Introduction
McDonald’s Golden Arches once represented a family-owned chain serving high-quality products at affordable prices. Today, they represent a low-quality last resort meal. In recent year, the once-undisputed leader in the fast food industry has faced significant challenges. As consumer preferences shift towards healthier and more sustainable options, McDonald's must evolve to maintain its market position. This article will explore the reasons behind McDonald's recent struggles and propose strategies to help the company regain its competitive edge. By understanding industry trends and addressing past missteps, McDonald's can chart a course towards renewed success.
The fast food industry is undergoing profound changes, driven by new health trends, the rise of fast casual dining, and evolving consumer preferences. These shifts pose significant challenges for traditional fast food giants like McDonald’s. As a consequence, McDonald’s has seen steep revenue declines in the last 10 years.
A fast food industry headwind came in the form of GLP-1 agonists, a class of medications initially used to treat type 2 diabetes, which gained popularity as effective weight loss aids. These drugs suppress appetite and reduce calorie intake, leading to a decline in the consumption of high-fat and high-sugar foods. According to Morgan Stanley, the GLP-1 category is expected to exceed $100 billion by 2030, with a significant portion of the population adopting these medications. This trend has resulted in reduced foot traffic to fast food restaurants, with 77% of surveyed GLP-1 users reporting less frequent visits to such establishments. McDonald’s falls as a casualty among these.
McDonalds is also being outstripped by new competition. Fast casual dining establishments, such as Chipotle and Cava, have captured the attention of younger consumers, particularly Gen Z. These restaurants offer healthier, sustainably sourced, and often customizable options, aligning with the values of health-conscious customers. From 2018 to 2022, fast casual restaurants experienced a remarkable 44.1% revenue growth, compared to a 26.5% increase for traditional fast food chains. This trend reflects a broader shift towards higher-quality, fresh ingredients and more personalized dining experiences.
The COVID-19 pandemic has accelerated the trend towards healthier eating habits. A McKinsey survey found that 70% of consumers prioritize health post-pandemic, with 50% specifically focusing on healthy eating. This shift presents a challenge for McDonald's, whose menu has traditionally been dominated by less healthy options. Media perception of fast food further exacerbates this problem, as more and more outlets prefer to cover health related issues within fast food. The consumer is pulling away from unhealthy fast food, and McDonald’s is at danger of being left behind. In addition to industry headwinds, McDonald's is at fault through several strategic missteps in recent years that have hindered its ability to adapt to changing market conditions.
During the COVID-19 pandemic, McDonald's removed salads from its menu to streamline drive-thru operations. This decision eliminated one of the few healthy options available to customers. Unlike its competitors, such as Wendy’s and Chick-Fil-A, McDonald's has not reintroduced salads or expanded its healthy menu offerings. Additionally, McDonald's has lagged in introducing plant-based options in the US and Canada, missing an opportunity to cater to the growing demand for vegetarian and vegan meals.
McDonald's also struggles with a negative brand image, often being associated with unhealthy eating. Documentaries like "Super Size Me" have ingrained this perception in the public mind, particularly among younger consumers who are now entering McDonald's target demographic. The company ranks last in customer satisfaction among fast food chains in the US, further exacerbating its image problem.
McDonald's had opportunities to diversify. In 1998, the company invested in Chipotle, giving it a cash influx and enabling rapid expansion while helping create the fast casual segment. In 2006, McDonald's divested from Chipotle to focus solely on its core business. Since then, Chipotle has grown exponentially. At the time of the divestment, Chipotle was valued at $1.85 billion. Today, the company is worth upwards of $90 billion. McDonald’s had the opportunity to break into fast casual through this investment, but missed the opportunity.
To expand its menu options, McDonald's should take a multi-faceted approach inspired by successful competitors in the fast-food industry. The company could introduce a wider range of plant-based alternatives, following Burger King's success with the Impossible Whopper, which led to a 32% increase in sales for locations offering the product. McDonald's should also develop plant-based options for burgers, chicken alternatives, and breakfast items to cater to the growing vegetarian and vegan market. Additionally, the company should reintroduce and expand its salad offerings, taking inspiration from Sweetgreen's success. Sweetgreen's revenue grew from $274.2 million in 2019 to $470.1 million in 2021, a remarkable 71% increase over two years, demonstrating the strong demand for fresh, customizable salads. By offering a variety of healthier options, including fruit cups, yogurt parfaits, and vegetable sticks as sides and snacks, McDonald's can appeal to health-conscious consumers while maintaining its core offerings for traditional customers. This diversification of the menu would allow McDonald's to capture a broader customer base and adapt to changing consumer preferences.
Recommendation
To understand opportunities for McDonald's, KFC's success in China emerges as a relevant case study. By adopting a strategy that emphasizes localization, menu diversification, and a strong focus on ownership rather than franchising, the company was able to make an explosive impact in China. One of KFC's most effective strategies was integrating Chinese characteristics into their brand, ensuring that the company was perceived as part of the local culture rather than a foreign entity. McDonald's can replicate this approach by tailoring their menu to include a wider variety of culturally relevant items that resonate with local tastes. For example, KFC China offers about 50 items compared to the 29 in the U.S., introducing around 50 new products each year.
Additionally, McDonald's can benefit from adopting KFC's approach to owning rather than franchising their outlets. In China, more than 90% of Yum! Brands' outlets are company-owned, compared to just 12% in the U.S. and 11% in other international markets. This model allows KFC to closely control every aspect of their operations, from menu and décor to customer service standards. For McDonald's, shifting towards company-owned outlets can facilitate better quality control, consistent customer experiences, and more effective implementation of new strategies. This approach also enables centralized purchasing, which reduces costs and expands margins.
In North America and Europe, the demand for vegan and vegetarian products is higher. Accordingly, McDonalds should adapt to suit these preferences. It is unlikely that introducing these products would dramatically impact sales. In 2019, Burger King introduced the Impossible Whopper, which lead to a 32% increase in sales for stores offering the product. At present McDonald’s makes the mistake of alienating customers looking for vegan and vegetarian products, a mistake it would be wise to rectify.
Conclusion
McDonald's struggles stem from a failure to adapt to evolving consumer preferences, a lack of menu innovation, and inadequate responses to health and sustainability trends. To regain its competitive edge, McDonald's must adapt to the times like competitors KFC in China and Burger King with vegan menu options. The company must now aim for healthy and diverse offerings, focusing on company-owned outlets for better quality control. Embracing the growing demand for vegan and vegetarian options in North America and Europe is crucial. McDonald’s seems to have fallen asleep at the wheel, having taken its head start in fast food for granted. If it’s going to maintain its lead, it needs to wake up.
