May 05 2015
This week, McDonald’s CEO Steve Easterbrook laid out the blueprint for the company’s plan to reverse its woes and return the company to stable growth amid declining system-wide sales and revenue. The blueprint focuses on a major restructuring of the company’s reporting segments and increased re-franchising to allow for an increased focus on high-growth markets, improved cost-control and faster, consumer-centric decision making. However, while the company continues to position itself toward growth, it still must contend with a rapidly changing landscape in the Fast Food industry, threatening its position at the top of the fast food chain.
Customization and Health-conscious Customers
While still the largest player in the Fast Food Industry, McDonald’s market share has decreased over the past several years, from 17.8% in 2011 to an estimated 17.0% in 2015, amid declining sales and heightened competition. Along with other major fast food chains, such as Yum! Brands and Wendy’s, the company has struggled to maintain market share within an increasingly competitive market defined by fast-changing consumer preferences and growing popularity of the fast-casual restaurants.For example, casual trailblazers, like Chipotle, have enjoyed double-digit revenue growth since 2010. Staying ahead of consumer preferences, the company has been able to capitalize on growing demand for customizable options and high-quality ingredients sourced through transparent supply chains. For example, the company recently decided to eliminate the use of GMOs in its products. In contrast, McDonald's only recently committed to reducing the amount of antibiotics in its chicken over the next two years, a move that many other fast-growing players have either already committed to or surpassed entirely. In addition, while more successful fast-casual chains have trended toward more customizable menu options, McDonald’s has been slow to catch up.
Re-franchising and Overseas Growth Potential
In essence, the crux of McDonald’s turnaround plan is its shift toward a more nimble company structure that will allow it to shift its priorities toward a more customer-centric operation. In divulging more power to its franchises via increased re-franchising, the company hopes to tap into franchise owners’ ability to respond to local consumer preferences, while also cutting operating costs. In part, even the company’s decision to restructure its segments points to its streamlined operating structure, in which local operators have more sway in decision-making processes that can maximize sales within any given region. Furthermore, the company’s new segmentation also further entrenches prospects for growth in overseas markets, such as China, Poland, South Korea, and even developed economies like Switzerland and the Netherlands.
However, these plans are only a modest start for a company that has a long way to go in terms of repairing its brand image and invigorating consumer confidence in its ability to source high-quality, natural ingredients for its menu items. Consequently, McDonald’s turnaround plans have left many unconvinced that a mere reactionary approach to consumer tastes in conjunction with, at best, a modest re-franchising initiative is going to mollify the company’s continued decline. Perhaps taking more cues from its high-growth competitors in terms of customization and supply chain transparency should be on the menu for this turnaround.