketing or innovation. 2) Keep your supply chain as "clean" as possible, but stop trying to tell the world you are Farm-to-Fork; You're not.Your consumer set is not interested in or "buying" that story. 3) Focus on delivering quality. I'm glad to hear you are altering cooking techniques to deliver a hot and juicy burger. You have one of the best iconic burgers ever made, the double cheeseburger. Unfortunately, I gave up on them years ago - the bun and meat were always cold and the cheese was never melted. Straight off the grill, this is one of the best burgers in America. 4) McFlurry and MacCafé are excellent platforms. However, I believe they are a "pain" for operations - dragging down service times. Make them less of a "pain" and refresh them constantly. I have to believe they are margin enhancing or they wouldn't be on the menu. Also, make them more visible. The new menu boards make you "search" for them = lost impulse sales. 5) Don't try to be Five Guys or Shake Shack. They are for a different ethnographic group. Rely upon your core socio-economic set, people who depend upon fast food value pricing to make ends meet. All the best and good luck.

By GreenEyedGuide 5/28/2015 2:06:44 PM
McDonalds and the Kodak syndrome - It's interesting to consider the clash between a brand staying true to its original image and the need to evolve to meet the demands of new markets. It's a fine line to try to achieve both, and when I think of McDonalds, I do imagine very-affordable food, very quickly. I don't associate McDonalds with healthy, nutritious food, but that's not to say that reputation isn't possible -- it just takes a bit of work, careful planning, and risk to achieve this type of re-invention/re-conceptualization successfully.