Why McDon­ald’s is still a pow­er­house

The China Post - - WORLD BUSINESS - BY CANDICE CHOI

McDon­ald’s sales have been sput­ter­ing for more than two years and the com­pany seems trapped in a cy­cle of bad head­lines that likely won’t end soon.

Its quar­terly earn­ings re­sults on Wed­nes­day aren’t ex­pected to be pretty ei­ther, and there’s a chance its dom­i­nance will con­tinue to wane as newer play­ers keep com­ing onto the scene.

But don’t write the obit­u­ary just yet. McDon­ald’s has many strengths that the ri­vals bit­ing at its heels can only envy, in­clud­ing Ron­ald McDon­ald’s world­wide recog­ni­tion. The Golden Arches will need to put them to good use to re­main the world’s largest restau­rant chain.

Here are six rea­sons why McDon­ald’s is nowhere close to death’s door for now.

Mas­sive Reach

McDon­ald’s has more than 14,300 lo­ca­tions in the U.S. and that ubiq­uity con­tin­ues to make it a de­fault op­tion for many din­ers. Bur­rito chain Chipo­tle is in growth mode but still only a frac­tion of that size, with around 1,800 lo­ca­tions. (Shake Shack, whose stock of­fer­ing ear­lier this year gar­nered lots of at­ten­tion, has fewer than 40.)

Be­cause of its re­cent strug­gles, McDon­ald’s plans to slow its growth to its low­est level in five years. But “slow” is rel­a­tive: It still plans to add 600 to 700 restau­rants around the world this year, on top of the more than 36,200 it al­ready has.

Chipo­tle has said it plans to open up to 205 new stores this year, mostly in the U.S.

Mar­ket­ing Power

McDon­ald’s has enor­mous mar­ket­ing mus­cle, in large part be­cause its fran­chisees are re­quired to con­trib­ute at least 4 per­cent of their sales to ad­ver­tis­ing.

That huge bucket of money is split in two ways. Some goes to na­tional ad­ver­tis­ing and fo­cuses on bur­nish­ing the brand. The rest goes to re­gional ad­ver­tis­ing and fo­cuses more on pro­mo­tions to drive cus­tomers to stores.

Ad­ver­tis­ing doesn’t have to be ex­pen­sive to be ef­fec­tive, of course. But McDon­ald’s deep pock­ets give it a clear ad­van­tage.

Print­ing Money

The re­cent sales decline in the U.S. is squeez­ing fran­chisees, who still have to pay for fixed costs like la­bor and elec­tric­ity.

But McDon­ald’s restau­rants con­tinue to gen­er­ate a lot more cash than their peers. In 2014, the av­er­age McDon­ald’s restau­rant raked in US$ 2.5 mil­lion ( NT$ 77.799 mil­lion) in sales, ac­cord­ing to in­dus­try tracker Tech­nomic. Wendy’s restau­rants pulled in an av­er­age of US$1.6 mil­lion, while Burger King pulled in US$1.2 mil­lion.

A big rea­son for the dif­fer­ence: the pop­u­lar­ity of McDon­ald’s break­fast.

Av­er­age an­nual sales for Shake Shack are far higher at US$4.6 mil­lion, ac­cord­ing to Tech­nomic. But that’s in part be­cause Shake Shack is con­cen­trated in New York City, where vol­umes tend to be higher. The av­er­age Chipo­tle gen­er­ates roughly the same sales vol­ume as McDon­ald’s even with­out break­fast, in part be­cause of its fast-mov­ing line and higher prices.

Un­lock­ing Break­fast

Fans of McDon­ald’s break­fast have long called on the chain to of­fer it past 10: 30 a. m. McDon­ald’s is fi­nally giv­ing the idea a se­ri­ous try with a test of an all­day break­fast menu in San Diego.

It’s just one way McDon­ald’s might bring more cus­tomers into its stores, and may sig­nal the com­pany’s will­ing­ness to take big­ger risks with its menu.

Big com­pa­nies tend to be cau­tious about change, and McDon­ald’s in par­tic­u­lar is known for its me­thod­i­cal de­ci­sion-mak­ing. But ex­ec­u­tives may pick up the pace to avoid be­com­ing out­dated and give cus­tomers what they want.

New Lead­er­ship

McDon­ald’s CEO Steve Easter­brook stepped into his role just last month and said he wants to make McDon­ald’s a “mod­ern, pro­gres­sive burger com­pany.” In a mee­tand-greet with an­a­lysts, he also re­ferred to him­self as an “in­ter­nal ac­tivist” at the com­pany, ac­cord­ing to Sara Se­na­tore, a Bern­stein an­a­lyst.

An­other new ex­ec­u­tive is Mike An­dres, who be­came pres­i­dent of the U. S. di­vi­sion in Oc­to­ber and has a deep his­tory with McDon­ald’s. He started as a manager for his fam­ily- owned McDon­ald’s, and has served in a va­ri­ety of lead­er­ship roles at the com­pany.

(Side note: An­dres’ fa­ther was a pi­lot for Ray Kroc, who built McDon­ald’s into a fast-food gi­ant.)

Mcdon­ald’s Has Been

Here Be­fore

The trou­bles McDon­ald’s is fac­ing are partly the re­sult of a shift­ing in­dus­try, with many smaller play­ers pos­ing a chal­lenge to the big guys. If that trend keeps up, McDon­ald’s may not be able to save it­self.

At the same time, it’s easy to for­get that McDon­ald’s has had rough patches be­fore — and pulled out of them.

Con­sider the ex­panded menu and fo­cus on value that for­mer CEO Jim Skin­ner used to turn around busi­ness. It isn’t an an­cient ex­am­ple; Skin­ner’s ten­ure was from 2004 to 2012, the last few years of which were some of McDon­ald’s strong­est.

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