McDonald’s Corporation’s Decline in Sales

­­­­­­Problem Statement

The main problem affecting the McDonald’s Corporation is the substantial decline in like-for-like sales and revenue, caused by the strengthening of the dollar as well as other international issues. The new CEO, Steve Easterbrook, has introduced strategic changes that managed to turn the company around. This report aims to provide a comprehensive analysis of the company’s currents status and introduce alternatives that will allow McDonald’s to maintain a high level of performance.

Analysis

The information from the studied case is analyzed using the following marketing frameworks: Environmental Analysis, SWOT Analysis, Market Segmentation, Customer Analysis, and Marketing Mix.

Environmental Analysis

In the past, companies of varying sizes and from different spheres evaluated their internal resources and capabilities to utilize them more efficiently and generate revenue. Achieving this, as well as other strategic goals, such as developing new products, expanding into a different country, or increasing market share requires a thorough analysis of both the external and the internal environment. The benefit of the external environment analysis is either in noting opportunities or in anticipating future challenges or threats. PESTEL is a framework meant to assist organizations in assessing their external environment. It incorporates political, economic, social, technological, environmental, and legal factors. In addition, this paper discusses the competition factor

Political Factor

is the measure of government interference in a specific business or branch. It can be explained as authority that the government exerts on an organization, affecting its operation. It may manifest itself in the form of corruption, export and import policies, labor laws, and general political stability or instability of the nation in question. For the McDonald’s corporation, this factor is illustrated by the closing of several of its restaurants in Russia in response to the US economic sanctions. This precedent is moderately alarming and could pose a significant danger to the company.

Economical Factor

is the measure of the effect of such macroeconomic circumstances as inflation, interest and exchange rates, as well as overall economic growth on the company’s productivity and long-term strategy. McDonalds has recently been struggling with the quickly changing economy. Since its pricing in foreign countries is heavily dependent on the exchange rate of the US dollar, the company’s sales fluctuated significantly, as did the dollar. The situation was worsened by the fact that it drew 70 percent of its revenue from sales outside the US. Due to this peculiarity, while the US quick-service market grows, as shown in exhibit 1, McDonald’s may still lose sales.

Social Factor

is the measure of how much popular trends, as well as population growth and age distribution, influence the demand for what the company is offering. For McDonald’s, social factor can be seen in its attempts to appeal to millennial buyers, who have begun to attend more fast-casual restaurants overall, but decreased their number of visits to McDonald’s. The new CEO tries to change the situation by communicating the company’s new “fresh and healthy” as well as “quick and convenient” identity to the customers. To do that more effectively, Easterbrook is using engaging and contemporary digital methods.

Technological Factor

is the measure if the effect that technological developments such as new hardware, software and schemes on the corporation’s productivity and strategic planning. The McDonald’s corporation has employed numerous technologies to improve various aspects of its operation over the course of the company’s history. In the 1980s, it began using microwaves to gain an advantage over its competitors such as Burger King and Wendy’s. In the 2000s, McDonald’s was making significant efforts to improve the performance of its existing locations by introducing new cost-saving and time-saving technologies, including the implementation of computers. One of the most prominent and recent developments is cutting edge electronic ordering kiosks that create a smooth and interactive buying experience and reduce waiting times. There is also a new mobile app that customers can use to make their orders and pay, eliminating the need for queues.

Environmental Factor

Encompasses features connected to ecology and natural resources that might cause the company to alter its practices in order to reduce waste, improve recycling or pollute less. The target demographic of McDonald’s seems to value environmental sustainability very highly. Unfortunately, the majority does not perceive McDonald’s as a company that is concerned with such issues. Contributing to that are several scandals regarding some questionable ingredients that the franchises have since stopped using.

Legal Factor

is the measure of the effect regulations related to labor law, food and safety norms and business relations have on the way a company operated and its market strategy. Being a restaurant business, the McDonald’s corporation is subject to strict legislation. It is also an international company that has to comply with standards from all the countries it operates in. The organizations needs to overcome these challenges to succeed and it has been managing to do so without major issues. It should be noted that a few of the company’s locations have been closed in Russia due to failing inspection; however, that situation is believed to have political roots. As for issues regarding labor laws and employment in general, McDonald’s is facing a suit from the National Labor Relations Board, concerning the wages of its franchises’ workers. While the company has pledged to increase the pay in the restaurants it owns, it is hesitant to push these changes to the subsidiaries, that might not have the resources to match the rise. In addition, many of McDonald’s locations are often understaffed during peak hours, which stresses employees that in turn become unfriendly and unprofessional, leaving customers dissatisfied with the service.

Competition Factor

The fast-food environment is extremely competitive, as every company aims to provide the best value for their customers by using the highest quality ingredients and maintaining the lowest possible margins. Ever since the “burger wars” of the 1980s, McDonald’s has been fighting for market share with Burger King and Wendy’s. At the time, McDonald’s was able to stay ahead of the competition, by introducing new products and technologies and expanding to other countries. Its current competitors also include taco bell and subway as well as a slew of fast-casual restaurants and coffee shops.

Burger king is the second largest fast-food chain in the United States and the third largest in the world. With its over 18,000 restaurants generating $23 billion in annual sales, it could be McDonald’s most recognizable rival. In addition to its simple yet diverse menu and attractive offers, Burger King uses clever and aggressive marketing. In 2015, it offered McDonalds to suspend the “burger wars” and make “McWhoppers” together, sending all proceeds to the Pease One Day organization. McDonald’s was heavily criticized for declining the suggestion, as many saw the decision as greedy and insensitive.

Wendy’s is the third largest burger chain in the US, and it positions itself as a company providing higher quality freshly made products without sacrificing speed. It appeals to both value seeking customers, and to those willing to pay more for premium burgers. At the same time, its menu is small and flexible, allowing for custom sandwiches and focusing on key products. It has also invested heavily into renovating its locations, which resulted in 5 to 25 percent increases in same-store sales.

Taco Bell is part of Yum! Brands, the largest competitor to McDonald’s. The chain has been suffering from quality related issues, and has only began to recover in 2012. Its currents strategy is based on introducing new product lines and services to boost sales. A notable feature of Taco Bell is its mobile app that is said to increase the average transaction by 20%. It is highly advanced in its use of location tracking to fulfill the order when the customer approaches the store. Although this might cause inconveniences if whoever collects the order has some sort of technical issue with their phone, like a low battery or an inconsistent cellular connection.

Subway is a healthier quick-service chain consisting of 45,000 thousand restaurants, 8,000 more than McDonald’s. Although the company continues to expand, its sales are not as impressive as they were when the company was young. Even Subway’s position as a healthy and convenient option has been challenged recently. Its competitors, who already enjoy the boost in popularity from being newer, have started offering GMO-free and transparently sourced ingredients.

Fast-casual restaurants are not fast-food stores like McDonalds and the competitors mentioned above. Instead of maintaining high speed and convenience, their main goal is better food quality. However, unlike traditional restaurants, fast-casual ones are not burdened by table service, which allows them to compete with any quick-service in terms of speed without unnecessarily increasing prices. The segment is becoming so popular that some sit-down restaurants are considering their chances to enter it.

In the fast-casual segment, there is a group that is especially notable – premium burger chains. This group includes restaurants like Five Guys, In-N-Out Burger, Shake Shack, Smashburger, and Fatburger. Their higher quality burgers attract customers despite the higher prices and sometimes very long wait times. McDonalds and other fast-food restaurants have attempted to win back their market share by creating their own premium lines of burgers. Unfortunately, the sales were quite low, as customers rarely chose to spend more on McDonald’s food, when they could order a very affordable meal from the Dollar Menu. Consequently, fast-casual restaurants are still depriving McDonalds of its more affluent clientele.

McDonalds has recently created a sub-brand named McCafé, which specializes in coffee and thus competes with such coffee shops as Starbucks and Dunkin’ Donuts. The competition is quite high in this sphere, as rivals implement more diverse offerings. Starbucks has captured a wider audience by introducing baked goods and sandwiches that might attract customers who have already had their morning coffee. To increase traffic during the late afternoon, the company has started selling pizza, vegetables, cheese plates and deserts, as well as serving alcohol. The coffee shop has made developments in the high-end bracket, but these are not relevant to competing with McDonald’s. At the lower end, Dunkin’ Donuts is also broadening its selection of breakfast foods.

SWOT Analysis

SWOT analysis is a method used to make a company’s decision making and strategizing process simpler. This valuable tools highlights the most crucial issues to be considered, both internal and external. It is also highly useful in outlining future opportunities based on the current capabilities and shortcomings of an organization and the most influential environmental factors that could affect it.

Strengths

From the very start of the company’s existence, one its main strengths has been its streamlining. The founder have made a strategic decision to purposely limit the menu to burgers, fries, and drinks. What may have seemed like substantial sacrifice at the time has allowed the company to distinguish itself from competitors through providing quick service without compromising quality. Now, this model has been adapted and evolved by many rivals, but McDonald’s still retains the reputation for being the first of its kind.

However, reputation alone cannot drive sales, which means the company had to improve. Currently, the full list of items McDonald’s can offer is much more extensive than what can be found in the menu of one of its locations. The system introduced by the new CEO enables local franchises and managers to pick items that sell best in their region. This is a continuation of the company’s streamlining roots, and it is apparent that the expertise of the McDonald’s corporation in this sphere is immense.

Another strong point of the McDonald’s Corporation is its structure. The company has a vast network of independent store owners running under the franchise’s name. The stores are often operated on corporate owned real estate, and each of them is connected to the integrated supply chain management system. The franchise system allows McDonalds to expand significantly faster, as the company does not have to invest as much capital into new locations, but can still increase its revenue. Moreover, some of the most popular menu items, such as the famous Big Mac, have originated from franchisees.

Connected with the franchise system is the fact that McDonald’s is an international company with locations in over 30 countries. This allows the business to survive though local and global economic crises, which could have been much more detrimental to a corporation that only operates in one region. In addition, having such a broad coverage of the globe makes it possible for McDonald’s to develop and test numerous different strategies at the same time in separate states. Long term plans often imply substantial risks, so it is highly advantageous to have the ability to verify them on a large scale without endangering the entire organization.

Weaknesses

One of the most pronounced weakness of the McDonald’s corporation is its relationship with millennial audiences, who seem to remain more interested in other options, despite the company’s best efforts. People aged 19 to 21 demonstrate this problem most prominently, as they have begun visiting fast-casual restaurants 2.3% more often, but decreased the frequency of coming to McDonald’s by 12.9%. Older audiences aged 22 to 37 have increased their overall amount of fast-casual eating by 5.9%, while leaving their McDonald’s attendance at the same level.

From the available data, the executives have concluded that millennials are switching from McDonald’s due to health concerns. It is becoming more common nowadays to lead a healthy lifestyle, and a crucial component of that is healthy eating. Unfortunately, McDonald’s is not perceived by most people as a place to get healthy food. It appears that people who abandon something quick and convenient in pursuit of fresh and healthy options do not believe that McDonald’s can do both.

To remedy this, Easterbrook has elected to use digital technologies to help connect with young audiences. The company has launched a series of videos under the name “Our Food, Your Questions.”, showing the process of making some of its popular items. The initiative was a success and made organization’s image more trustworthy. In addition to that, there has been a substantial development called “Experience of the Future”, led by a former google executive. The program includes social media presence, a smartphone app and even a mobile payment system.

Another issue McDonald’s is facing is its rude and unprofessional employees. During peak hours, some of the company’s restaurants are seriously understaffed, which means the few staff members that are present at the time have to work at their limit to meet the demand. While this is possible to sustain for a short time, it significantly increases stress when done continuously. Having stressed workers leads to two immediate problems for the company: rudeness and high turnover. Unhappy employees struggle to treat customers well and try to find a better job as soon as possible. To address this, McDonalds has pledged to raise salaries and improve benefits, however, that does not eliminate the problem of understaffing. As a consequence of these improvements, the price of having one person working would rise. This in turn would increase the likelihood of locations being understaffed, especially in franchises that are trying to reduce costs.

Opportunities

A substantial opportunity for growth can be found in the international markets. It is well known that in developing countries people increase their spending proportionately with their income, which means they begin to eat out more. Confirming that, the annual growth rate of quick service restaurant burger sales in Russia averages around 21 – 22 percent, compared to the much slower growth in the US shown in exhibit 1. McDonald’s is losing sales in the United States, but it could find partners in less saturated markets, where some of its problems that are crucial in the US would not affect the company’s performance.

Another option to resolve the dilemma of choosing between low prices and premium products is to follow the example of Starbucks and create a high-end sub-brand. Some of the US customers want higher quality products and are willing to pay more for them. However, McDonald’s cannot afford to lose its appeal to the value seeking shoppers to pursue this new segment. Starting a separate line similar to McCafé, only with a focus on premium food can save the existing customer base and make it possible to compete with other quick service or even fast-casual restaurants.

Threats

Competition is the most notable threat for the McDonald’s Corporation. The company’s rivals offer different products at different prices, but each of them has their own niche. On the contrary, McDonald’s is trying to capture as many market segments as possible and appeal to a broad demographic. While it is understandable why this strategy might appear rational, the truth is that the organization’s capabilities are limited. Even if it offers an alternative to everything on the food market, the brand will still only attract a certain group of customers. Without focusing on a narrower goal, the results are going to remain lackluster across the board.

Market Segmentation

Target market segmentation is performed using behavioral approaches, demographic approaches and geographic approaches.

Geographic Segmentation

McDonald’s is a global corporation that works in countries with different tastes, incomes and other conditions. To accommodate these factors, the company uses a flexible menu system that allows individual franchises and store managers adapt to the demands of the local market. Restaurant owners can exclude unpopular items and ones they expect to sell better in their area. Geographic segmentation can also be observed on a larger scale, as McDonalds makes strategic decisions to increase its ownership percentage in some regions and sell locations to partners in others.

Demographic Segmentation

The target demographic of McDonald’s is said to be millennials, which is a broad term. In general, it tries to appeal to younger audiences, as they are the more typical fast food buyers. The company is struggling to attract these people, as they do not see it as healthy and prefer restaurants that focus on fresh high quality food. To compensate for the wrong brand perception, it has implemented electronic ordering and payment methods that please younger audiences and save time by eliminating most queues.

A significant portion of McDonald’s customer base consists of price sensitive customers. These people are attracted by the high value for money offers such as the dollar menu or temporary promotions. This is the demographic where the position of McDonald’s is the most confident, as it is known for its affordable prices and convenience. However, an increasing number of buyers in the US are seeking more than just cheap food, and McDonald’s is trying to sell to them as well. Unfortunately, the contradiction with the company’s established value based brand and the competition with its own cheaper products has caused its attempts a creating a premium line to fail.

Finally, McDonald’s is popular with families, and specifically mothers, who view it as a convenient source of affordable meals for their children. As concerns over childhood obesity begin to rise in the US, an increasing number of parents have begun to ask for healthier kid meal options. The company has tried to remedy this by adding apple to happy meals and halving the amount of french fries, which resulted in a 20 percent decrease of the calorie count. Despite this initiative and further plans to make McDonald’s food healthier, many people are still unhappy that the organization sells junk food to minors, who do not understand the underlying health consequences.

Behavioral Segmentaton

Being a quick-service restaurant McDonald’s puts an emphasis on speed and convenience, and many customers appreciate it. However, nowadays some begin to change their priorities and short wait times become less important. McDonald’s is not ready to abandon its streamlined heritage, so it does not have an alternative to offer to these people. As for others, it has a slew of conveniences such as ordering and paying via a smartphone app, using a drive through or a delivery service.

Customer Analysis

This section is devoted to understanding McDonald’s Customer Persona and Target Market by means of customer profiling and analysis.

Income

McDonalds is most popular among low and medium income buyers who find great value in its affordable food items, but the company tries to attract higher-end customers by releasing new more expensive products.

Age Range

McDonald’s mostly serves and targets millennial buyers, who seem to be losing interest in the company due to a change in tastes.

Lifestyle

Quick serve restaurant customers can be divided into two categories: those who are looking for inexpensive food and high convenience, and those who want a premium product. McDonald’s mostly caters to the first group, as its menu has many value-based offerings.

Geographical Location

McDonald’s has a total of 37,000 restaurants in various parts of the world. However, 14,000 of its locations are in the US, where it is struggling the most with competition.

Scope

McDonald’s has a very broad scope of customers, as it expands into new locations and market segments.

Customer Base

The customer base of the McDonald’s corroboration is growing due to continuous expansion into other regions. At the same time, its sales in the US are declining due to market oversaturation.

Past Behavior

Here are the most notable behavior traits: concerns over health consequences of eating junk food, tradeoff between price and quality, internal competition between different lines of products.

Future Needs

It seems that in the future customers are going to be more interested in fresh and healthy food, rather than quick and inexpensive. Digital technologies are also likely to become an integral part of the quick-service restaurant business.

Marketing Mix

Maintaining efficient distribution systems and affordable prices in combination with attractive products and promotion are a key part of McDonald’s strategy.

Place

McDonald’s has thousands of locations in the united states and the rest of the world. Inherently, that makes managing supplies challenging, especially when the ingredients must be fresh to ensure optimal quality. Fortunately for the company, it has an integrated supply-chain management system that helps its many franchisees to run their businesses. The organization also has high standards of quality for their suppliers.

Product

McDonald’s has started by just selling burgers, fries and drinks in order to streamline the process and achieve superior speeds. Now that this is no longer necessary, the company has expanded their offerings significantly. It has an extensive catalogue of products that can be used to compile the menus of specific restaurants. The organization has ventured into the coffee business as well, by creating its McCafé sub brand.

Promotion

In addition to traditional advertising, promotion exists in the form of offers that are attractive to buyers. The goal of McDonald’s has always been to provide great value for their customer, and this is reflected in the pricing of many of its items. Although there are a few premium burgers in the menu, every restaurant has plenty of affordable options as well. Moreover, the company is constantly adding discounts and special offers that encourage people to buy more at a seemingly cheaper price.

Price

In a highly competitive market such as the quick-service food business, pricing is a crucial factor that affects the buyer’s choice substantially. The executives at the McDonald’s corporation are aware of this, and are keeping operational costs to the minimum, to ensure that the franchisees can set reasonable prices without sacrificing profits. In addition to an efficient inner structure, McDonald’s includes a large number of high value food items in the menu, and increases profit margins on drinks and higher-end burgers.

Alternatives

One can note the current issues facing McDonald’s from the previous parts of the paper. This section provides solutions to these problems and the original problem statement.

Choosng a Key Direction

McDonald’s is expending in multiple market segments, and each of them has extremely competent and successful rivals. It is evident that the customers rarely prefer McDonald’s to other more focused brands. Logically, the company needs to choose a niche that it can fulfill better than the competition, and devote most of its resources to that direction. The trends and consumer demands always vary, and a large corporation cannot adapt to all of them quickly enough.

Responsibility

At numerous points throughout the company’s history, concerns have been raised over its environmental sustainability and responsibility. Although action has been taken in that direction, it is still not enough to satisfy the public. In order to improve the trustworthiness of its brand image, the company needs to continue moving towards full transparency. It should inform the public on all the used ingredients and their sources. In addition, it would be beneficial to choose more natural components were possible and avoid using additives.

Recommendation

To resolve the issues listed above, McDonald’s needs to drastically change its strategy. Instead of spreading over several highly competitive markets and trying to attract a very broad demographic, the company should chose a direction to focus its efforts on. Additionally, it needs to change its practices and become more cautious of the health of its customer and the environment, as these factors are important to many customers.

Conclusion

This paper identified the problems affecting McDonalds, analyzed the supporting data using several marketing tools and methods introduced possible solutions to the issues noted and provided recommendations. To end the current crisis, McDonald’s needs to use a strong long term strategy to surpass its competition in the selected segment.

Exhibits

Sales of U.S. Quick Service Restaurant Industry ($ billion), 2002–2020*
Exhibit 1 Sales of U.S. Quick Service Restaurant Industry ($ billion), 2002–2020*

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NerdyTom. 2022. "McDonald’s Corporation’s Decline in Sales." February 14, 2022. https://nerdytom.com/mcdonalds-corporations-decline-in-sales/.

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NerdyTom. (2022) 'McDonald’s Corporation’s Decline in Sales'. 14 February.

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