Once seemingly untouchable as the bedrock of the fastfood industry, burger giant McDonald’s finds itself facing a difficult stretch ahead. Not only is the company struggling to adapt as the market moves in a new, healthier direction, but it also appears to have lost its touch with the basics of fastfood. Its first priority should now be to get its core proposition back on track.
McDonald’s has warned that Q4 will see it report its first ever quarterly operating loss. Total sales for the first 11 months of this year stand at US$37.9bn, up 2% from a year ago. More importantly, sales in the US, the company’s core market, are up only 1%. McDonald’s has been faltering for some time now and faces a number of problems that can broadly be split into two areas.
First of all, the fastfood market is increasingly moving in a healthier direction, with more and more consumers turning to healthier and more adventurous types of hand-held savory foods such as pastries, wraps and sandwiches. The growth of sandwich chains such as Subway, which has played the health card skillfully and to great advantage, suggests that the burger is no longer king of the fastfood world.
Secondly, and more distressingly, McDonald’s seems to have lost its ability to get the basics of foodservice right: namely the food and the service. McDonald’s burgers and fries can’t seem to compete with more innovative products, such as Burger King’s customized Whoppers. And even some of the McDonald’s own franchisees admit that the service and cleanliness of some stores is not up to scratch.
But even though the once mighty burger seems to be loosing its grip on the fastfood market, burger chains remain a perfectly viable business. Nonetheless, the fact McDonald’s is losing sales to its direct competitors is seen most starkly in falling sales to its core consumer base – Americans.
Like other fastfood chains McDonald’s is caught in shifting consumer preferences that are beyond its control. Its response is likely to be ongoing and long term. But before it attempts to tackle the long-term future of the fastfood market, McDonald’s must restore what it used to do so well, its core fastfood proposition.
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