Just last week McDonalds posted a 30% decline in net income, resulting in a 3.3% drop in total global sales. This drop comes from all sections of the business, though it is primarily driven by the Asia sector. But let’s be real, who cares? It’s a gigantic multinational corporation, I’m sure they will shrug it off — let’s just go out and grab a McDouble.
You SHOULD care. This is more than a nominal loss and will result in large scale changes to McDonalds, both in products offered and the brand image. The 3.3% drop in sales is driven by a nearly 10% drop in sales in Asia — one of McDonald’s largest drivers of growth. To put it politely, McDonalds has been making a few more-than-obvious mistakes in this market and will need to make big changes in order to combat the slump in sales.
Let’s just get this right out in the open: in July, one of the major food suppliers to McDonalds in Asia was shut down by the Shanghai Food and Drug Administration because the food being sold was past the expiration date. This would clearly have a large negative impact on sales, and according to analysts, this supply-side problem was only temporary. This is good news for McDonalds, but it doesn’t explain why the sales continue to decline.
Ben Cavender, senior analyst at China Market Research Group, feels that rising competition domestically and abroad is the major cause of decreased sales in Asia. When McDonalds initially came to Asia, it had the appeal of a cool western restaurant; now, McDonalds is just one of many options in the market. There has also been increase in the amount of competitors in the market, such as Dicos, who threaten sales in every location a store is opened (and whom are now at about 2000 stores in China).
The real world is not the only place McDonalds has been failing to deliver (or delivering post-expiration). On the social media front, McDonalds recently began to invite customers to ask questions about the food in order to improve their product’s image for the consumer. This ranged from answering questions about worms in the beef or the pink goop that creates chicken nuggets.
And, as you may have guessed, this initiative was a failure. Not only did it associate horrible notions (Worms in the beef? Ew.) of the product to consumers who may not hold these ideas, but it helped to prove just how bad their brand image is. Rather than help promote transparency of information to ultimately allow consumers to make better and more educated decisions, McDonalds was able to reinforce their own poor image and help spread the misinformation. Worms in the beef or not, what is seen cannot be unseen.
Don Thompson, CEO of McDonalds, agrees with consumers that McDonalds has got to change for the better. He stated that McDonalds will simplify its menu starting in January, in part to remove low-selling products, as well as plan to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant. McDonald’s also plans to roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.
Don Thompson goes on to take some of the blame for McDonald’s corporate image problems. Given that he has been CEO for only the past two years, it is reasonable to say that he does not bear the fault entirely. Going forward, however, it is his responsibility to change McDonalds brand and modernize to compete with companies like Chipotle.
Will Don Thompson rise to the challenge of improving McDonalds brand and products? The outcome is unclear; even the best strategies and implementation can still lead to failure. Perhaps the market demand has shifted away from fast food like McDonalds to other areas, or perhaps the poor name of McDonalds will drag them into bankruptcy. One this is for certain, however: McDonalds does not put worms in their burgers.