Wednesday, December 10, 2014

McDonald’s Arch Deluxe Redux



Well, not precisely the Arch Deluxe, but more about that below.

McDonald's just posted sharper-than-expected November sales declines. Global sales are down 2.2%. In the U.S. sales fell more than twice that – 4.6%, the lowest sales month for them in over a decade, and almost four times worse than analysts had projected. Those wacky Wall Street analysts! Wherever were they getting their research? As a matter of fact, it raises the same question for McDonald’s. Where are they getting their research? Or, more precisely, where are they getting their brand research?

And if Google’s slogan is “Do no evil,” McDonald’s unofficial corporate slogan seems to have been “We can do that too,” or something along the lines of “watch what the competition is doing and where consumers are engaging and try and do that too! No really. You certainly can’t fault McDonald’s competitive research. They haven’t missed the big happenings in the category or the lack of happenings in their stores. To wit:

Millennials have migrated to fast-casual restaurants because they believe that they get better, higher quality, tastier and customized food.

Gen-Xers want good food fast.

Boomers believe fast-casuals provide the kind of service they deserve. And are willing to pay for it. Oh, and healthier options.

And everybody wants – and is willing to pay for – what they see as value-for-dollar, as opposed to price-value – so everyone seems willing to pay more for healthier, fresher, customized foods with better service. Younger consumers have taken to characterizing fast food as  “dollar food,” and do not mean it as a compliment.

Anyway, McDonald’s is looking for a way to reverse the downward slide. But, we fear, in all the wrong places, and likely with the wrong research. McDonald’s, having the production and distribution infrastructure and the financial wherewithal has consistently watched what competitors were offering and then slapped a “Mc” on it and added it to their menu. Salads, wraps, premium coffee. Like those.

On the health front they currently have a plan designed to recapture consumers now spending money at chains like Panera and Chipotle via transparency, with a new campaign based on the idea that McDonald’s wants to be transparent and not hide what they put in their food and they too are natural and fresh and premium and. . .  wholesome? 

But as regards the problem McDonald’s faces à la consumers looking for better service, increasingly complicated McDonald’s menus have made fast service increasingly problematic. What to do, what to do?

Their answer? If your younger customers are deserting you, focus and maybe try and woo back Boomers. “But with what,” we hear you ask. “What with, if their already extensive menus create service issues and their food is regarded somewhat less fresh and natural than fast-casual offerings?”

Glad you asked. After dropping their Angus burger, McDonald’s is expanding their offerings and is test marketing a build-your-own burger made with – wait for it – premium ingredients. Makes you wonder about the currently level of transparency. Aren’t they trying to convince people that what they currently use is premium?

Anyway, the test burger currently offers 20 topping and sauces, white cheddar, applewood smoked bacon and things like guacamole, grilled mushrooms, caramelized onions, and garlic sauce. You can add bacon (or an extra patty) for a buck extra and (currently in test) sells for $5.79. You can have it char-grilled it to order and you know it’s going to be good because you order it on an iPad!  And it is rumored to be delivered by a server dressed in a black and white pinstriped chef’s apron and they say they can do it all in six minutes.

All of which raises another question. Does anybody at McDonald’s headquarters remember the Arch Deluxe debacle? For those of you too young to remember, that was McDonald’s response to competition for adults too. You can probably look up the historical details on your iPad too.

Briefly, McDonald’s saw that adults came into their restaurants with their kids, bought food for the kids, and a cup of coffee of a cola for themselves, but no food. Hmmmm, what to do? So they asked. “Why aren’t you eating something too? And enough adults responded, “because you really don’t have anything for me. This is kid food,” or something very, very close to that. And, no fool McDonald's, they asked “If we had something just for you, would you eat that?” And many of the respondents said, “sure.” A direct question, and easy answer, why not?

McDonald’s likely did it more elegantly than that, and there are nuances to this story, but this is a column and not a case history, but the result of their market and competitive research was the Arch Deluxe, an adult burger backed by $100,000,000 of advertising and promotion. Think Ronald McDonald in a suit and tie. Ronald on a golf course. No, seriously. There was a teaser campaign where all you could see his big red clown shoes in adult situations. They couponed, the hell out it, and it tanked. McDonald’s has since rationalized that they had the pricing strategy wrong, but we disagree. Based on the promotional campaign, there were maybe a dozen people who actually ended up having to pay full price. OK, maybe more, but not a lot. And not enough to make it profitable.

The problem came back to “brand.” The burger was fine.  Everything McDonalds serves up is ultimately fine. It’s just that nobody, that is to say, adults, actually believed that McDonald’s could make a burger that would meet their adult expectations. Maybe the iPad will help this time. But technology notwithstanding, engaging customers is about understanding their expectations and knowing how your brand can believably be seen to meet those expectations. It’s a brand issue not a product-mix issue. Or a lack of more social or traditional advertising.

One other side-question that occurs to us is, if McDonald’s is having problems with menu complexity and speed of service currently, how is char-grilling and customizing these burgers going to speed things up? Based on current reported options, and calculating for a reasonable number of selections, it looks to be someplace in the neighborhood of 53,000 possible combinations. Maybe there’s an app on the iPad for that.

The bottom line: McDonald’s is mired in the past. In how they measure what will truly engage customers and how they measure how their brand is really perceived. What’s clear from the consumer engagement assessments is that McDonald’s has lost brand meaning. They stand for ubiquitous hamburgers and fries and “dollar food,” and they desperately need to fix the brand.



If they think more advertising, or custom burgers via apps or tablets are the answer to what ails them they’re in a lot more trouble than they – or the analysts – realize!


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