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McDonald’s – Facing the Heat Globally

by EOS Intelligence

McDonald’s – Facing the Heat Globally

by EOS Intelligence

by EOS Intelligence
395views

With more than 36,000 outlets globally, out of which 14,000 are located in the USA alone, McDonald’s is rightly known as the fast-food giant. After decades of expansion that saw the brand conquer leading markets across the globe, McDonald’s seems to have been losing its sheen across leading markets since 2014, with the biggest challenge arising in its home market. Growing health consciousness among consumers, new diverse competition, legal hassles, and supply chain troubles have kept McDonald’s in the news for all the wrong reasons, while dropping profitability has forced this leading fast-food chain to shut down about 700 outlets globally in 2015 and further 500 in 2016. With a change in management and a proactive approach to upgrade its offerings, at least in its home market, the chain does seem to have a plan of action in place, however, it is yet to be seen if it is enough for damage control.

In an unprecedented step, McDonald’s (McD’s) shut down 700 outlets globally (350 outlets in the USA and 350 outlets in its remaining countries of operations) in 2015, and it expressed plans to shut down further 500 outlets globally in 2016. While the company maintains that this will help weed out unprofitable stores, it definitely does spell trouble for the world’s largest burger chain. The biggest concern, however, remains that the slowdown does not stem from poor performance in any one economy but an amalgamation of issues faced by the brand across the globe.

1-McDonald’s Struggles

2-McDonald’s Struggles

3-McDonald’s Struggles

As McD’s strides through one of its worst times, the company looks to tackle the dim outlook with a head-on approach. As one of the first steps, in March 2015, the company changed its management, appointing Steve Easterbook as CEO in place of Don Thompson (who served the company as CEO since July 2012. Since taking charge of the driving seat, Steve Easterbook (who was previously responsible for turning around the company’s business in the UK), has introduced several initiatives that seem to reinvent the brand offerings and reprise its lost reputation.

In the USA, the company introduced all day breakfast and introduced a new customizable menu called ‘TasteCrafted’ in nearly 700 outlets in the USA. The new menu is the company’s attempt to follow the Chipotle strategy of personalization of meals and presents consumers with the choice of three buns, three different meats, and three different styles of toppings. The company has also tried to tackle the minimum wage issue by raising wages in company-owned outlets in the USA, however, this created dissatisfaction among franchised outlets employees. However, even as a start, these measures have helped the company improve sales at home (US sales witnessed the first rise in two years in Q3 2015).

Internationally, and especially in Asia, the company is working towards stricter supply chain auditing to rebuild its brand image. In the Chinese market, the company has launched several healthier options such as apple slices, veggie cups, and multigrain muffins to attract the health-conscious consumers. McD’s is also looking at massive expansion in China, with plans to open about 250 new outlets each year over the next five years. It wants this next wave of growth to stir from the franchising model. Similarly, the company is looking at the prospects of selling a stake in its Japanese operations to a local investor, who could help the company turnaround its Japan business.

EOS Perspective

As McDonald’s woes seem to arise from a mix of dissatisfied stakeholders – consumers, partners, and employees across the globe that vary for each economy, it is not far-fetched to say that the company stands the risk of losing its leadership position across its top markets (as it already has in India). Several strategic decisions are being made by the brand to return to its past glory, however, these seem more long term in nature and therefore will have a significant gestation period before their results are visible.

While the company is largely looking to lean on franchising to spur growth and streamline operations, such as dependence on franchising can act as a double-edged sword especially in times when the company is facing tarnished reputation in several of its leading markets.

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