The fast food industry is one of those sectors that see lots of players every year. Some newbies have vanished without a trace, some giants have fallen from their pedestals and some have managed to hold firm and emerge successful by adapting themselves to the evolving market conditions. Here, we are going to see an example each from the second and third categories. McDonald’s (MCD, Financial) the burger and fast food giant that has been reporting constant losses and the pizza major, Domino’s Pizza (DPZ, Financial) that has been producing fantastic financial results for so many consecutive quarters now. What is it that Domino’s is doing differently from McDonald’s? What is the reason for its success? Let us look at some of the key lessons that McDonald’s could learn from the pizza giant to revive its business.
Stick to the basics with respect to the menu
One of the key areas of success for Domino’s is the simplicity that it maintains in its menu. Ever since it was incorporated, Domino’s has been following a basic menu with no great innovations or additions. This has enabled the company to have excellent turnaround times as its kitchens have the full capacity to produce the dishes that customers order. On the other hand, McDonald’s has been involved in a spree of new products for so many years. This simple fact explains the real picture of the company in terms of new dishes. During 1948, McDonald’s had only 9 products on sale. This has increased to a phenomenal 121 dishes as of 2014.
Through these high-profile product launches, McDonald’s actually bit off more than what it could chew. Items on its menu were unnecessarily diversified, leading to increased time of delivery and compromise on the quality of food. In a bid to increase its sales revenues, McDonald’s tried to increase the number of products on its menu with every passing year; however, this didn’t work out well for the company as low quality and lots of waiting time led to widespread customer dissatisfaction.
Focus on growing on home turfs
For the first time in 12 years, McDonald’s same store sales had come down by 4.6% in the US, sending investors into frenzy. McDonald’s, through its complex menu and more complex services, lost out many customers throughout this year. Moreover, many smaller but more efficient casual dining and fast food chains like Chipotle Mexican Grill (CMG, Financial) and other burger joints started eating into McDonald’s market share.Â
On the other hand, Domino’s had reported an 11.1% increase in the same-store sales department during Q4 2014 when compared to the growth of Q4 2013. To add to its woes, McDonald’s burgers were rated the least tasty in the US in a survey conducted by Consumer Reports. This was mainly due to the changing eating preferences of customers. A few years back, customers were focused on low cost meals; hence the “dollar menus” from McDonald’s were highly popular. However, the focus has shifted to the quality of foods rather than the price. Customers were ready to shell out more money for a better quality of food and this change affected McDonald’s very badly.
Growth in international markets
McDonald’s, for the 8th consecutive month, has recorded a drop in its global sales. For January, sales from international markets had dropped by 1.8%. Emerging markets have always presented companies with lots of opportunities to grow and succeed. However McDonald’s lost its reputation here as well, because of scandals relating to its meat products in Asia. With the home market in the US taken over by competitors and small players and international market being hit by scandals and controversies, McDonald’s has a tough task cut out at its hand. With a new management team on board, the primary focus would be to develop markets in the US and foreign countries as early as possible. It could learn from the effective business model of Domino’s in the global markets.
Domino’s same store sales at international markets grew by 6.1% for the last quarter of 2014 and by an overall 6.9% for the whole of last year. Towards the end of 2014, Domino’s reported a whopping number of 5067 and 6562 restaurants in the US and global markets respectively. Through these numbers, the pizza giant reported a considerable increase in its global presence for a record 21 consecutive years.
Conclusion
Investors of McDonald’s should just wait for this year to see if the company learns its lessons in the right way from successful companies like Domino’s. The management team is new, and new initiatives are expected this year. If McDonald’s makes the right moves, it will surely be back to its full form by the end of this year.
