McDonald's posted sharper-than-expected November sales declines. Global sales were reported down 2.2 percent. In the U.S. sales fell more than twice that: 4.6 percent, the lowest sales month for McDonald’s in over a decade, and almost four times worse than analysts had projected. Those wacky analysts! Wherever were they getting their research?
We feel it’s a fair question to ask because back in August, my firm Brand Keys conducted a 3,000-consumer national survey that clearly pointed to the ongoing failure of fast-food brands generally, and McDonald’s specifically, to engage consumers—at least not enough consumers to increase same-store sales and profits.
Regarding some of the problems McDonald’s faces, the survey showed that consumers were looking for better service, something an increasingly complicated McDonald’s menu has made increasingly problematic. When brands try to be all things to all consumers, you can do that, but something always suffers. In this case, it’s service delivery. This is something that McDonald’s has acknowledged in the past, but has not addressed.
The survey also raised issues regarding food quality. Fast food was regarded as “edible” but not much more than that. In the U.S., McDonald's once-reliable base of younger customers have defected to fast-casual chains because consumers deemed fast casual tastier and healthier with offerings “of higher quality” and ingredients that were more “trustworthy,” and more customizable than fast food.
That brings us to another issue regarding how consumers value what they eat. Fast-casual restaurants were seen to offer better options, which consumers saw as being “worth more”—and said they were willing to pay more for. And, according to the reported sales figures, they apparently are. More and more consumers are looking not for price value, but value for dollar. More than 25 percent of the sample characterized traditional fast food as “dollar food,” and did not mean it as a compliment. The nomenclature is the result of fast-food brands’ habituated reliance on the Dollar Menu to boost sales. The thing is, you can’t build brand meaning, loyalty, or engagement on the basis of price. That only works for commodities, not brands.
McDonald's has indicated it is planning "fundamental changes to its business" to combat weak performance, seeking to eliminate management layers. Generally speaking we can say that a new organizational structure is almost never the answer to consumer disengagement. Neither is more social networking or advertising.
But McDonald’s is going to try. It has a plan designed to recapture consumers’ spending money at premium chains like Panera and Chipotle via transparency. A new campaign is based on the idea that McDonald’s wants to be transparent and not hide what it puts in its food, and wants customers to know the food is natural and fresh and wholesome. And there’s a new campaign coming—“Lovin’ Beats Hatin’”—that we are willing to bet dollars to gluten-free doughnuts is yet another corporate social responsibility campaign.
The bottom line: McDonald’s is mired in the past, both in how it measures what will truly engage customers and how its brand is really seen. What’s clear from the consumer engagement assessments is that McDonald’s has lost brand meaning. It stands for ubiquitous hamburgers and fries and “dollar food,” and it desperately needs to fix the brand. If it thinks a redesigned organizational chart, more advertising, new apps, or $1 wraps are the answer to what ails it, it’s in a lot more trouble than it—or the analysts—realized.