We’re Leavin’ It: Solving the Mystery of McDonald’s’ Decline

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One of the most intriguing recent business trends has been the sudden reversal in fortunes experienced by the McDonald’s Corporation (‘McDonald’s’), one of the world’s most ubiquitous and culturally-potent fast-food chains. In Q1 2015, the company synonymous with Happy Meals and epic lawsuits closed 350 outlets in Japan, China and its domestic territory of the United States, meaning that the total store closures for 2015 will total 700. In the same quarter, McDonald’s announced two sobering year-on-year figures: an 11% revenue decrease and a 30% profit decline.

The task of explaining why this is happening has gripped a host of analysts, but three reasons appear to be validated by general consensus: (i) new fast food sector competition in the United States from more upmarket chains such as Chipotle; (ii) a denied environment in a sluggish European economy; and (iii) food safety issues in Japan.

These sound like tenable propositions, but after some reflection we at Mediolana remain unconvinced of their explanatory properties. Firstly, McDonald’s has faced (and arguably still faces) far more serious threats to market share than what are still new and relatively minor franchise operations; it did not wilt when confronted with Burger King and KFC. Secondly, the slow economy – particularly though by no means exclusively in parts of the Eurozone – should be at least as much of an opportunity as a handicap for volume-oriented McDonald’s. And thirdly, the spectre of comestible contamination has (at least recently) been confined to one jurisdiction.

Instead, the following factors might be at play:

  1. A Preference for (Perceived) Quality. Decades of books, documentaries and even music exploring the Golden Arches and fast food more generally are finally shaping popular preferences in a tangible way – at a cost to McDonald’s, which may increasingly be perceived as a restaurant for which turnover is the supreme value.
  2. Bad at the Bottom. Particularly in the US, the days when McDonald’s customer base was solidly affluent and middle-class are long gone; indeed, a great many of those who frequent the world’s largest burger chain cannot even be classed as aspirational. It is this group which is suffering the most as the financial crisis continues to bite – and perhaps even meals at McDonald’s are starting to be looked upon as luxuries.
  3. Tired Branding. Once regarded as a quintessentially (post-)modern company, McDonald’s does not quite come across as a perfect Generation Y fit: the garish colours, relatively minimal customisation options and famously low wages are probably not doing a whole lot to inflate the company’s brand equity amongst Millennials. The result – like other aspects of the McDonald’s experience – is in danger of becoming predictable.

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2 Comments

Filed under Business, Culture, Economics

2 responses to “We’re Leavin’ It: Solving the Mystery of McDonald’s’ Decline

  1. That is an interesting and astute analysis of the challenges that McDonalds may be facing. Agree with you.

    While their mainstay food and beverage is not to my liking, I have always been a big fan of the Big M in terms of the efficiency at all levels in how their run their business.

    Keep up the great work on the Mediolana blog. It’s one of the best reads on the interweb!

    • Many thanks for your kind comments! The element of their operations which impresses me the most is supply chain localisation. It is a huge challenge which they seem to solve amazingly well in almost every market they enter. To get a Big Mac to taste the same from Beijing to Bond Street deserves some kind of medal (if not necessarily a culinary one)…

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