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.
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.
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.
