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When Growth Isn’t the Right Plan

A customer dines at a McDonald's restaurant in New York
A customer dines at a McDonald's restaurant in New YorkPhotograph by Jin Lee/Bloomberg

McDonald’s recently announced a 2 percent decline in same-store sales for the first nine months of the year. This caused a flurry of concern among investors, who had come to expect steady growth from the world’s largest hamburger chain.

What should McDonald’s do? Well, it’s instructive to go back to the late 1990s, when the company was feeling the heat from the healthy-food lobby, and had overextended itself with too many new stores. In 1999 it made its first-ever job cuts, and it embarked on a series of acquisitions into adjacent areas: Chipotle, Aroma Café, Donatos Pizza, and Boston Market, as well as a 33 percent stake in Pret a Manger. None of these new businesses helped at all. The company reported its first quarterly loss in 2002. A new team was brought in, and the “I’m Lovin’ It” campaign, launched in 2003, helped to refocus on the core business. The noncore businesses were gradually sold off, but a lot of money and executive attention was wasted in the process.