The world’s largest chain of hamburger fast food McDonalds Corporation (MCD, Financial) is in the rethinking process of company’s strategy to bounce back in the market. The company along with its new chairman is struggling in between worse than expected Q1 results and promises to showcase the turnaround plan of the company next month. The fast food giant has been advised to focus on the lower income consumers to entice their brand loyalty. Improved wages and easy franchise policies is together expected to take the company out of tough times. Globally, sales were down 2.3% in the first quarter and the damage may continue for the month of April as well.
McDonalds slips and misses
Founded in 1940, the US based company is present in 119 countries catering to about 68 million people through its 35000 outlets. Initially a barbecue restaurant, the chain soon became a popular hamburger joint with franchises all over the world majorly selling hamburgers, cheeseburgers, chicken-burgers, French fries, breakfast items, soft drinks, milk shakes and desserts.
With competition taking a good lead, McDonalds has been facing hard times in keeping up the company status and revenue growth. A lot of US franchisees have been countering losses and urging the company to bring in the required changes in food menu as well as selling policies. They want McDonalds to stop being on everyone’s palette and start focusing on the target group of consumers. Comparable sales fell 2.6% in US.
Shares of the fast food company saw a downturn of 5% during early trading session and then a rise of just 3% closing at $97.70 netting a loss of 2% through the day. There was a drop seen in the net income as well by 32.6% to $811.5 million and revenues were down 11% at $5.96 billion. Even the strong markets like Asia has been giving bad news for the company with sales down as much as 8.3% as China and Japan becomes concerned about food safety and quality problems.
A universal decline for processed food has triggered alarms for fast food chains like McDonalds who need to rebuild their menu and strategize their marketing to make a come back in the market. Competitors who are smaller than McDonalds like Wendy’s Co. (WEN, Financial), Chipotle Mexican Grill Inc. (CMG, Financial) and Chick-fil-A have been fast adapting to changing consumer tastes and feedbacks from franchisees; reason why, their sales have been gaining pace.
Strategizing to recover
Franchisee’s feedback on McDonalds has been most relevant and can bring in drastic advancements if followed closely. Even Faith Popcorn from BrainReserve consulting firm has advised on acceptance of the fact that McDonalds must target the lower income group which forms the biggest chunk of the company’s regular visitors and thus all planning must be done to entice them. Another solution offered by Popcorn includes raising the wages of crew at the restaurant as well as being on the same page with Franchisee owners too with whom relations are going through a bad phase currently.
As of now, the company’s chairman Easterbrook has announced to showcase on May 4th a reinvention plan for the company as a “modern, progressive burger company” which will start focusing on changing consumer tastes and bring in more fresh and less processed food menu on the tables.
In the past, company has done a lot of restructuring plans which include simplifying its complicated menu, flattening management structure, closing many underperforming restaurants and producing chicken with reduced treatment by antibiotics.
Peers of McDonalds like Wendy’s Co. and Burger king (BKW, Financial) have virtually sold off all their restaurants to franchisees. If McDonalds too follows similarly by increasing the Global franchised restaurants from 80% to 90%, it may do the trick as suggested by analyst David Palmer.
Takeaway
McDonald’s US business suffered huge losses with even the premium chicken tenders on its menu failing to attract customers. Overall, the company saw an operating profit falling down to 28%. Going forward, the company is planning to change the consumer’s outlook toward the company and improvise on the quality of the food as well.
