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McDonald's: Strategic Thinking Seems To Have Disappeared

|Includes: McDonald's Corporation (MCD)

McDonald's Corporate Strategy

Here is an interview with the CEO of McDonald's talking about their corporate strategy: McDonald's CEO Reveals The Brand's 4 Biggest Problems. You can see the article yourself but I have copied his comments here. This interview took place last August:

"McDonald's is struggling to get back on top.

The fast food giant has lost market share to fast-casual brands like Chipotle and better-burger restaurants like Five Guys.

In a recent call with investors and analysts, CEO Don Thompson revealed the four biggest issues facing the brand - and how he planned to fix them.

1. Offering the best value. McDonald's spent several years experimenting with high-end items like Angus beef burgers and Chicken Selects. By focusing on this, McDonald's ignored one of its biggest strengths. "Value is one of our grand pillars," Thompson said. "So we must continue to fortify our position within this key consumer attribute."

The brand is luring back cash-strapped customers with offerings like the low-priced Jalapeno McDouble and Buffalo Ranch McChicken.

2. Customer service. McDonald's drive-thru wait times have gotten worse over the years, in-part because of an increasingly complex menu. Thompson acknowledged this problem and said that the company was sending corporate representatives in for a "service reset." This could include adding more workers and assigning new tasks to existing ones.

The company is also remodeling European kitchens for faster food assembly.

3. Marketing. Thompson is aware that many view McDonald's as unhealthy junk food. This problem has been exacerbated by a food factory scandal in China. To improve public perception of the company, McDonald's is doing a global audit of the marketing department. Thompson said he planned to make new internal hires.

"We are also strengthening our creative messages by placing greater emphasis on the quality of our food and again re-establishing the emotional connection that our customers associate with the McDonald's experience," Thompson said.

4. Simplifying the menu. McDonald's menu has grown 70% since 2007. The new menu items are a burden on employees and have helped contribute to long wait times. Franchisees are also angry about the overloaded menu, saying that the extra ingredients and equipment were costing them money.

Thompson stressed that the restaurant was going back-to-basics.

"We are streamlining our merchandising menu board and product offerings and in addition to making it easier for customer to order their favorite products, this will reduce complexity in our restaurants which in turn should enhance accuracy and speed of service," he said."

This is a truly disconcerting summary of McDonald's plans for the future. It leads me to believe that their heads continue to be buried in the sand. Thompson is saying that they need to fortify their position at the lower end of the market. Corporate executives at a Morgan Stanley conference in November seemed to be saying that they needed to fix the ratio of their value priced menu to core and premium product prices. I thought that meant that the value priced menu would need some adjustment. Perhaps things have changed between August and November, so here we have Thompson saying they need to lure back cash-strapped customers with low-priced products.

The whole idea is that core and premium products would likely have higher margins (although I have not found anyone discussing this at McDonald's). On one hand Thompson talks about simplifying the menu. On the other hand he talks about adding more low-priced products. Are they then going to eliminate core and premium products? Are these guys as confused as I think they are? Someone help me out please.

Strategy will affect the overall direction of the organization and establish its future working environment. Corporate strategy defines the markets and the businesses in which an organisation chooses to operate. Competitive or business strategy defines the basis on which it will compete.

I see nothing terribly strategic here certainly not with respect to competitive or business strategy. I am starting to think that these guys are lost in the informal eating out segment forest. In my opinion, tt's not about a change in people's eating habits or the competition, it's about senior management's role in formulating the Corporation's strategy.

Disclosure: The author is long MCD.