McD’s makes a change at the top
McDonald’s has been on a search for answers. The company has posted months of declining same-store sales in the U.S. and abroad. In a familiar response to such challenges, the burger giant announced yesterday that Don Thompson would step down as president and CEO of the organization, effective March 1. Steve Easterbrook, senior vice president and chief brand officer of McDonald’s, will replace Mr. Thompson who held the top spot for two years.
"It’s tough to say goodbye to the McFamily, but there is a time and season for everything," said Mr. Thompson in a statement. "I am truly confident as I pass the reins over to Steve, that he will continue to move our business and brand forward."
Investors seemed to welcome the management change as McDonald’s stock climbed more than three percent in after-hours trading.
"With sales stagnant for this long, there’s been a lot of push for change," Will Slabaugh, an analyst at Stephens Inc. told Bloomberg News. "They had to show investors they’re serious about changing and improving sales."
Mr. Easterbrook, who ran divisions in Europe between 2006 and 2011, will face a big challenge turning around a business that is losing a younger generation of consumers to chains such as Chipotle.
"The students in my classes don’t even think of going to McDonald’s," Christopher Muller, professor of hospitality at Boston University, told USA Today. "They’ve been taught not to go there since they were kids."
As an Associated Press report points out, McDonald’s has been on a mission to try and change its image with consumers, particularly younger ones. Last month, Mike Andres, president of McDonald’s USA, said the chain was exploring how to reduce the number of ingredients in its products as well as preservatives.
McDonald’s has also lost some of its perceived advantage on price. A recent piece by Brian Sozzi, president of Belus Capital Advisors, on TheStreet pointed out that a cheeseburger at Five Guys, which is considered to be much higher quality, sells for $6.79 while a McDonald’s Big Mac sells for $5.
- McDonald’s Announces Key Management Changes – McDonald’s Corporation
- McDonald’s CEO Don Thompson to Step Down – Bloomberg News
- McD’s Promotes Easterbrook to Supersize UK Success – Bloomberg News
- McDonald’s CEO out, stock up more than 3% – USA Today
- McDonald’s CEO Don Thompson steps aside, stock jumps – CNBC
- McDonald’s CEO Steps Down as Sales Decline – The Associated Press/ABC News
- What Struggling McDonald’s Could Learn from Shake Shack and Five Guys – TheStreet
Discussion Questions
What are the major challenges facing McDonald’s? What will the company’s new CEO have to do to turn the business around?
One factor hurting McDonald’s is the rise of customization—Subway and Chipotle and Starbucks cater to customers’ desire to create meals and drinks just for them. A change at the top won’t affect that directly, but perhaps Mr. Easterbrook can figure out a way to address the issue and create new opportunities for McDonald’s.
I think the two trends of “fresh” and “healthy” have had a major impact on McDonald’s. It’s very interesting to hear retailers in other verticals complain that consumers are just too price sensitive and everything has to be about price and there’s no way to win against Amazon (and maybe at one time Walmart too), and here we have playing out exactly how to do it right in the quick-serve space. Five Guys, Smashburger, Shake Shack, heck, even Wendy’s have all upped their game (and their prices) when it comes to their food, on both the fresh and healthy fronts (just don’t count the calories). And McDonald’s is still playing the price game, low quality for cheap. Clearly consumers have rejected that play.
So it appears that consumers CAN be swayed by value over price. How McDonald’s is going to do internalizing that remains to be seen.
McDonald’s faces a conflict: Does it decide to go after the Millennial customer with different menu items and approach? Or does it “stick to its knitting” by focusing on its core competency of clean restaurants, value prices and fast service? Either way, McDonald’s is due for a radical simplification of its menu offerings because its operations are grinding to a halt.
And can a historically inbred company at the top really change if it continues to promote only from within?
As the article states, kids have been taught not to go to McDonald’s. Just like it has been drilled into kids not to smoke. Asking what challenges are facing McDonald’s is like asking what challenges face the tobacco industry. It’s not like McDonald’s is losing money. They are highly profitable and maintain a strong brand name. They could milk this for decades. Growth is not a concern but more just maintaining existing sales.
McDonald’s is not going to be a cool coffee shop like they have been trying to do with McCafe. My advice is to stick to basics like In & Out Burger, replace the front-line work force with fewer but more productive employees at higher pay. Then ignore the critics and aggressively market to kids to the legal limits. “But Grandpa, mom/teacher says McDonald’s isn’t good for you” is what I’m hearing. So then we can’t go or I’m in big trouble. McDonald’s needs to find ways to help out grandfathers like me so we don’t get punished for taking our grandchildren to McDonald’s.
The challenges are almost self-evident—too many stores, consistent but mediocre products, decades of being positioned as the whipping boy for everything wrong with fast food, nutrition and American culture.
But on a deeper level, McDonald’s is a victim of its own success at branding. Everyone knows the brand, but the artifacts of the brand (the menu, the dining experience, etc.) fail to live up to the brand—at least in a positive way.
Many, many years ago I found myself at Hamburger U with an opportunity to bid on a lucrative project. If I had had a different personality it might have been the engagement of a lifetime, but, being me, I spoke truth to power with predictable results.
While not going into too many specifics, it was almost the same problem the brand has today—not enough sales, particularly to key customer segments.
What McDonald’s wanted was some full-blown, futuristic white paper on how to grow parts of the menu. “Make the food taste better,” I suggested. “You have too many competitors out there whose food tastes better than yours. You can’t ‘Happy Meal’ your way to success forever.”
Needless to say I was—somewhat ungraciously—shown the door. About a year later a new CEO took over and in his “Welcome” speech he asked a question which I’ll paraphrase, “How come when I go to Europe and have a Big Mac it tastes so much better than they do here?”
Ah, that is the question.
If selling food was all about clean bathrooms, and brand recognition, and brand extension and good works and play areas McDonald’s would be soaring.
But, as I tried to tell them long ago, you really have to convince people to try the products and, when they do, the products have to taste good.
Well changing the image is important, but one thinks it would be best to change the offer first.
The article is focused on McDonald’s. But certainly the name could have been Wendy’s and most definitely Burger King. They are all facing the same dilemma: How to get customers not only in the front door, but returning after that initial visit.
As I was reading George’s article my mind wandered back to when was my last visit to any of the three (other than maybe a pit stop). It has been so long I have no idea.
McDonald’s has its work cut out for itself in the future. Previous perceptions, status quo food, bloated menus and offshoots like McCafe have hurt its reputation and brand. It all comes down to how do they change perceptions (it’s not all about price but quality of food as well), and how do they rebrand themselves to focus on one main goal and jettison all the bloat they have acquired over the years trying to be everything to everybody?
You can change the CEO 10 times and the results won’t change. Once upon a time, people went to the counter at Woolworth. Once upon a time people went to Howard Johnson’s. Once upon a time people went to McDonald’s. Successful business models rarely last more than about 25 or 30 years. McDonald’s has done well by those standards. Their success is based on a specific business model and brand association. To change it will denigrate the brand and destroy the business. To not change it will protect a brand that is out of step with the times, and will also lead to failure.
In an assignment I gave my MBA students…”What DJI30 member will not be around in 15 years?” they picked McDonald’s.
I am not sure this is totally a Millennials issue. I am a Boomer and I have not been to McDonald’s, Burger King or Wendy’s in over 20 years. Poor quality at a cheap price is still expensive.
You’ve heard me say it before and you’ll hear me say it again, McD’s needs to focus on who their customer really is!
Every time I stop in to a McD’s, it’s filled with moms on the go with kids in tow. And, BTW, I only do fast food when I’m on the road and need to get out of the car, eat quick, at a reasonable price.
So do these moms. They are having a busy day and need to get the kids out of the car, bathroom break, catch up on texts/calls, and feed everyone something at a reasonable price.
I honestly don’t think these moms are the big burger types. Do you? Give them some healthy options and especially focus on the children’s meals. This is likely the deciding factor. Good price, action figure, healthy choice. Voila!
But don’t forget the vacation traveler, like my husband. He does want the hamburger and since he’s on vacation, he’ll take a side of fries.
For my 2 cents!
It’s an easy fix—the product is awful. Couldn’t help but be facetious…seriously, this is a huge, huge, um, impossible challenge. One that even a really smart Britt can’t mend.
I’d say, the only real fix is to go after a sub brand immediately and get it moving. The McD’s brand is so damaged by what it actually was and still is vs. what you (or anyone) could possibly try to convince us it could be, that you might as well face facts—end of growth—and move to new. Let McD’s serve it’s function as cheap, low quality food for specific demographics, and move to a “format of the future” to grow revenue and re-gain respect in the mind of the consumer.
Yeah, that’s easy (not). Large brand challenge of the decade, IMO.
I am at the advanced age where I have seen time and time again that companies/products run a predictable trajectory that starts out with their being “different, new and cool,” then for a long stretch they seem to become and be viewed as “standard, safe and all- American,” and then they slowly become seen as “pass, old school and boring.” (It’s not that there’s anything really wrong with them, they just cease to be interesting to a new generation or to be compelling enough to the tastes of an increasingly stratified social structure.)
I am not sure there’s a lot McDonald’s can do about this. Perhaps they are in a different stage of acceptance and excitement in foreign markets. After happily sampling and experimenting with local fare when traveling abroad for business or pleasure, I’ll also admit to sometimes feeling comforted and relieved when I see the familiar golden arches sign. I’ve heard other travelers say this, too, so there is at least some residual good will for McDonald’s. Maybe they can isolate and tap into that. They really have been a great American company and I hate to see them falter.
I think we’re being a little harsh on McDonald’s. If they can simplify and upgrade the menu, focus on some healthy options for younger adults, moms, and kids, and motivate core fast food eaters to to give their improved menu a try, I think they will do fine. They might also want to advertise their fries, which are better than those of many higher-end chains.
Product, price and updating an old perceived view of the QSR! These are all things which challenge McDonald’s today and that they should focus on for their future. Why not offer hot dogs? Chili topping for burgers and fries? Fresh, grilled meats including fish? Subs? Single large fresh meat burgers filled with fresh toppings and vegetables? McDonald’s competitors all have winners leading their companies that McDonald’s can easily adopt and they refuse to. Ego is a terrible issue for McDonald’s and their greatest problem of all!