In the last 5 years, McDonalds has gone through a very disruptive scenario, which meant that the company had to take new directions and adapt its strategy to the new market scenario. In 2012, McDonald's growth began to slow, and in 2015, the company's global revenue declined by more than 7%. In addition to the drop in sales resulting from increasing competition, the company also suffered from the threat of new establishments of the type fast casual (restaurants with the casualness and speed of Fast-foods, but with higher quality meals and a more pleasant environment) and with poor perception of the brand from the consumer's point of view. The bad results and lack of actions to reverse the scenario resulted in the departure of then CEO Don Thompson in January 2015, who was replaced by Steve Easterbrook in March of the same year.
In 2015, the new executive launched a plan with a series of initiatives to reverse the company's scenario, including: menu simplification (from 2007 to 2015 the menu grew by almost 43%), faster service in stores (in 2015 the average of service time was the worst in 15 years), improvement in the quality of ingredients (investments to remove ingredients that are “difficult to pronounce” from the consumer’s point of view), reduction of product price promotions (excessive promotions were harming profit stores), renovating older stores (to make the store environment more attractive to consumers), reducing the time it takes to introduce new products to the market, increasing wages for employees in company-owned stores and offering breakfast products o all day (to capitalize on the popularity of these items).
Some of these actions were not successful. Proposing an increase in wages only for company-owned store employees generated immense discord in the chain, after all, only 10% of the stores are company-owned. The employees of the other 90% of the stores showed great dissatisfaction with the situation, which generated pressure for the franchise owners to also increase wages. Other actions had a very positive result, such as offering breakfast items throughout the day in some locations. The success of all day breakfast was largely due to the fact that the products on this menu are cheaper items.
Despite some minor hiccups, overall, Easterbrook's initiatives have delivered the desired results McDonalds needs to turn the tide. However, among the various initiatives, the ones that draw the most attention are those related to improving the quality of the ingredients used. This is because it is a great challenge to change the mindset of the consumer that must be executed through the perception of the mark. When we think of McDonalds, we think of the most basic concept of fast food: fast and cheap food that we can afford from time to time, but which we should avoid as much as possible, not only because of the high calorie and fat content, but also because of harmful artificial ingredients. No one associates the brand with quality food. But that's what the company is trying to change.
Of course, the intention is not to migrate to the healthy food business, but the company has taken great measures to move away from the image that we all keep in our minds after watching the documentary Super Size Me. In August 2016, McDonalds announced that all McNuggets sold in the US after that date will be produced without artificial preservatives, and that all chickens used in production will be raised without antibiotics important to human health. These actions fulfill the promise made in 2015. These artificial condoms were not replaced by others, which means that the shelf life of the product was significantly reduced. This certainly has consequences for inventory management, however, supply chain leaders of the company say that the current infrastructure of McDonalds allows operations to adapt without major impacts.
In early April of this year, the company also announced that it intends to serve the popular block burger with fresh meat instead of frozen in US restaurants by mid-2018. Last year, the company conducted tests in about 400 stores in Texas and Oklahoma. , and encountered great difficulties. On a day-to-day basis in stores, the main obstacle is preparation time. While frozen burgers can be prepared ahead of time and stored for up to 15 minutes on warmers, a burger made from fresh meat cannot be grilled for more than 5 minutes. This issue of time also aggravates the service and the length of queues in drive thrus. In addition to these operational difficulties at points of sale, the big question is whether the company will be able to find suppliers to supply the more than 14 North American establishments.
In 2015 the company also promised that all the eggs used by the company will come from hens raised free of cages within a period of up to 10 years. But there is still a long way to go: in the US, McDonalds uses about 2 billion eggs a year, but at the end of last year only 13 million of them originated cage-free. Other actions include the exchange of margarine for butter in Egg McMuffins, the exchange of corn syrup used in breads for sugar, and the promise to use sustainably produced meat in most products by 2020. Given the company's power in the chain, all these actions and those yet to come force its suppliers to adapt. One of the company's largest suppliers of eggs in the US estimates an investment of around $100 million to adapt its activities to the new requirements.
Despite all the influence on its suppliers, there is no doubt that a great effort of procurement will be necessary, and convincing the consumer about this sustainable dimension of the company will certainly be even more work, but one thing is certain: the initiatives have generated returns, exceeding market expectations. The company closed the first quarter this year with a 1,7% growth in “same store” sales (stores in operation for at least 12 months) in the US and with a global growth of 4,0% against a market expectation of -0,8% and 1%, respectively.
References:
Business Insider – McDonald's is about to unveil a huge plan to save its business — here are 8 things investors need to hearhttp://www.businessinsider.com/mcdonalds-unveils-turnaround-strategy-2015-4>
Business Insider – McDonald's turnaround strategy is in overdrivehttp://www.businessinsider.com/changes-mcdonalds-made-this-year-2015-9>
Chicago Tribune – With McDonald's cage-free plan, egg suppliers have to adapt, at a pricehttp://www.chicagotribune.com/business/ct-mcdonalds-cage-free-eggs-0910-biz-20150909-story.html>
CNBC – McDonald's shares surge as strong restaurant sales show turnaround is taking holdhttp://www.cnbc.com/2017/04/25/mcdonalds-reports-first-quarter-earnings-2017.html>
Forbes – McDonald's Risky Commitment To A Cage Free Eggs Supply Chainhttps://www.forbes.com/sites/stevebanker/2016/09/05/mcdonalds-risky-commitment-to-a-cage-free-eggs-supply-chain/2/#6473635359f1>
Fortune – McDonald's Is Exploring a New Menu Item: Sustainable Beefhttp://fortune.com/2017/02/27/mcdonalds-sustainable-beef/>
Thatiana Nomi
5 years of experience in consulting projects in Logistics and Supply Chain. Worked on logistics network optimization projects, service cost, logistics master plan, inventory policy definition, sales forecast, S&OP (Sales and Operations Planning) and transportation planning and management.
