With a wink to its core customer, the 18-25-year-old, non-discerning white male, McDonald’s released an ad in January mocking heath nuts.
“All vegetarians, foodies, and gastronauts kindly avert your eyes,” the movie trailer-like voice intones, “you can’t get juiciness like this from soy or quinoa.” The camera focuses on a bit of special sauce dripping down the bun of a Big Mac: “This is not Greek yogurt. Nor will that even be kale,” the omniscient voice continues, the frame cutting to bits of lettuce peaking out of the sandwich.
Fast forward to earlier this month, when McDonald's announced its plans to test breakfast bowls made with kale at nine Southern California locations. Meanwhile analysts at Janney Capital Markets leaked news that McDonald’s will be adding kale salads to its Canadian menu.
The kale controversy is indicative of McDonald’s many attempts to win back customers and improve sales. So far these strategies have done little to reinvigorate the business. U.S. sales fell 2.3 percent in April, despite new "initiatives and menu offerings," a McDonald's press release said.
The problem isn’t a lack of interest in the quick-service industry. The problem is McDonald’s, explained Chris Muller, expert on chain restaurant management at Boston University. The brand has a reputation for unhealthy, processed and sugary foods that it can’t quite shake, especially among millennials, no matter how much they improve the quality of their products. McDonald’s new CEO, Steve Easterbrook, who took over the job in March, is hoping to eventually change that perception, but first he is focusing on restructuring the entire company from executives to cashiers.
“It’s overly simplistic to say that McDonald’s has lost its way,” said Muller. “There’s an underlying demographic problem: an entire group of millennials was trained not to eat at McDonald’s.”
McDonald's is committed to providing "more balanced choices" and "nutritious offerings like fruits and vegetables" to its customers, wrote Stephen Mazeika, a spokesman for the McDonald's Corporation, in an email. And the company is "always working to share information and progress about these [health] initiatives" through social media and traditional advertisments.
A smaller share of the grill
McDonald’s falling fortunes coincide with the rise of a new phenomenon that's changing the landscape of the fast-food industry: "fast casual" dining.
Places like Chipotle, Panera Bread, Noodles & Co. and Starbucks offer better quality food, more variety, more table service and the same quick convenience at only a marginal price bump, said Jeff Elsworth, professor of hospitality in the School of Hospitality Business at Michigan State University. Many consumers consider fast casual a better value — an industry term that more colloquially means bang-for-your-buck — to traditional fast food.
In addition, the “better burger business” is stealing consumers away from traditional burger joints. Five Guys, Shake Shack, Culver’s and Smash Burger compete on quality and have been successful in appealing to millennials in particular, Muller said.
People are “changing their taste requirements,” said Bonnie Knutson, professor of marketing in the School of Hospitality Business at Michigan State University. “They aren’t necessarily going for health, although we talk a lot about that, but food quality.”
Also in competition with the fast-food industry are supermarket delis with sandwiches and prepared meals, the frozen food aisle with Lean Cuisines, and convenience stores with hot dogs and doughnuts, Knutson said.
“There used to be a clear distinction between fast food and family dining,” said Elsworth. “And now the whole market is blurred.”
The “Super Size Me” generation
It’s a crowded market and it may seem like consumers aren’t interested in traditional fast food anymore. However, traditional chains like Wendy’s and Burger King, while not experiencing rapid growth like the fast casual sector, are steady in profits and sales.
So why is McDonald’s losing ground?
“The millennial generation is generally described as anyone between the ages of 21 and 35,” said Muller. And those under 27 “watched [‘Super Size Me’] in school and [were told] that eating at McDonald’s is poison.”
Millennials grew up hearing that McDonald’s made people fat and now eating at McDonald’s is often seen as shameful.
“I don’t like telling people I eat at McDonald’s unless I know they also eat there,” said JeriLynn Wylie, an art major at Brigham Young University-Idaho and an Idaho native. “It’s one of those embarrassing things. Some people watch Glee, I eat at McDonald’s.
“But I only go when I’m having a bad day,” Wylie said. “And I crave just three things: a McDouble, a small fry, and an ice cream cone. It’s comfort food. But if I’m not having a bad day and I just need a quick meal and I don’t want to feel like I’m going to die afterwards, I go to Wendy’s.”
People still want fast food, said Muller, “but if you ask a millennial where they are going to go to lunch today, McDonald’s is not usually at the top of their list.”
In efforts to shake its unhealthy image, McDonald's hired former MythBusters star, Grant Imahara, to dispel rumors of chicken nuggets and burgers made with "pink slime" and plastic-laden McRib sandwiches.
McDonald’s has also improved its food by removing preservatives, artificial flavors, meat fillers, and buying higher quality beef and hormone-free, antibiotic-free chicken.
“McDonald’s is the market maker in every category of food, when they say they aren’t going to serve [hormone-infused] chicken,” everyone has to follow suit, said Muller. McDonald’s might actually be healthier than other fast-food joints when comparing calorie counts and food quality, but the sad truth is, “no one talks about it," Muller said.
Knutson agrees that McDonald’s has an image problem, but the question remains how to change it: “There’s an old saying in marketing that it’s too expensive to change people’s minds and it takes a long time.”
Trial and error, what’s next for McDonald’s
McDonald's reported a 2.3 percent decrease in global sales in the first quarter of 2015, holding true to the company's year-long trend.
Sales fell the most dramatically in Asia (8.3 percent decrease) after reports of expired meat in China and bits of plastic and a tooth were reportedly found in food in Japan that scared customers away, reported The Economist.
In the United States, the reasons were less tangible, but it was obvious that McDonald’s had “become a dinosaur and it needed to change,” said Knutson.
But instead of boldly pursuing one marketing path, McDonald’s has tried to do everything at once.
They are testing two customization platforms called “Create Your Taste” and “Taste Crafted,” following the “Have it your Way” fame of Burger King, Knutson said.
Taking two pages out of the Wendy’s manual, McDonald’s made food quality the center of its advertising and diversified its menu by adding salads, grilled chicken sandwiches and snack wraps.
They have tried to compete with the likes of Five Guys and Starbucks, respectively, by offering a “better burger” made with sirloin beef and by introducing their McCafé line.
Most recently, McDonald’s has decided to slim down its menu and return to basics, a plan that resembles the business model of the ever-successful In-N-Out Burger, explained Elsworth.
And on Monday, May 4, McDonald’s CEO Steve Easterbrook unveiled the company’s new turnaround strategy in a 23-minute video. A surprise to many industry analysts, the strategy focused on a reorganization of corporate operations and not on menu items.
“We’re not on our game,” said Easterbrook in the video as he explained how he plans to cut layers of bureaucracy by dividing the company into four international markets and by increasing the number of franchised restaurants from 81 to 90 percent. Once operations have improved, McDonald’s will be better positioned to listen and respond to customer’s needs, he explained.
He said he hopes to eventually create a modern restaurant, “at the value of McDonald’s.”
Easterbrook is aware of McDonald’s problematic image. He mentioned his concern over consumer perceptions, but for him, “organization is first,” said Knutson. He understands that “you have to change the inside before you can change the outside.”
Will it work? “Only time will tell,” said Elsworth.
Muller isn’t worried: “McDonald’s is a genius company. You can’t be a 60-year-old company and not be able to pivot. I wouldn’t write them off.”
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