Year after year in the last decade, McDonald’s defied economic odds and kept ahead of consumer demand, surviving the recession with innovative product offerings and forward-thinking business acumen. U.S. sales grew from roughly $22 billion in 2004 to almost $36 billion in 2012 as the company adjusted its focus from rapid expansion to a maximized McDonald’s experience, according to a report in QSR magazine. But the biggest quick-service company in the world has experienced a string of disappointing sales quarters in 2013.
Disappointing sales began in 2012. That change is attributed, in part, to the retirement that year of McDonald’s CEO Jim Skinner, the architect of McDonald’s early-2000s turnaround. Skinner was replaced by the company’s chief operating officer and long-time brand veteran, Don Thompson.
Skinner’s successful strategy included five core tenets–People, Products, Place, Price, and Promotion. Under Skinner, McDonald’s also set about divesting itself of the ancillary brands accumulated during the late-1990s (brands that included Chipotle, Donatos Pizza, and Boston Market), slowing down unit expansion, and doubling down on menu innovation and store upgrades. Despite the recession that crippled much of the foodservice industry, McDonald’s chugged along under the Skinner Plan, churning out success after menu success, including snack wraps, smoothies, and the mega-popular McCafé beverage line.
But, in October 2012, McDonald’s witnessed its first global monthly sales drop since 2003, a 1.8 percent month-over-month decrease. While more consumers were paying attention to premium menu options and the nutritious makeup of fast food, critics and McDonald’s franchisees were complaining about the sheer size of the McDonald’s menu. Further, aside from Chicken McBites, the Extra Value Menu, and a Happy Meal refresh that cut the kids-meal fries portion size and added apples as the default side, McDonald’s menu innovation in the year and a half leading up to 2013 failed to drum up much widespread attention.
McDonald’s has had an up-and-down 2013 that included a spate of new menu offerings, moves toward evolving the company’s value and service platforms, and evidence that the competitive landscape may finally be catching up to the biggest quick-service brand in the world.
“I’d say it’s sort of trying to get back on track,” says Andrew Barish, senior restaurant analyst at Jefferies & Company, a global securities and investment banking firm. “Not that the train jumped the tracks or anything. It’s just kind of starting to get a little wobbly. All of the initiatives of that past decade have kind of run their course, if you will, whether it’s beverages or better-for-you items, or all of the product quality upgrades or McCafé coffee, and the store remodels.”
This year McDonald’s has had a surge in menu development, and the cornerstone of McDonald’s strategic shift was a new attitude toward its menu platforms, one that Elizabeth Campbell, McDonald’s USA’s senior director of menu innovation, says stemmed from the company’s intense evaluation of customer preferences. “What the consumers have been telling us that they want is they want us to stay true to who we are as a brand by providing them with good food—real, fresh food, food that they enjoy,” Campbell said, as well as bold flavors and products they can eat any time of the day.
A host of new products answered that call in 2013, including Premium Chicken McWraps and September’s Mighty Wings limited time offer. The Premium McWrap, which has three iterations—Chicken & Bacon, Chicken & Ranch, and Sweet Chili Chicken—may hold the most significance to McDonald’s 2013 brand evolution, as the product involves more ingredients than most other items on the menu, going so far as to add cucumbers to McDonald’s mix for the first time. The McWrap also signals McDonald’s attempt to grab more market share from the Millennial demographic and to provide an alternative to sandwich chains.
The Premium McWrap also represents one end of a so-called “barbell strategy” that many traditional quick-service brands are adopting to compete in today’s marketplace, one in which companies offer both discounted and premium items. The Dollar Menu has driven traffic since it debuted in 2002 as a means to rejuvenate lagging business, but the Extra Value Menu, which launched in 2012 as a way to gain more market share over the long term and encourage guests to trade up from the $1 price point, has not been as successful. McDonald’s tested a new value menu, Dollar Menu & More, this year that featured items at $1, $2, and $5 price points, and at press the new menu was rumored to be near a national roll out.
Elizabeth Friend, a global foodservice analyst with market intelligence firm Euromonitor, says McDonald’s is attempting to drive traffic through value items while establishing an updated brand position and opportunity for higher check averages with the premium menu items. But she says the company’s main challenge is remaining profitable while relying so heavily on discounted products.
“If anything has become clear in the last six months, it’s that this move toward trying to make everything premium, trying to be like the fast casuals, trying to be everything to everybody, is great in terms of branding, but when it comes down to it, I think customers made it clear that what they really want from McDonald’s is the Dollar Menu,” Friend says. “They really want the value, and they really want that everyday convenient value item.”
