On Friday, fast food giant McDonald's (MCD) announced it is closing 175 underperforming restaurants. In the same press release it states it's going to emphasize sales growth at existing restaurants. Today, Standard & Poors is threatening to cut its rating on McDonald's because its plan may not be enough. Part of that plan includes a new brand and advertising strategy announced last week. McDonald's is in a defensive position. And when in such a position moves tend to be reactionary rather than strategic.
McDonald's is going down. To be sure, there will always be the golden arches. But the hey day of Fast Food (I prefer to call it 'neon food') as we know it is over. Until I read this I was sure McDonald's had more retail outlets than any other fast food firm in the United States. Last year Subway opened 904 restaurants putting it ahead of McDonald's at the time by 148 locations. Globally, McDonald's still is the king of neon food with more than 30,000 locations.
At one time there was McDonalds. They were number one. And they owned first place in the category. And there was a time I might have stepped into a McDonalds. What was I thinking? What are they thinking? It's not for lack of initiative. They've tried and tried to stay on top. But since Ray Kroc's original concept in the last century, McDonald's really hasn't done anything innovative. And it shows where it hurts most: earnings and balance sheet.
McDonald's just announced it's seventh out eight quarters earnings decline and it's stock price is at its lowest point in nearly a decade. So what are the brilliant minds at America's fast food success story going to do? Lower prices.
Brilliant. Oh. Wait. I'm sorry. No, they are creating a 99-cent value menu. McDonald's is playing with a full deck. And this is the foundation on which they will rebuild the enigmatic empire where the arches will rise again. The other cards McDonald's will play? A $1 billion makeover of its locations and a $40 million advertising campaign beginning this month. The message? “Got a Buck, You're In Luck.”
Think about it. Here's one of the strongest brands in the world and they're going to take the next step to sell it out with lower prices. It's a battle McDonald's cannot win. And there's no reason it should nor need to go there. What McDonald's has lost over the years is its differentiation and its focus. But the latest moves by its top brass to save the ship from sinking further will prove to be fruitless.
Perhaps it's simply the fact that nobody on the team is passionate about resurrecting an icon of American consumerism. At one time perhaps more than half the world's association of America was McDonald's. For better or worse, CNN has brought our culture into the global living room of connected societies. This group certainly has issues with McDonalds.
A quick trivia break in this blog: There is only one state capitol that does not have a McDonald's in its city. What is it? Comment here. And I'll post the answer tomorrow. Winner gets gift certificates to McDonalds.
Time to get back. So let's briefly look at McDonald's answer to its problem. And join me as I scratch my head and wonder: what are they thinking? They've revamped their marketing team with ad agency outsiders, a P&G veteran and a few insiders. But even in what appears to be even more desperation, they brought Hal Schrage out of retirement. And Schrage is famous. Get this: among his accomplishments? He invented the Happy Meal. And he wrote one of the most famous lines in advertising: “You Deserve A Break Today”. McDonald's new marketing arsenal also includes unlikely spokespersons Donald Trump (what?), Johnnie Cochran (huh?) and tennis legends Venus and Serena Williams. I'm sure this selection represent the desire for good value well. They will also resurrect old McDonald characters the Hamburgler and Grimace.
I can picture the meeting in Oak Brook at McDonald's HQ. The boardroom is wistfully silent as the “team” waits for the big guy. The “new” big guy. To unleash his strategy. And he delivers it punch after punch: We're going to be known as the fast food chain with “great value”. We're going to bring back the dude who wrote great slogans and created the Happy Meal. And we're going to give him a New York Millionaire, an LA lawyer and a couple tennis stars to work with. Oh, and we've got these cute cartoon-type characters too. And the message we're going to send to the American public is “great value”.
I'm sure that for several very uncomfortable seconds the silence was the loudest thing in the room. And then the room was awash in handshakes, obligatory accolades and pasted smiles. So they're on their way. Undermining brand equity and getting further into a game it just can't win. I mean how many fast food chains have value menus? Brilliant.
Oh well. At some point McDonald's will have the epiphany moment when it realizes that while it does need to reinvent itself, it needs to do so with innovation that leads to differentiation? This differentiation needs to be singular in focus and clearly understood and communicated. Most important, this differentiation must be important and relevant to its customers.
On another note, earlier this year McDonald's responded to a report on cause of obesity in children by changing the method in which it makes French fries. The result? McDonald's announced it would lower fat content. Just another example of McDonalds' reactive strategy.
Great value? And McDonald's is well on its way to spending more than $2 billion to communicate this message. Just brilliant.