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Restoring the Luster to McDonald’s Golden Arches

McDonald’s remains mired in its worst sales slump in more than a decade.1 Revenue in the quarter ending on December 31 fell by 7% to $6.6 billion, while earnings dropped 21% from $1.4 billion to $1.1 billion in the same period a year ago.2

A major factor behind McDonald’s woes is the changing tastes of the millennials, the generation born between 1980 and 2000. A survey found that since the beginning of 2011, the percentage of diners in the U.S. who visited McDonald’s monthly fell by 12.9 percentage points for the 19 to 21 age group, and remained flat for the 22 to 37 group.3 In contrast, “the percentage of 19-to-21-year-olds increased their monthly visits to fast-casual restaurants by 2.3 percentage points, and 22-to-37-year-olds by 5.2 percentage points” in that same period.4 “Customers in their 20s and 30s—long a mainstay of McDonald’s business—are defecting to competitors,” especially fast-casual restaurants like the burrito chain Chipotle and gourmet burger chain Five Guys.5 These smaller and more focused fast-casual restaurants are “winning younger consumers with fresher and more customized offerings.”6 Furthermore, they “have cultivated an image of social responsibility that appeals to many young people, such as by offering organic ingredients.”7

Steve Easterbrook, who will be taking over the reins at McDonald’s as CEO on March 1,8 recognized that “[t]he millennial generation has a wider range of choices than any generation before them . . . They’re promiscuous in their brand loyalty.”9 Since the millennials “want to buy into a brand not just from it,” McDonald’s has to “find interesting and engaging ways to share that information with millennials.”10

In addition, McDonald’s is plagued by the effects of its expansion over the years.11 It has more than 14,350 locations in the U.S., averaging out to 4.6 in every county, and its menu is so bloated with items that it has slowed service.12

To address these problems, McDonald’s has been implementing a range of measures. In December 2014, the company announced “plans to eliminate low-selling items from its menu, and to expand experiments with more customized offerings,” which followed the restructuring of its U.S. operations “to give regions more autonomy to offer locally tailored products.”13 McDonald’s has simplified its menu, reducing the number of “value meal” promotions, while raising the price of many items on its “dollar menu” to more than a dollar.14 It expects to open fewer stores in 2015 and has planned capital investments of $2 billion, the lowest in more than five years.15 McDonald’s is also testing a kiosk in four stores in Southern California and one in Australia that allows customers to design their own burgers by selecting their meat patties, buns, condiments, and toppings.16 It has opened a sandwich and salad shop in Australia that resembles a cross between Panera Bread and Starbucks, with no McDonald’s logo in sight.17

To counter the perception that its food is less healthy, McDonald’s is releasing videos on social media to show how it prepares its food,18 and increasing transparency through the “Our food. Your questions” campaign.19 In January, the brand launched a new marketing campaign in the U.S. with commercials and food packaging to refresh its longtime “I’m lovin’ it” slogan20 As part of its move to improve digital capabilities and connect with the younger generation, McDonald’s appointed Google executive Margo Georgiadis to its board on January 28.21 Mr. Easterbrook also indicated that McDonald’s is developing mobile apps that will facilitate access to information about the company’s social responsibility.22

Unsurprisingly, these measures have been met with both praise and skepticism.23 For instance, some analysts have questioned the wisdom of telling consumers that McDonald’s uses 19 ingredients to make its French fries when consumers are seeking simplicity in food.24 An analyst at Sanford C. Bernstein & Company described McDonald as “throwing a lot of spaghetti at the wall, but it’s not clear that any of it is the right spaghetti . . . it’s not obvious that’s what consumers want from McDonald’s.”25 Larry Light, former McDonald’s chief marketing officer, agreed with McDonald’s strategy of simplifying its operations and menu, and changing consumers’ perception of its food quality.26 But he pointed out that McDonald’s must improve the food itself, and that it should prioritize “loving” its current customers, rather than attracting customers they would love to have, by maintaining its strength of speed.27 As Light observed, “[a]t Five Guys if you order a customized burger you have to stand around and wait for it. McDonald’s core customer wants fast service.”28 Regardless, it will take time for McDonald’s changes to yield results and to determine which of the new ideas will work and whether the brand can win back consumers.29

  1. Jason Dean et al., McDonald’s CEO Is Out as Sales Decline, Wall St. J. (Jan. 28, 2015), 

  2. Stephanie Strom, McDonald’s Tests Custom Burgers and Other New Concepts as Sales Drop, N.Y. Times (Jan. 23, 2015), 

  3. Julie Jargon, McDonald’s Faces ‘Millennial’ Challenge, Wall St. J. (Aug. 24, 2014, 9:50 P.M.), 

  4. Id. 

  5. Id. 

  6. Dean et al., supra note 1. 

  7. Jargon, supra note 3. 

  8. Dean et al., supra note 1 

  9. Jargon, supra note 3. 

  10. Dean et al., supra note 1. 

  11. Id. 

  12. Id. 

  13. Id. 

  14. Strom, supra note 2. 

  15. Id. 

  16. Id. 

  17. Id. 

  18. Id. 

  19. Julie Jargon, How to Revive McDonald’s? Ideas from Four Experts (Dec. 23, 2014, 12:42 P.M.), 

  20. Dean et al., supra note 1. 

  21. Id. 

  22. Jargon, supra note 3. 

  23. Strom, supra note 2. 

  24. Id. 

  25. Jargon, supra note 18. 

  26. Id. 

  27. Id. 

  28. Id. 

  29. Strom, supra note 2.