McDonald’s is going after the wrong customers.
The burger chain is trying to steal market share from fast-casual chains like Chipotle by adding more upscale burgers and allowing people to customise their orders, instead of focusing on retaining its core customers, who are increasingly frequenting rivals like Wendy’s and Burger King, according to former McDonald’s executives.
McDonald’s CEO Steve Easterbrook “seems to be obsessed with Chipotle,” says former McDonald’s global CMO Larry Light.
When Easterbrook unveiled his turnaround plan six weeks ago, “there was no discussion of why McDonald’s is losing sales to direct competition,” says Light.
Sales at Burger King, Wendy’s, Jack in the Box, and Popeyes are all growing. The only major burger brand in decline is McDonald’s.
McDonald’s same-store sales have fallen for the last six consecutive quarters in the US. Meanwhile, Chipotle’s business is booming. The burrito chain posted same-store sales growth of nearly 17% last year.
Chipotle’s success has been attributed to its fresh, high-quality ingredients, fast service, and simple, customisable menu.
So it makes sense that McDonald’s would be looking to Chipotle, a company it once owned, for some cues in attracting new customers.
The fast-food chain has recently added upscale menu items like a Sirloin burger to its menu, and it’s expanding a program that allows people to customise their burgers with ingredients like applewood smoked bacon and caramelised grilled onions using touch-screen kiosks.
But McDonald’s isn’t in a position to be chasing after Chipotle’s customers when it’s losing customers to other burger chains, analysts say.
“On one hand, McDonald’s is talking about menu simplification, while on the other hand they are talking about customisation, expanding the line of Quarter Pounders and adding breakfast all day,” says Richard Adams, a franchisee consultant who worked in McDonald’s corporate offices for nearly two decades and spent 12 years as a franchisee. “They are going in a bunch of different directions and trying to be all things to all people. That’s been their problem for the last five or six years.”
Franchisees also complained about this apparent identity crisis following a recent summit with Easterbrook and other top executives.
“I came away from the summit completely confused,” one franchisee told Janney Capital Markets analyst Mark Kalinowski. “McDonald’s management does not know what we want to be. Expensive (and slow) custom burgers in the same restaurant where we sell the Dollar Menu?”
When asked what the company is doing to retain Dollar Menu customers, McDonald’s spokeswoman Lisa McComb said further details on Easterbrook’s turnaround strategy would be forthcoming.
“Thus far Steve Easterbrook has shared only the initial steps of his turnaround plan, not full details,” she said. “This is an ongoing, comprehensive strategy and more specifics will come at the stages our leadership team deems appropriate.”
The company needs to focus on where it has historically excelled: Burgers, fries, low prices, and fast service, analysts say.
Trying to compete with Chipotle directly counters that strategy.
McDonald’s new customisable burgers take seven to eight minutes to prepare, which is an eternity in the fast food industry.
“That’s absolutely unacceptable in a fast food situation,” Light said.
The chain is already suffering from a major service slow-down, without the new burgers. The chain’s average drive-thru wait is 3 minutes, 9.5 seconds, which is the longest average wait time in at least 15 years, according to a study by QSR Magazine.
In addition to slowing down service, the new Sirloin burger and customisable sandwiches — which can cost as much as $US8 or $US9 — stray from McDonald’s traditional value offering.
“Their value perception is totally confused,” says Light, who is now chairman of Arcature, a brand management consulting firm. “They seem to want the customer they don’t have more than they want the customer they do have.”
To get back on track, Light says McDonald’s needs to address its two most important issues: “Hemorrhaging of the customer base and the deterioration of the brand.”
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