The customers’ perception of businesses has changed, and so has everything around us. Any business that wants to remain relevant and a float, will have to follow the leader – consumers; in making the necessary changes.
The McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants, serving around 68 million customers daily in 119 countries. But come 2003, it was about to make history, but for all the wrong reasons.
As reported by the telegraph newspaper, McDonald’s reported its first ever quarterly loss in Britain, in January 2003. With more than 1,200 restaurants in Britain alone, it made a pre-tax deficit of £198.6 million and an operating loss of £125.6 million in the last three months of 2002. It made a net loss of £212 million over the period but still managed a turnover of £2.4 billion.
The same historical reports were echoed in America, recording its first quarterly loss since going public in 1965. Comparable store sales in America were stagnant for the past decade, and had been falling for 12 months. Mr. Cantalupo, a 28-year McDonald’s veteran was pulled from retirement in January to replace Jack Greenberg, and insisted he would bring changes in just a period of 12-18 months.
Despite the optimism of a comeback shown by McDonald’s chairman, to others, this losses indicated a change in attitude towards McDonald’s. Research revealed the brand was seen as childish; service was slipping – it was slow and unsatisfactory; the restaurants looked outdated.
McDonald’s, once a good example for good service, was ranked the worst company for customer satisfaction in America for nearly a decade, below banks and health insurers. Their share price plummeted from more than $48 in 1999, to hover around a ten-year low of $12. The fast-food market had also become increasingly competitive as rivals such as Burger King, Wendy’s and Taco Bell fought to maintain their market share.
The consumers did not see what value McDonald’s as a brand added to their lives. They could not rely on them for cheaper, faster or healthier food and services. The happy meal had turned into the unhappy meal; hence McDonald’s with all its open branches and franchises all over the world were stumbling down. Drastic measures had to be taken. This was no 5 year plan; this was a rebranding campaign that was well over due; if it was to have any chance in remaining relevant to consumers and stay afloat.
Mr. Cantalupo worked alongside Larry Light; the global chief marketing officer. Mr. Light acknowledged their need for immediate change and said, “We lost relevance, the world changed, but we didn’t.”
Mr. Light emerged with a new branding strategy and in the campaign, he came up with the slogan, “I’m loving it.” McDonald’s introduced a new healthier menu with items such as: salads; yoghurts; sliced fruit and grilled chicken; after intense criticism that its traditional products were too high in fats, salt and sugar a diet linked to obesity. A new Adult Happy Meal was also introduced in the US that included a pedometer to encourage people to walk more.
This was in efforts to show its consumers why they should choose them over their competitors. Finally McDonald’s was involved in meaningful branding; and this proved to be a change in the right direction because it in turn saw recovery in revenues as it posted its highest sales gain in 30 years. Consumers could now see that McDonald’s cared about their health and cared about providing better services at better prices – with the introduction of the dollar menu.
Lightning strikes Twice
This success from great leadership would be short-lived though, as Mr. Cantalupo dies on April 19, 2004 from a heart attack; he was attending a restaurant franchise of owners meeting in Orlando, Florida, when he fell ill.
This saw McDonald’s shares fall by 80 cents or 2.9% to $26.66 after Monday trading started on Wall Street following the announcement of his death.
“The worries are that perhaps there may not be a strong number two, since he was known as the one with the strong vision,” said Art Hogan, chief market analyst for investment adviser Jefferies & Co.
Despite McDonald’s going through this difficult time; the past 12 months were considered one of the fastest marketing and brand turnarounds in the business history.
Fast forward to the present, October 21st 2014; after a decade of doing well and changing hands in leadership, McDonald’s are once again in trouble. It turns in its biggest drop in quarterly profits, and CEO Don Thompson has acknowledged the calamity and the dire need for much needed change.
Challenges being Faced
One could argue that McDonald’s has been facing significant short term and unrelated factors in posting a 30% drop in quarterly profits and 5% decline in revenue, which is worse than expected. It also faces international challenges: In China a meat supplier scandals continues; in Europe the economy is declining again; and in Russia authorities interfered with their operations in the last quarter.
Obviously all these are factors that are affecting McDonald’s ability to make any revenue and profit. But its biggest problem is that America and the global consumers alike no longer perceive clear meaningful reasons as to why they should choose McDonald’s over any other place to grab a bite. Consumers do not believe the food provides a satisfactory combination of great customer service; fast; convenient and healthy enough menu choices anymore.
“If we do not learn from the mistakes of history, we are doomed to repeat them. George Santayana.” This is something that is too familiar with McDonald’s.
McDonald’s also has been losing its influence and brand standing with its franchisees, who are forced to rely on Monopoly and McRib to see them through and with its traditional customer bases. Teenagers and young adults used to fill up McDonald’s because of the affordable prices, and it had a certain cool factor as a hangout; those days are long gone. And rivals such as Chick-fil-A have seized McDonald’s once-indisputable place at the top of preferred fast food restaurant for families.
Back to the Drawing Board
It’s time for McDonald’s to go back to their drawing board. The same purposeful and meaningful branding it carried out a decade ago is the only way forward. It needs to reassure it’s consumers it can be a consistent brand. Providing what they promise in their branding campaigns and following through. Consumers need a reason to go to McDonald’s as opposed to any other restaurant.
This is a challenge it will tackle head on if they are to remain relevant and functional in consumers’ lives. Consumers and competitors alike will be watching to see how it approaches and solves the underlying problems and it will be interesting to see what path it chooses. This will mean the difference between being a successful brand or a failed brand.
Will McDonald’s choose to make a stance to be a meaningful brand, with a clear purpose that makes an honest attempt to better the lives of its consumers and bring on the change that people want to see, or will it continue selling features and benefits of the burgers and remain irrelevant and die off? The consumers have spoken; the ball is in their court