Earlier today, the world's biggest fast food retailer spooked its investors when it briefly halted trading in its stock ahead of its annual investor day. However, instead of some dramatic M&A deal revelation, McDonalds had a far less exciting announcement: it had decided to go back to basis in an attempt to recover some 500 million U.S. orders it had lost over the past five years to competition as a result of failed attempts to widen its customer base. So, after some deep soul-searching, the fast-food chain said it would finally embrace its identity as an affordable fast-food chain instead of a fancy coffee store or an all day diner, and stop chasing after people who will rarely eat there.
In recent years, critics slammed the fast food chain to focus on its core customers, at a time when McDonald’s added more salads, snack wraps and oatmeal to its menu to attract health-conscious customers. Such gimmicks worked for a while then failed, resulting in an even bigger drop in the core client base. In recent months the chain pulled many of those slow-selling products. It also had experimented with higher-priced burgers that failed.
During the investor day, CEO Steve Easterbrook said the company is more focused now on its core customers. “We’re not the same McDonald’s we were two years ago or even six months ago,” said Mr. Easterbrook, who marked his two-year anniversary as CEO on Wednesday.
McDonald's is not the only one scratching its head over how to stop its declining market share: chasing new customers is a pitfall that’s hurt other fast-food restaurants such as top competitor, Burger King, which after efforts to appeal to a broader, more health-conscious customer base failed, decided in recent years to return to its fast-food roots.
The fast food chain's decision to stop faking came after it conducted its largest-ever customer survey last year to understand "why it was losing customers." The study showed that it was losing customers to other fast-food chains, not to fast-casual restaurants serving healthier fare. Chief Executive Steve Easterbrook said the company is more focused now on its core customers. “We’re not the same McDonald’s we were two years ago or even six months ago,” said Mr. Easterbrook, who marked his two-year anniversary as CEO on Wednesday.
So what are the core pillars of McDonald's restructuring?
- First, it would focus on improving the quality of its food to retain existing customers and regain lapsed ones according to the WSJ. One of its biggest challenges has been getting its burger offerings to resonate with people who have grown accustomed to better burgers from rivals, i.e., the food sucks. Alas, MCD didn’t share specific plans for making a better burger or provide a timeline but said it is testing new cooking methods to improve the texture and taste of its classic Big Macs and Quarter Pounders. The chain is also testing burgers made from fresh, rather than frozen beef, in Texas and Oklahoma.
- Second, it will try to make coffee a top priority globally to take advantage of customers’ snacking habits. It plans to improve how its coffee is served and presented and to upgrade the pastries at its McCafe coffee stations within restaurants. Many would likely say that its time would be far better spent on the first point above.
- Third, McDonald is planning to roll out mobile ordering and payment in 20,000 restaurants in some of its largest markets, including the U.S., by the end of the year. The chain also is testing curbside pickup in the U.S.
- Fourth, the company said it would spend about $1.1 billion to renovate existing locations, including about 650 in the U.S. About 2,500 U.S. restaurants in all will be “Experience of the Future” restaurants that include self-order kiosks and table service by year-end. In other words, robot servers and virtually no (minimum wage) staff.
Finally, and perhaps most amusing, McDonald's will soon provide in-home delivery. McDonald’s, which has been offering delivery for many years in Asia and the Middle East, is now testing delivery in the U.S. and Europe and more Asian markets. In Florida, it has partnered with ride-sharing service Uber to deliver food. McDonald’s said that 75% of the population in its top five markets live within 3 miles of a McDonald’s and that more than one billion people globally live within five to 10 minutes of a McDonald’s.
“Delivery is the most significant disruption in the restaurant industry in our lifetime,” Ms. Brady said.
And so, as McDonald's prepares to spend millions to "return to its roots", supposedly by imitating a pizza delivery company, millions of Americans will get even fatter as the only effort required to get to that Big Mac will be to dial the nearest McDonald's restaurant. And yet in a decade or two, there will still be many confused economists asking why America's largest "GDP component" and government outlay is healthcare spending.
Finally, it is fascinating how nobody has yet made the simplest connection: perhaps the reason why increasingly more lower income Americans are no longer frequenting even such a low-cost retailerlike McDonalds, is that those same "lost clients" simply don't have the disposable income.