The Conundrum of McDonald's: We're NOT lovin it



Source: http://i.imgur.com/puZNbva.png

I remember the first time I ate a McDonald’s burger when I was a child back in the year 1999. It was not a pleasant experience to me at first, to say the least. I pondered why in the world people would eat this kind of thing. As time passed by, from one burger to another, the taste started to change and yeah I was loving it.My parents usually took me to a McDonald’s restaurant almost every weekend. The thing that was close to a burger in Cambodia at that time was the Cambodian Num Paing Pate (Cambodian-style meat in a French baguette), but it was no longer on my menu.

McDonald’s is the epitome of fast food extravaganza. I think it is safe to say that the first thing that pops up into your when you hear the word “fast food” or “American food” is McDonald’s. To understand how big McDonald’s is, let’s go through some numbers. McDonald’s chain restaurants serves 68 million hungry customers everyday. McDonald’s presence is ubiquitous,  operating in 119 countries with a total of 35,000 restaurants. The Economist, a British magazine, even uses the price of Big Mac in different countries to measure the exchange rate and inflation of different countries, known as the Big Mac Index. McDonald’s annual revenue for 2014 is 27.44 billion dollars with a net income of 4.76 billion dollars. To put the revenue of the Golden Arches into perspective, its annual is equal to the combined gross domestic product (GDP) of Cambodia and Lao.

The company grew rapidly in the past decade and as the party seems to never stop, it eventually did. 2014 was a bad year for the world’s biggest fast food restaurant. Revenue fell 7% to $6.57 billion in the fourth quarter, while net income fell 21% to to $1.09 billion, or $1.13 earning per share. The poor sale and stock performance have culminated in the sacking of ex-CEO Don Thompson. So what has gone so wrong for the once Golden McDonald’s?

1. The new trend of millennials demanding quality and healthy food: Some customers are willing to pay a little premium just to get a better quality food at Shake Shack, Five Guys, Panera Bread and Chipotle Mexican Grill. These restaurants have carved a niche of their own in the market called the “fast casual restaurants segment”. They apparently position themselves somewhere between the normal unhealthy fast food chains and full service restaurants. They differentiate themselves from the traditional fast food chains by putting more emphasis on healthy ingredients to appeal to health conscious consumer. For example, Chipotle Mexican Grill promises its customers that it will only use meat from animals raised without using hormones and antibiotics. Chipotle also removes GMO vegetables (Genetically Modified Organism) from its menu to show how dedicated the company is to quality and healthy food. McDonalds seems to be very slow in responding to this new trend. In 2014 McDonald’s was severely hit by a scandal in Asia because it was found that McDonald’s meat suppliers used expired meat.
2. Growing competition: The fast food market is heating with Burger King’s $1 dollar menu and other fast food restaurants with the likes of Wendy’s, In-and-out burger competing with McDonald’s at the low price point.
3. McDonald’s menu was getting bigger: Over the past few years, McDonald’s has tried to diversify its meals to include salads, oatmeal, McWrap, sophisticated coffee drink to appeal to a wide range of customers. While at a glance it’s a move to expand its market share, McDonald’s faces the risk of complicating the kitchen operation and thus slowing the service of delivering food. McDonald’s is popularly known for its speedy service and that quality is what customers expect from this giant fast food restaurant. It was found that the average waiting time at the drive through has increased gradually with the advent of a bloated menu items. However, it is not an easy decision for McDonald’s executives, whether to keep its diversified menu to appeal to a larger customer base or to simplify the menu to maintain speedy service.

   

    The Golden Arch has no one but itself to blame for not adapting to the new trend of what consumers demand. Its former recipe for success is now in the past and investors are eyeing on its turnaround plan amid several months of disappointing sale. Come to think of it, it has been about 6 months since I last ate a Big Mac and I found myself going to Chipotle for many times. I’m hungry now. Let’s have a happy meal.

Thanks for reading and have a great summer everyone.