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:
- 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.
- 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.
- 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.
One of the signs – which admittedly seem, on some days, to be vanishingly few – that our world may be transitioning to a Type I civilisation is the increasing importance attributed to formal education. However, this trend usually applies to certain social classes only: the further down the social scale one goes, the less and less formal education appears to have practical application. Entry-level jobs are increasingly being eliminated; those which remain are being standardised and rationalised to the point where intelligence or creativity are strictly deemed to be extraneous. This is particularly true of the fast-food industry, where staggering rates of staff turnover – rates that would be unacceptable in many other economic sectors – have been explained in part by the stultifying nature of most jobs in that domain; even today, it is perceived that most positions at the major burger chains are inherently undesirable.
It was therefore with genuine refreshment that we at Mediolana came across the story of Pal’s Sudden Service (‘PSS’), a drive-through hot dog and hamburger chain based out of Kingsport, Tennessee, a small city forming part of the ‘Tri-Cities’ region of Kingsport-Bristol-Bristol in the southern United States. Unlike nearly all companies in the fast-food sector, PSS aims to recruit only the best and brightest: even entry-level job candidates have to answer a 60-question psychometric test, and are subject to rigorous, ongoing training. Employees are certified and recertified for each skill, including customer service: those failing to attain a mark of 100% can no longer work at that particular sub-discipline. And every company leader, including the CEO, spends 10% of their time helping an employee develop a specific skill. PSS CEO Thomas Crosby explicitly states that his company is ‘in the education business, just like any school or university’.
The results are impressive: Pal’s has shedded just seven general managers since its 1981 foundation, and its overall annual staff turnover rate is 32%, approximately one-third of the industry average. Both these statistics signal continuity and stability – the stuff of gold in an all-too-turbulent business world. They also indicate that PSS is saving large wads of cash on recruitment and HR costs. By strongly emphasising the need to develop their employees instead of just chasing quick, surly bucks, Pal’s is winning on both the financial and the human capital fronts. But will more companies have the foresight and courage to improve their bottom line – and make their employees happier?
As noted in our unreasonably popular blog post of 19th November 2013 – Sultans of Ping: Will Austerity Change Our Thirst for Culinary Convenience? – London has become something of a paradigm for culinary cultures defined by convenience and pre-packaged, pre-prepared food.
However, convenience food – which, as writers from George Ritzer to Eric Schlosser have copiously illustrated, might not be as convenient as we believe it to be – is generally of low quality. Outside of Pret a Manger, a sandwich chain in which natural and organic ingredients feature with reasonable prominence, it is difficult to think of any eatery with a serious presence on the UK capital’s high streets which manages to cast more than a faint nod in the direction of better nutrition while also being within the budget range of non-übermenschen; independent cafés which have given serious thought to this matter beyond offering organic teas and coffees are perhaps even rarer.
It is with this in mind that Max Hamburgerrestauranger AB (‘Max Hamburgers’, ‘Max’) represents something novel for convenience-first food cultures. Max Hamburgers is a fast food chain headquartered not a million miles from the Finnish border in Luleå, northern Sweden; it vaunts 86 restaurants in its domestic market and is expanding internationally. Max Burgers has shot to prominence by prioritising things other than speed; while Max does not currently have a presence in the United Kingdom, it is nevertheless poised to revolutionise contemporary Western cuisine:
1. Quality.With a zero GMO, zero trans fats, zero antibiotics and zero growth hormones policy, Max Burgers is successfully competing on qualitative measurements and is changing the very structure and dynamics of its sector.
2. Social Responsibility. With its groundbreaking agreement with Stockholm-based social enterprise Samhall, Max are providing employment to the disabled in a manner that shames many of the more famous brands.
3. Success. A radical approach to health and social responsibility on top of cooked-to-order burgers that come in many different varieties of bread and high-fibre alternatives to french fries sounds like a risky proposition – but Max Burgers has been so successful that it currently enjoys 45% market share in Sweden and has made several branches of McDonald’s, which possesses just 13% market share, unprofitable.
As a company headquartered in London, we at Mediolana have got used to being unusual in caring about what we eat: the dining culture of the UK’s capital is dominated by pre-packaged or cheap takeaway convenience foods, with high streets the length and breadth of the capital (though ironically not our very own Kensington High Street) dominated by fried chicken, sandwich, sushi and burger outlets – shrines to our desire for speed.
Of course, some are better than others – there is a big difference between gnawing down the pork hormone-infested chicken (‘chork’) proffered in the cheaper dives specialising in industrial meat products and tucking into a premium, pan-fried masterpiece of the kind available at Gourmet Burger Kitchen – but nevertheless, London is a city where food is outsourced and where many people’s idea of cooking stretches no further than the nearest microwave.
So it was with some shock that our Creative Director & CSO digested some recent figures on microwave ownership (.xls file) from Euromonitor: while a predictable 92.5% of households in the United Kingdom possess one of these devices, and this figure rises to 94.2% in Japan and a stunning 95.8% in the United States, not everyone has concluded that the microwave oven represents the pinnacle in culinary excellence. Only 67.5% of households in Singapore vaunt a microwave; under half of all Chilean residences have one; while nearly two-thirds of Brazilian households do not have a microwave. Most strikingly, nearly 94% of Turkish households are microwave-less.
Microwave ovens are ridiculously cheap devices, with a branded one available for around €50.00; therefore, they are not beyond the reach of any middle-income household virtually anywhere in the world. But these figures serve as a reminder that culture determines the uses of technology far more than we tend to realise.
Italy, a country which is not included in this set of statistics but which also has legendarily low microwave oven penetration levels (nearly 80% of Italian households do not possess this device), is presently experiencing a boom in home cooking – bestselling titles in Italian newsagents now include Cucina Economica (‘Economic Cooking’) and Cucina della Nonna (‘Grandmother’s Cooking’) – which would be unthinkable in London. But given that the Italian food resurgence is driven by economics, will even convenience-defined cultures be forced to change the habits of a lifetime?