What brings an established brand name like McDonald’s (MCD, Financial) in the news corner is usually something new that it could be doing with its menu worldwide, or perhaps a healthy quarter earnings courtesy of its status as the world’s premier hamburger chain. However, the performance of the company has been lackluster, according to experts, detailed by their declining sales figures and shifting customer loyalty to other similar brands. This eventually prompted the board of directors to change the CEO of the company, whereby Don Thompson made way for Steve Easterbrook, who was the Chief Brand Officer earlier. Easterbrook had initially worked for McDonald’s from 1993 to 2011, before leaving the company and becoming the CEO of Wagamama and Pizza Express, both UK-based restaurant brands. He rejoined in the capacity of the chief brand officer in 2013. His job is now cut to bring back the faith in the company and get the numbers up again.
The warning signals
Needlessly to say, Don Thompson’s exit from the company isn’t just a smooth transition, but something which was prompted from the dwindling numbers they have. Some of the warning signals coming their way include:
- At some of the established customer locations across the United States, McDonald’s has lost 4.1% customer traffic in 2014, following a 1.6% loss in 2013.
- It is also battling a major PR problem with the supplier scandal in China that is doing the rounds across the world, and customers have been reacting negatively to it.
- In the past year, the stock has taken an estimated 6% hit on its price, which is a notable number.
- McDonald’s food, targeted at the mass consumer market, is stuck in a limbo of sorts, and the company is having a hard time trying to acclimatize itself with the changing perceptions of food.
The fight isn’t over
Richard Adams, a consultant for McDonald’s franchisees, saw the exit of Thompson as a bit of a surprise because the man had bought in some processes to fight with the situation.
- Consumer perception that fast food always has to be about grease and mysterious ingredients, is driving them towards competitor brands like Subway, Chipotle (CMG, Financial), and Panera (PNRA, Financial). However, McDonald’s has launched a campaign inviting people to enquire about their ingredients openly and spreading awareness about what they have on the menu. The President of the company is the U.S., mentioned that the number of ingredients used and the cooking methods will be changed for consumers to look at them more positively.
- Customers in recent times have inclined their choices towards brands that let them make a choice about what goes into the food they are buying. This means that they can pick and choose the ingredients right in front of them before having them served. This is a mentionable difference from the traditional McDonald’s approach of standardization of the menu. In the U.S., 2,000 locations will now give consumers a chance to customize their burgers.
- Pricing is, rather surprisingly so, becoming a problem for some. In order to lure customers into high volume value-for-money deals, McDonald’s needed to push their costs on to other products on the menu, while keeping some of the star low cost "dollar menu" more friendly on the pocket. Now these special "value deals" are being slowly done away with to balance the costs.
The way forward
Unlike what Don Thompson said after his "retirement" was announced regarding "changing leadership not meaning changed strategy," the market is expecting that the change in leadership will include a change in its strategy as well. Though a lot of the corrective measures have been put in place in the later part of 2014, it will Steve Easterbrook’s skills and experience being put to the test to ensure they are adhered to, and also maintaining flexibility which be essential to set the numbers rolling again. In fact, there is a sense of optimism already, with the stock trading 3% higher during the after-hours activities, landing at a high of $91.79 a share, on the January 28 closing.
