Time For Full Demographic Panic Mode At McDonald's?

| About: McDonald's Corporation (MCD)

Summary

McDonald's faces an enormous demographic challenge in the next five to ten years.

A new movie will take a hard look at founder Ray Kroc that will likely damage the brand.

Younger Americans will likely take a negative view of McDonald's with the roll-out of the movie's publicity campaign.

One senses there might be a growing sense of panic in the McDonald's (NYSE:MCD) "C" suite.

Word came last week that the company may be dropping its seemingly failed slogan, "Lovin' beats hatin'" that was, itself, a replacement of the long-running "You're lovin' it". (Although it would appear the "Lovin' beats hatin" slogan provides a pretty easy choice given that McDonald's is …. well, food.)

Reportedly, McDonald's is trademarking a new slogan, "The simpler the better", which may (or may not) be used in the company's marketing campaigns. The new slogan is clearly aimed at more health-conscious consumers.

McDonald's is also tossing its paper wrap for a new " designer" logo worthy of, perhaps, the Museum of Art, until one realizes that McDonald's wrapper art is ultimately destined for…ummm….landfill.

Finally, McDonald's is hiring top designers and decorators to kit out some of its restaurants around the world with designs one might more likely find at a trendy, star-owned, upscale, TriBeCa nouvelle cuisine restaurant - or the New York Subways, circa 1978 - than at a QSR.

What gives?

It seems to me that McDonald's senior management has woken up to the catastrophic demographic consequences of their current business model.

Simply put, both McDonald's franchisees and its customer base are aging out.

Ronald McDonald first appeared more than 50 years ago. And he was the second McDonald's mascot, after "Speedee", the original.

McDonald's first "teenage" customers are into their 70's now. Their youngest original franchisees are well into their 80's and older.

McDonald's hamburger, fries and a drink menu -- and its breakfast counterpart - hasn't really changed significantly in more than 40 years.

If "demographics are destiny," as the economists tell us, then McDonald's demographics are simply horrible, particularly given coming events.

Management would be rightfully panicked.

Face it: the children of the 1980's, who were already being discouraged from eating McDonald's when they were growing up, are now between 28 and 37 years old. They have children themselves now, and veritable "helicopter parents." They barely let their children out of the house without ensuring they are wearing some form of crash helmet and packing a healthy snack and a sugar-free juice box.

These parents who were the children of the 1980's are far less likely to take their own children to McDonald's than their parents were to take them.

To start, there is now an array of alternatives, almost all of which purport to be healthier, more wholesome options, than the "hamburgers for kids" motif that underlies the entire McDonald's business model. (The Happy Meal toy doesn't really seem to seal the deal anymore.)

To combat the aging of their customer and franchisee base, McDonald's executives are engaged in a hopeless effort to makeover the fast-food mainstay of the 1960's to be relevant to the 2010's new customer base of health-conscious (i.e., gluten-free, macrobiotic, "free-range", etc.) hipsters and other young adults.

That's why McDonald's is sloganeering, remodeling, doing a mobile app, and redesigning their bags.

Their effort is laughable.

As one writer, surely a millennial, wrote, "(McDonald's), we eat you because we're blazed (i.e., high on drugs), drunk or trying to get over a break-up." How's that to describe your once family-friendly McDonald's?

McDonald's, it seems, is your father's (or grandfather's?) QSR.

For younger "Millenials", born after about 1990, McDonald's demographic story is even worse.

"Super Size Me", the independent documentary that director Morgan Spurlock said showed the ill effects on his health from eating McDonald's exclusively for a month, was released 13 years ago with wide media coverage. There are likely few Americans aged 18 to 30 who are not at least vaguely aware of "Super Size Me" and the health effects it reported as resulting from eating McDonald's as a regular part of one's diet. (After the documentary was released, McDonald's did away with the "super size" option on its menu.)

That was bad enough. But Hollywood is about to rile the millennial base even more.

Sometime in August, "The Founder", Michael Keaton's portrayal of McDonald's "founder" Ray Kroc, will debut in theaters with a media campaign intended to boost movie ticket sales. But it will also tarnish the McDonald's reputation.

While the screenplay isn't public, it's reported the movie will be a "warts and all" portrayal of Ray Kroc that is highly unlikely to endear the legendary McDonald's "founder" to today's younger, more progressive, "social justice"-minded young consumers.

Among other things, Kroc contributed over $200,000 (more than $1.1 million today) to President Nixon's 1972 campaign in what was alleged at the time to have been a quid pro quo to procure a lower minimum wage for teenagers who worked in McDonald's restaurants and to increase consumers' prices for the then-new McDonald's "Quarter Pounder" by 11 cents (34 cents for the cheese version) in today's dollars during a time of federal price controls.

It's also reported - and the upcoming movie seems to emphasize the notion -- that Kroc allegedly cheated the original founders of McDonald's, the actual McDonalds brothers, of hundreds of millions of dollars.

In my opinion, McDonald's will be facing a lot of costly public relations issues in the run-up to, and after the release of, "The Founder". I think by mid-July or so, McDonald's will start being seen by young people as the type of "crony capitalist" company a good part of the American population abhors (as signaled by their support for Trump and Sanders in the presidential primaries); on a par, perhaps, with "The Big Banks". The movie will also tend to inhibit McDonald's efforts in cities, state legislatures, and Congress to damp down demands for a higher minimum wage.

In my view, a downturn of at least 10 to 15 percent in the stock is possible in the third and fourth quarters.

I reiterate the need for McDonald's to adopt the type of "merchant banking" innovation I suggested when I last wrote about it. Failing that kind of radical innovation and adaption to McDonald's new demographic challenges, I fully expect that "the Golden Arches" will go the way of "Howard Johnsons" or "Chock-ful-O-Nuts" in a matter of 10 to 15 years.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The foregoing is only the author's opinion about a company and its operations, market, and management. It is not intended as investment advice, and you should not use it for that purpose. You should consult your own personal financial adviser before undertaking any changes to your investment portfolio.