Ethnic Marketing: McDonald's Is Lovin' It

The music industry has long sold black culture to white Americans. Now McDonald's (MCD) is doing much the same. It's taking cues from African Americans, Hispanics, and Asians to develop menus and advertising in the hopes of encouraging middle-class Caucasians to buy smoothies and snack wraps as avidly as they consume hip-hop and rock 'n' roll.

"The ethnic consumer tends to set trends," says Neil Golden, McDonald's U.S. chief marketing officer. "So they help set the tone for how we enter the marketplace." Golden says preferences gleaned from minority consumers shape McDonald's menu and ad choices, which are then marketed to all customers.

The fast-food giant's strategy is a departure from the way companies typically market to American households. Usually, a company works with an agency to develop advertising aimed at the general market, then turns to boutique multicultural agencies to create versions tailored to blacks, Hispanics, or Asians. McDonald's still creates ads specially tailored to minority groups, as it has for over 30 years, but minorities exert an increasingly influential role in its mainstream advertising as well. The company thinks they provide early exposure to new trends.

"Most companies think they can box in Latinos, box in African-Americans, and then run the general market ad," says Steve Stoute, chief executive of Translation, which advises brands, including McDonald's, on how to reach young adults. "McDonald's will take an ad that could be primarily geared toward African-Americans and put a general market advertising dollar behind it."

The move reflects a demographic shift under way in the U.S. as a whole. As whites head toward minority status by mid-century, according to Census Bureau projections, Hispanics, Asians, and black populations are growing faster. California and Texas, the two largest states, are already "majority minority," meaning white non-Hispanics make up less than 50 percent of the population.

Its low prices have helped fuel McDonald's recent strong performance, even as the rest of the restaurant industry struggles to recover from the recession. But Golden says his minority-shapes-majority marketing strategy is paying off, too. U.S. sales rose 1.5 percent in the first three months of the year, thanks to the success of new menu items and, he says, an improved perception of the brand among all ethnic groups.

Golden says he first discovered how dramatically minority tastes can influence mainstream preferences when he oversaw McDonald's marketing in the U.S. West in the 1990s. His team had developed products aimed at Hispanics called the "Fiesta Menu," which included guacamole and spicy beef tortas. After the launch, the items sold well enough in Hispanic neighborhoods—but sales rose more than expected in Orange County and specifically Laguna Beach, an area that was more than 90 percent white. "The intended consumer said, 'We sure appreciate what you're trying to do, nice try.'" Golden recalls. "But [the Fiesta menu] overperformed in the general market."

Golden went on to create a strategy for the U.S. business that he calls "Leading with Ethnic Insights." Working with Jonah Kaufman, a McDonald's franchisee who has 13 restaurants on Long Island, N.Y., Golden doubled the spots designated for minority franchisees on the national advertising committee, which advises on and approves ads. McDonald's also uses a disproportionate number of blacks, Hispanics, and Asians in focus groups. Later, marketers are asked to imagine how they would sell a product if the U.S. population were only African American, Hispanic, or Asian. They look for differences to McDonald's general market plan.

That sensitivity has already influenced new products. The fruit combinations in McDonald's latest smoothies, for instance, reflect taste preferences in minority communities. And when the company started heavily advertising coffee drinks last year, the ads emphasized the indulgent aspects of sweeter drinks like mochas, a message that resonated with blacks, says Golden.

In fact, many of McDonald's ads now feature only African Americans. Of the 10 most-aired TV ads from the past 12 months, compiled by ad tracker Nielsen IAG, five had all-black casts. While the ads usually push specific products or deals, many use situations aimed directly at ethnic consumers. In a recent commercial called "Big Day," a young boy at a wedding looks bored while watching the bride and groom kiss and jump over a broom—an African American matrimonial tradition. His eyes light up, however, when he gets to his seat and finds a Happy Meal.

The bottom line: McDonald's is increasingly taking its marketing cues from minority groups, which it considers to be trendsetters for white America.

    Before it's here, it's on the Bloomberg Terminal.