McDonald's New Turnaround Plan Is So 1990s
In a period of lasting difficulty for McDonald's, with U.S. same-store sales dropping over consecutive quarters, executives turn to regionalized menus, made-to-order burgers, and speed to bring the world's largest burger chain out of a multi-quarter slump. Sound familiar? It's almost an exact match for McDonald's modern-day woes and current turnaround strategy. But all of the details above come from a 1997 interview with a McDonald's executive about reforms at the chain.
Not much has changed in 17 and a half years. Even the language used by McDonald's executives has uncanny echoes across the decades. McDonald's ''needs to operate with more speed, agility and decisiveness,'' wrote then-Vice Chairman Jack Greenberg in a 1997 memo leading up to decentralized decision-making by five divisional presidents. Here's how Michael Dean Andres, McDonald’s new U.S. president, explained the current revival plan to investors last month: “We have to be more nimble, we have to be faster, faster to market with new ideas, and more responsive to competitive threat." Andres added: “[W]e've moved from the former division structure into a different model focused on empowering and supporting our regions.”
Back in 1997, McDonald's was working to escape six quarters of negative same-store sales in the U.S. The chain finds itself in familiar territory today: Domestic same-store sales haven't been positive since October 2013 and posted a 4.6 percent drop in November, the biggest one-month decline in more than a decade. McDonald’s announced a plan in October to draw four zones—Northeast, South, Central, and West—from the three existing regions that shape its operations. This will affect both the menu and how advertising is distributed. The changes, Andres said, will enable the chain “to be more sophisticated” in addressing diverse consumer needs across the country.
But McDonald’s already has a long history of regional organization. “I don’t think the weakness in sales or problems recently have anything to do with their divisional or zone arrangements,” says Dick Adams, owner of the McDonald’s franchisee consultancy Franchise Equity Group and a former franchise director for McDonald’s Western USA. He says over the decades McDonald’s has gone from three zones (East, West, and Central) to five divisions, back to three divisions, and now the change to four zones.
The virtue of regional menu options is they don't force restaurants to offer items that won't succeed in their markets. The McRib, for instance, only returned in some restaurants last year because “some areas of the country have more interest in pork than others,” as spokeswoman Lisa McComb told Bloomberg Businessweek in October. Other items are launched based on local cuisine, such as haupia pie in Hawaii.
The problem with this approach is that regional menus "are very hard for national chains to execute," says Darren Tristano, executive vice president of food industry consultancy Technomic. "It would appear that 17 years later, McDonald's still faces the challenge and has not found a way to meet these regional demands."
McDonald's isn't merely rehashing regional strategies. Another issue it has discussed at length recently is evolving with changing consumer tastes without compromising speed. Back in 1998, the head of McDonald's Western region told the Los Angeles Times about an effort to test a “Made for You” production system in which orders would be prepared for each customer, rather than having items precooked and kept warm until ordered. McDonald’s is now taking the late-1990s innovation (the system is still in place today) further with its 2015 test of the “Create Your Taste” program, which will soon roll out to 2,000 stores. The latest attempt at customization doesn't only prepare-to-order but also allows consumers to choose the cheeses, toppings, and condiments on their burgers.
It's a system, Adams says, that is bound to slow up kitchens. "I don't think they know what they want to be," the franchise consultant warned. He added: "There's really nothing new here."
Asked if McDonald’s is revisiting old strategies, spokeswoman Terri Hickey said in an e-mail: “It’s difficult to compare strategies from 17 years ago to today with the exception of our goal of always listening to our customers and evolving to their changing tastes.” While the chain has offered regional products for years, Hickey says, McDonald's franchisees can now draw from its global menu pipeline.
Last week, meanwhile, McDonald's announced a "brand transformation" that would include new advertising by ad agency Leo Burnett, and new uniforms, packaging, and signage. The slogan "I'm lovin' it" is an old standby that dates back more than a decade.