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March 12, 2015

McDonald’s: a How-(Not)-to on Innovation

Summary:

Ronald McDonald may still be smiling, but McDonald's has become a slow-motion wreck because it stopped innovating in a changing market.

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McDonald’s is in free fall, in the U.S. and abroad. Sales in the U.S. were down 4% in February, continuing a slide that cost Don Thompson his job as CEO at the beginning of 2015. The McDonald’s promise of a uniform food and dining experience wherever you see the Golden Arches across the globe has quickly become a liability. Consumers are demanding choice, freshness and more transparency about the ingredients that go into what they’re eating — all things McDonald’s has in short supply. Those videos on how McNuggets are made aren’t helping much, either.

How did McDonald’s miss the boat? The slow-moving car wreck of a declining McDonald’s is déjà vu for marketers who have watched other industry-leading brands squander their equity by failing to adapt to changes in tastes. Blockbuster and RadioShack are just two of the many examples of companies that stood fast, or made only cosmetic changes, as their industries were innovating and shifting below their feet. Whether the products were comfort food, videos or cheap electronics, each company took too long to realize that people weren’t buying what they’re selling any more. Chipotle, Panera and other fast casual restaurants have quickly grown over the last 10 years, but, even though McDonald’s used to own part of Chipotle, it still stopped innovating and missed the looming threat.

Define dying. Even with the recent sales declines, McDonald’s still generates nearly $100 billion of revenue a year, so reports of its actually going out of business won’t be coming anytime soon. But the company is squarely on the wrong side of current eating trends. After expanding the menu to try and provide “something for everyone,” the company is now shrinking the menu again to focus on traditional core offerings. It will all be to no effect if the company isn’t able to re-imagine and re-invigorate the dining experience. Simply having salads on the menu isn’t enough. Nobody really wants to get a Caesar salad from McDonald’s to start with, especially not when it has more calories than the iconic burgers. And the rise of gourmet casual burger chains like Shake Shack and Wahlburger’s has made even McDonald’s core burgers look much less appealing than they did in the past. The patient is still breathing, but there are few signs of improvement.

It could have been different. The McDonald’s brand used to stand for tasty (if not necessarily healthy) food, a fun environment and a little piece of Americana. When I was a kid, I remember that rare times we got to go the McDonald’s down the block on 96th and Broadway as a real treat, complete with a Happy Meal and a toy. By comparison, last year I was spending a Saturday with my boys and wound up in a neighborhood where a McDonald’s was the only option for us to grab lunch. Instead of being excited, my four-year-old solemnly told me, “You know this food isn’t good for you, Daddy,” as he picked at the burger and fries in front of him. And he loves burgers. Times have changed, but McDonald’s really hasn’t. Instead of window dressing changes like substituting apple slices for fries in Happy Meals, the company needs to rethink the menu and value proposition, especially for families.

How can McDonald’s be put back together again? The best companies don’t shy away from market changes. They face changes head-on. It’s hard to remember now, but Netflix was once completely focused on renting DVDs by email. Instead of fighting the streaming revolution, Netflix embraced it wholeheartedly and now makes much more from that part of the business (though the company still has 6 million DVD subscribers in the U.S.). Demands change, and even the most entrenched market leaders can see it all slip away quickly; just ask Blackberry. McDonald’s needs to change its strategy, food and even the look of the stores if it wants to keep up. It won’t be the same old McDonald’s any more, but it might just help turn the business around.

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About the Author

Hunter Hoffmann is head of U.S. communications at Hiscox and is responsible for media relations, social media, internal communications and executive messaging. He joined Hiscox in August 2010 and has a B.A. from Trinity College (CT) and an M.B.A. from Cornell University.

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