McDonald’s Has Reinvented Itself Before. Can It Do It Again?
Times are tough under the golden arches. McDonald’s, one of the biggest fast food chains in the world, recently announced a major turnaround plan involving leadership changes, internal restructuring, and increasing the number of franchisee-owned restaurants. The company hopes the shake-up will halt sliding sales and profits, which fell 7% and 15%, respectively, in 2014.
The turnaround plan is ambitious, but critics say it’s not enough to save the flagging chain, which is facing pressure on multiple fronts. Consumers are eating at slightly more upscale (and expensive) restaurants like Five Guys and Shake Shack. Employee and labor advocates have singled out McDonald’s for not paying a living wage. Even the chain’s biggest fans have complained that service is too slow.
The solution to those problems depends on who you ask. Some people want the chain to shift to higher-quality ingredients. Others advocate a simplified menu, more in line with what’s offered at a chain like In-N-Out Burger. McDonald’s seems intent on doing a little of both. It’s test-marketing menu items featuring kale and has vowed to shift to antibiotic-free chicken in the next few years. The chain is also cutting some menu items, reducing the different permutations of Quarter Pounders, Premium Chicken sandwiches, and Snack Wraps.
Whether new CEO Steve Easterbrook will be able to right the ship remains to be seen. Many think the odds are against him. “McDonald’s is such a huge operation, it’s not easy to turn around the Queen Mary or even make slight changes in direction,” Patty Johnson, a global food analyst with market research firm Mintel, told The Guardian. “[T]he consumer has evolved from wanting everything cookie-cutter. We are now all about innovation and individualization.”
The future doesn’t look bright for Ronald McDonald and company. But this isn’t the first time that the burger giant has faced big challenges. It’s tweaked its menu and fought off competitors before, so who’s to say it won’t be able to do so again?
During the “burger wars” in the 1980s, when McDonald’s, Wendy’s, and Burger King all battled for market share, McDonald’s responded by ramping up marketing and adding items like Chicken McNuggets and the McChicken, and it came out on top. Its 37% share of the U.S. burger market in 1987 was more than the other two chains combined, according to the Los Angeles Times.
New challenges emerged in the 1990s. Slow growth in the fast food industry and increased competition from competitors like Taco Bell meant that McDonald’s recipe for success was being “put to its toughest test in America,” The Economist reported in 1993. The company responded by expanding abroad, moving into new markets in the U.S., and increasing economies of scale. The results were mixed. New menu items like the McLean Deluxe and the Arch Deluxe were announced with much fanfare, but failed to boost sales and were quickly scrapped.
In the early 2000s, McDonald’s hit another slump. Following its first-ever quarterly loss since going public in 1965, the company refocused. It got rid of the much-maligned supersize menu, added more chicken items, and introduced premium coffee. The efforts seemed to work, and sales grew about 5% annually from 2004 to 2013, according to Nation’s Restaurant News.
Those rebranding and restructuring efforts are just the tip of iceberg. One reason McDonald’s has thrived for as long as it has is because it’s been able to adapt to changing consumer demands over the years while remaining somehow familiar. Since it was founded in 1940, it’s added indoor seating, introduced drive-thrus, started serving breakfast, tweaked international menus to appeal to local tastes, and transformed itself into the go-to restaurant for families and kids. Those past successes don’t mean that it will be able to recreate the same magic this time. The challenges it faces are serious. But they may be manageable. People have predicted doom for McDonald’s before, and it hasn’t yet come to pass.
“I don’t think things are as bad as some people are reporting.” Richard Adams, a former McDonald’s franchisee who now works as a fast food industry consultant, told Nation’s Restaurant News in early 2015. “It’s not the end of the world.”