McDonald’s Over-Reach: Blending a Restaurant and a Coffee Shop

In spite of essentially flat sales in the U.S. in February 2013 from the same month in 2012, McDonald’s CEO, Don Thompson, said he was confident that the people at the company had sufficient experience to “grow the business for the long term.” Even assuming that a business can be grown as if it were a geranium plant, the claim can be critiqued both in regard to the underlying assumption regarding “growth” and that of long-term viability. Fusing a restaurant with a coffee shop can be said to be an over-reach that had blended the company too much, at least at the store level.
In regard to the company’s long-term viability, changes in the business environment were important. The fast-food industry had obviously changed from 1970 to 2010, as did American society. As restaurant chains like McDonald's gained substantial economies of scale with the proliferation of restaurants, the increasing popularity of healthy meals gradually undercut the prospects for continued growth.

From "Americana" to "Enjoy Getting Fat": A change in the business environment in the last quarter of the twentieth century in the U.S. that impacted McDonalds at its core.    source: McDonalds.com

The management at McDonald's did relatively well in introducing healthy alternatives to its menu by 2010. The strategy also included blending the restaurant with a coffee shop experience, the enjoyment of which had also expanded due to Starbucks. To cut into that market, McDonald's introduced new drinks, such as smoothies, mochas and lattes, and added wireless internet service. As a result of having adjusted to the health-conscious and coffee shop mini-cultures in the business environment, McDonald’s U.S. sales rose 11.1% in February 2012 from the year before.[1] By 2013, Burger King was renovating its restaurants and adding "coffee shop" drinks too. Even so, the flat McDonald's sales figure in February 2013 was a bit of a surprise. Although the problem could have been the newly introduced fish product, I suspect that the market may have been questioning McDonald’s expansion into the coffee shop business as being an over-reach even it did enjoy certain synergies.
McDonald's was admittedly poised to give Starbucks a "run for its money" concerning that the giant coffeeshop chain had gotten away with mass-producing drinks to sell as premium prices. That coffee chain was essentially charging a premium price for non-premium products, given the manner of production. Even though McDonald's could undercut Starbucks on price and thus potentially gain market share, a McDonald's facility looked and functioned more like a restaurant than a coffeeshop where people would feel comfortable hanging out and getting work done or socializing. 
Adding to the discordance was the decision of McDonald's management to continue to stress the “dollar menu” for the “budget conscious” customer. Put somewhat delicately, the business strategy assumed that two very different market segments would co-exist in the same room. Starbucks had the same problem because of its "third place" policy, wherein people could hang out without purchasing anything. I know of at least one Starbucks' store in which the number of homeless "customers" has driven out otherwise paying customers. McDonald's management, through at least the 2010's, was essentially blurring the company's identity by seeking continued sales growth by trying to combine a restaurant with a coffee shop.
In general terms, a company’s senior management (or board of directors) should not get so caught up with important changes in the business environment that the resulting strategic change involves trying to remake the company into something the company is not. A fast-food restaurant is not a coffee shop. Although some people in the fast-food crowd would relish mocha, blending the social distance between the two cultures could result in a bitter drink that satisfies nobody. Had McDonald's management concentrated simply on adding new healthy fast-food (i.e., restaurant) products, sales would probably have improved without risking an identity crisis at the restaurant level. Alternatively, McDonald's could have built real coffee shops, with suitable furniture and decor, and synergies could still have existed. Perhaps fusing different lines of business, in cases in which each has a distinct culture and customer base, is not wise. To keep up with societal shifts and profit from them while not blurring the business’s identity is the sort of balance that a corporate management should attempt to reach and sustain in formulating strategy over the long-term.

For a critique of Starbucks, see Bucking Starbucks' Star, available at Amazon. 

1. Candice Choi, “McDonald’s Sales Drop Despite New Fish McBites,” The Huffington Post, March 8, 2013.

A Lack of Good Will at Goodwill

Redefining words to suit a business’s financial interest is misleading, even if the herd animals who serve as customers look the other way, or, even worse, do not notice the fact that the words have been redefined! At a Goodwill store in Phoenix, Arizona,  I bought a black suit for singing in a choir. Before I paid, I asked a manager whether I could return the suit as long as I do so within a week. “Yes, you can get a refund,” he replied. Three days later, I returned to the store to return the suit. I approached an available cashier, but she told me that I had to go to the other cashier if I had a return. That cashier was not even at his register, and even when he returned I had to wait at least five minutes for one customer. Only the head cashier can process refunds, whereas any cashier can accept money—an interesting, meaning convenient, asymmetry. Money comes in easier than it goes out.

When the head cashier processed my refund, he handed me an in-store credit card. I asked the assistant store manager why a return was instead being treated as an exchange. “In the Goodwill network,” he replied, “returns are exchanges.” I was stunned. “But the two are not the same thing; returns result in refunds, which are not store credits,” I retorted. “Not at Goodwill,” the manager said in a definitive tone.

Having essentially redefined a return for a refund contrary to the word’s meaning and common usage, the ploy can be said to be misleading. Given customers’ legitimate assumption that a return results in a refund, which is not a store credit, the redefinition effectively involves false pretenses. No good will comes with such a nefarious, deliberate misuse of language. Indeed, the very name of the organization, Goodwill, connotes a lie if the good will under the roofs is lacking. 

See "It's Only Fair."

“No Loans” on Gun Sales: G.E. as Socially Responsible or Financially Savvy?

In the wake of the Sandy Hook school shooting in Newton, Connecticut in late 2012, General Electric announced that the company would no longer finance consumers’ gun purchases. Russell Wilkerson, a G.E. spokesman, wrote in an email that the new policy was being adopted “in light of industry changes, new legislation and tragic events that have caused widespread re-examination of policies on fire-arms.” In other words, the policy shift was not simply a reaction to Sandy Hook. Rather, the company’s executives were adapting to changes in the organization’s environment, including the industry itself. This opens up the question of whether the new policy can be classified under the rubric of corporate social responsibility (CSR). Perhaps the adaptation was simply good business, with the appearance of “CSR” adding some reputational capital through a good public-relations campaign.

Do business principles mandate treating this product like any other?  Source: NBC News

Well-meaning moralists in particular may have a tendency to project their own strident sense of obligation onto other people, and even organizations as if they too could be moral agents. Yet an organization, like a biological organism, must adapt to its changing environment, or risk being replaced by a competitor that has achieved a better fit to the new environment. Does such adaptation, which renders a company more fit by means of a sort of competitive natural-selection process, involve obligation manifested as responsibility to that environment, or is the adapting simply a matter of survival and even accruing surplus? To do one’s duty is not typically said of what a person wants to do anyway in line with self-interest. A person would quickly see through my claim that it is my duty to eat the remaining chocolate sundae so not to waste food. People do not typically fall over themselves to do something out of a feeling of duty or felt responsibility. For the sense of obligation or responsibility to be the primary motivator, the person (or persons, in the case of a company) must not otherwise be inclined, as from the anticipation of a benefit, to act. When stimulated, self-interest tends to eclipse the feeling of duty of responsibility. This thesis can be applied to GE’s policy on financing firearm purchases. 
First, though, can the policy be said to fall under the rubric of corporate social responsibility? What if marketing the policy was simply good business? The societal benefit in making it more difficult for people to buy guns may simply have been intended as a byproduct. Surely the societal good of a byproduct has worth even without having been motivated when the policy was chosen. Even so, the primacy of self-interest--the profit motive--irrationally taints the resulting societal good. Such a company's societal reputation would be enhanced by the good of the byproduct and decreased by the primary motivation of self-interest.  
How salient was the profit-motive in GE's decision to stop lending on gun sales, and how great was the impact in terms of the benefit to society, beyond the company? GE Capital Finance had already stopped providing consumer financing for new gun-shop customers in 2008. The policy change in 2013 merely extended the ban to existing customers. So it is not as though potentially new customers would be discouraged from buying a gun on impulse for nefarious purposes. The impact on the bottom line from lost sales could not have been assumed to be great; even if new and existing gun customers had been eligible for financing before the policy change in 2013, we would still be talking about a small fraction of GE’s revenue. Additionally, according to USA Today in 2013, GE’s “decision affects fewer than 75 retailers, which GE says is about 0.001% of all gun retailers.” This is because the policy “affects only retailers that sell firearms exclusively.” General merchandise stores, such as Walmart, were excluded from the company’s lending ban. 
However, Wells Fargo had stopped financing gun purchases in 2004 “for business reasons,” according to company spokeswoman Lisa Westermann. Perhaps it was good business at GE too, but not directly. 
Indeed, the "corporate social responsibility" policy as promotion could have been expected to boost sales companywide without much cost in foregone gun sales on credit to new customers in gun stores only. In fact, the policy as promoted could even be misleading, as in the article's title in USA Today, “GE Won’t Make Loans to Buy Guns” even though GE would still be financing guns—just not through stores that sell only guns. The gap itself between the publicized and actual policy could mean that the managers' intent had been to use “marketed CSR” to boost the company's reputational capital with as little cost as possible. In other words, the profit-motive was likely the motive. If most of GE’s lending on gun purchases was through multi-merchandise retail stores, GE could capitalize financially on sympathy from the school shooting without having to give up much financially. Interestingly, the shooter’s father, Peter Lanza, was a GE executive at the time—the company being based in Fairfield, Connecticut. Had other GE executives felt obligated, also being at such close range to the tragedy, to protect the kids, we would not have seen the sort of motivation that led to the exceptions and allowing the misleading storyline to go uncorrected. Were the primary intent that of protecting kids at schools from getting shot, the loopholes would not have been allowed to exist even if GE had to wait for contract renewals with general-purpose retailers such as Walmart.  
Often corporate social responsibility and business ethics are conflated. The distinction in this case is clear. The fitness of a policy to societal norms is a descriptive matter of whether organizational values are in sync with societal ones, whereas the misleading claim to have have ended loans on gun sales is a normative matter. Whether the norm in GE is consistent with the societal norm on the role of guns in the tragedies does not require justification by ethical reasoning and principles or theories. In contrast, whether a company should be misleading or even fail to stop it in the press necessarily includes resort to ethical principles, for only they can justify the claim that the motive or consequence is unethical. 
Still another lesson to take from this case involves the choice to wade into a controversial societal issue. As in the case of gun control, which is really about access to guns, entering a controversial debate puts a company at risk for being negatively viewed by the “other side.” This could significantly reduce the good  to the company obtained from the use of corporate social responsibility. 
A USA Today poll taken at the time of the policy change in 2013 found public support for new gun-control legislation “slipping below” 50 percent. GE risked many people agreeing with John Meek, the owner of a gun store in Illinois, who called GE’s policy “an injustice” because the instrument rather than the user is being blamed. Howard Schultz of Starbucks, in contrast, correctly judged the changing American attitude toward gay marriage in using the company to promote the cause, even if a CEO using a company for a personal political agenda is unethical. A dramatically changing shift in societal mores, norms, or attitudes is like a wave that managers strategizing corporate social responsibility programs and policies can ride, whether the motive is financial gain only or includes improving the social good. What might seem like an easy way to enhance a company's societal reputation can easily backfire if not done with attention to a changing business environment. 

Source:

Paul Davidson, “GE Won’t Make Loans to Buy Guns,” USA Today, April 25, 2013.

Karl Lagerfeld: An Artistic (and Marketing) Genius

Weeks after Karl Lagerfeld’s death at 85 in February, 2019, I poured over interviews that the eternally-modern yet classic Renaissance man had given. “I only answer questions,” he had said an interview in at a WWD conference in 2013. His answers provide as inside as possible a look at l’homme extradinaire.  He considered himself a fashion designer, a book publisher (regular and picture books), and a photographer, though he did much more. I’m not sure whether his books, interior designs, architecture, and photography can be considered marks of genius, but that he extended his method of fashion-design and did so well is a testament to the man’s inner-workings. His answers remind me of Frank Lloyd Wright, the famous architect from Wisconsin whose work so revolutionized homes from the Victorian era. Essentially, he ushered in open homes from the closed roomed Victorian houses. Lagerfeld was also innovative, taking the classic Chanel look and adding bits of modernity, such as in combining a black dress with sneakers. Both men produced homes/dresses that were inexpensive and expensive. Neither was beyond reach, yet as visionaries so far above most other people. Lagerfeld, like Wright, saw things differently than most of their respective contemporaries did. This is perhaps their shared mark of genius: not be so tied to yesterday, combined with being inspired to use creative freedom then expanding its application. This is all based in the inner constitution of the two men, which I suspect was similar. As Lagerfeld said, “I am down to earth—just not this Earth.” This is actually quite telling of genius, for such minds typically think "outside the box" and so can easily see through even societal sacred cows and thus proffer very different perspectives. The thinking, intuition and/or artistic perspective, in other words, innately go beyond the societal and individual assumptions that most people do not even realize they live by or hold. I contend that Karl Lagerfeld's artistic, or visual genius went far beyond fashion-designing.  

Regarding his creativity, Lagerfeld said that perfect work conditions permit creative freedom such that fits of inspiration can run their course like a stream unimpeded by obstacles. Working for a label need not detract. “I do the job because I enjoy it,” he said. “I love to photograph architecture,” for example. He eschewed analyzing his work. “To analyze is very unhealthy,” he said. “The worst thing in fashion . . . is the ivory tower.” So Lagerfeld’s genius did not manifest chiefly through the commonly presumed realm of reason. “I don’t listen to my voice,” he said, “I listen to my inspiration. . . . When I like something, I don’t ask myself why,” he said. “I am like a building that has an antenna; I look at everything.” His genius may have been in both how he looked at everything (i.e., from a distinct vantage-point transcending his own day) and how his inspiration was related to the raw empirical sensory data. “I’m a story teller. From a little detail a story can be made.” The underlying mechanism is difficult to describe “Most of the time, there are strange accidents.” These are innately unprogramable and therefore beyond turning into a programmed series of steps (i.e., mechanization). “I’m not an office person, you know.” Both his unique way of looking at modernity and his inspiration were clearly not easily translated by reason. Yet curiously he viewed his sketching and writing as “the same thing,” which may imply that genius is genius underneath regardless of how it manifests.

Lagerfeld also had a unique approach to work. Believing that “there is always room to improve,” he stated, “I don’t want to rest on what I’ve done; I’m only interested in what I’m doing and what I will do.” He relished being stimulated, which is undoubtedly why he was so interested in looking at what is new at the time. “I lose interest very quickly. A lack of excitement can quickly result in a change in course, “or if people think they know better than I do” or cause complications because they think they think they are professionals. People who work to justify their salary is the worst.”

Although his father was a businessman (who made his fortune from introducing dry milk to Europe), Karl felt no need to assume a business function; he left that to others. He left business to others, though he could be accused of having had an eye for marketing his collections through elaborate shows. Even so, he was not a “business type.” For instance, he said, “People are supposed to work together. If they do, “you don’t need a contract.” A business practitioner would view this, and his dictum that he only works on things he wants to work on, as highly naïve. His lack of humility might have rubbed business practitioners the wrong way. On himself as a fashion designer, he said, “Somebody might do better, but I don’t know who.” Yet interestingly, he included himself in his observation, “Things are step by step; sometimes you go back two steps, but that is a healthy thing too.” He also valued competition, which is cherished in the business world even as its practitioners seek monopolization. “Do you know something heathier than competition?” he said, “I don’t want to rest on my success.” Friends thought he got only a few hours of sleep a night. “I’m not really a party freak, ” he remarked, “I have so little time.” As he kept working so, being open to learning more about the craft and to following through on his fits of inspiration, he may have felt he had earned the right to brag. At around 80 years of age, he still said, “My problem is to show collections that are right for the moment and right for the label.” He was corporate enough to subordinate himself under Chanel even though the company had given him free artistic license, which he regarded as necessary as part of good working conditions. Ironically, in ceding some control, the company’s CEO got more loyalty and financial success from the man. How many business practitioners past their first few promotions stay so eager to push themselves to learn more and improve rather than settle in?

Finally, the unique nature of his perspective looking out at the world as it was is in the moment, rather than looking back retrospectively, shows us how utterly distinct the vantage-point of genius is. As Fredrich Nietzsche had written in the last half of the nineteenth century in Europe, a philosopher is not a man of his time. Genius, whether analytically or artistically, can easily go beyond the status quo and its underlying operative paradigm (e.g., assumptions), and yet Lagerfeld relished the excitement from looking at modernity, which he defined as that which “is right for the moment and the next moment.” Avant guard, he noted, is an antiquated, overused word. Overused, no doubt, by minds that are not able (or willing) to transcend what they take for modernity.

Even Lagerfeld’s reason for not going back over his own story is different, and thus telling. “No memoirs,” he said, “I have nothing to say, and what I could say I don’t want to say. . . . There were important people in my life but I don’t want to give them the pleasure of mentioning them again.” Bravo! Lagerfeld was interested in history, though not of his own, which he said he already knew it so why waste time going over it? Not being moored to a particular culture, present or past, he could critique it particularly well and yet go beyond it and critique a novel trend. For instance, He said of the eighties in France: “I prefer to forget about that.” The seventies, in contrast, “were not about money.” That decade had been one of freedom. “Today if you go to a party, you bring your body-guard; there are body-guards all around.” This is an astoundingly accurate observation and indictment of the increasing security consciousness gripping the urban West. Even just the increasing intimidation in the amassed security forces by businesses and police forces by universities and cities can snuff out the atmosphere of freedom that characterized European and American culture in the 1970s. Genius is out of place, yet so vital to a people ensconced in the status quo (or what has subtly entered the status quo unexamined and perhaps even uninvited).

Sadly, I was too young to partake of the hippie culture of freedom from the late 1960s to mid 1970s; my first political memory is of the Watergate congressional hearings in which then President Nixon was dropped even by his fellow Republicans on account of his law-breaking in office. That memory, plus that of OPEC-induced gasoline shortages and President Carter’s failure to return the Americans held hostage in Iran, gave a pessimistic hue to the decade to me and many other Americans. Fortunately, Europe had a different hue, as Lagerfeld would point out: Greater freedom rather than more corruption. I share his view of the 1980s as being more about money. In Reagan’s America, prosperity was the Gospel and the rich (and business schools) thrived. I’m not surprised to learn that that spread to Europe. Lagerfeld could look back at all the wealth created back in the 1980s and still say in 2013, “Many rich people of the past are poor today (relative to today’s rich).” In spite of the financial crisis of 2008 and the ensuing European debt crisis, the 2010s can be said to be about the super-rich and the related widening disparity in income and wealth approaching that of the Gilded Age. As for Lagerfeld on politics, he was interested in the news (and it was relevant to fashion), but he could proudly proclaim, “I never voted in any country; I am a free European.” The man who had wanted as a child to be an illustrator when he grew up had in fact grown up to pour his genius perspective into images and cultural critiques.

Source: “Interview with Bridget Foley,” The WWD Apparel and Retail CEO Summit, January 7-8, 2013.

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