McDonalds Corp. MCD, said late Wednesday that Don Thompson, president and CEO, will retire March 1. The board elected Steve Easterbrook to replace Thompson. Shares of McDonalds rose 3.1% to $91.59 following the announcement. Easterbrook currently serves as chief brand officer. McDonalds also shifted Chief Financial Officer Pete Bensen to the newly created position of Chief Administrative Officer. Corporate Controller Kevin Ozan will serve as the new CFO, McDonalds said.
McDonald’s Corp., struggling amid declining sales and menu changes, said Don Thompson will step down as president and chief executive, effective March 1.
I wouldn’t get too excited about McD’s prospects, however.
The chain is being attacked on three fronts, any one of which would be a long, hard slog.
Perhaps the most obvious battle is the one against “fast casual” chains which make much better burgers for not much more money. Five Guys, In-n-Out — an adult can spend seven or eight bucks for lunch, just a dollar or two more than they’d pay for a full meal at McDonald’s, and get food and service which are better in every way. My childhood favorite, Steak ‘n Shake, is aggressively expanding outside of its midwestern/southern heartland, offering diner-level service and cooked-to-order meals made with beef which is readily identifiable as such.
Improving their food might go a long way towards fighting off the fast casual competition, but so far most of McD’s attempts have been misfires. Their new & improved Quarter Pounder burgers are indeed a step up from the banal Quarter Pounder with Cheese, using fresher and a wider variety of toppings and buns. The problem is the better toppings and buns don’t do much more than highlight just how bad the mystery meat really is.
Which leads us to the second front where McDonald’s is fighting and losing: The rising cost of beef.
At $4.20 per pound, ground beef hit another record last November — and that’s up from less than $3.50 the year before.
The McDonald’s brand has long been “mediocre food, served up quickly, at a reasonable price.” But it’s difficult to compete on price when the cost of one of your core ingredients is increasing far faster than inflation. And it shows at the cash register. My young sons love going to the giant “PlayPlace” indoor playground at the McD nearest to us, and so I take them on occasion. The last time we went, the boys ordered their usual Chicken McNugget Happy Meals, and I tried one of the new Quarter Pounder variations, this one with bacon and cheddar. The cheddar was a definite improvement over the American variety, but the “thick cut bacon” barely lived up to “bacon,” much less “thick cut.” The burger patty was exactly what you’d expect after a lifetime of dreary visits to McDonald’s. The fries, long stripped of the flavorful beef tallow McD used to put in the fryers, tasted like cardboard. By the time the boys had asked for a second round of juice boxes and a chocolate chip cookie each for dessert, I was out more than $20 for a bad lunch.
$22 to feed one grown man and two small children — and this is before the minimum wage inevitably gets jacked up. Food costs must be killing McDonald’s, just like they’re killing middle class shoppers during the weekly trip to Safeway — but other chains seem to be doing better. A recent visit with two friends to Steak ‘n Shake fed three hungry men tasty burgers and top-notch fries for about $25. We even got a sassy waitress who called us all “hun” provided fast and friendly service. A couple of extra bucks for vastly improved food and atmosphere? That’s a no-brainer in most circumstances. Even my kids notice the difference.
Outgoing CEO Thompson expanded McD’s menu into healthier fare, but without a commensurate increase in the quality of the ingredients — if you’re going to try and sell chicken wraps, they had better be damn good chicken wraps. This seems to be beyond most anyone’s ability, much less a fast food chain with a focus on speed over quality. The company’s “I’m lovin’ it” marketing campaign similarly did little but alienate existing customers without gaining any new ones — he should have been handed his hat and coat long before now.
The third front for McDonald’s is the most difficult battle it must wage, and the one which could prove fatal — because it’s a cultural fight, not a business fight.
The Left has been waging a cultural war against McDonald’s for decades now, and the results are telling. It won its fight against the chain in the early 1990, forcing McD to remove the beef tallow from the french fries, in order to avoid offending the tender sensibilities of vegetarians. The company’s troubles began in earnest with the emasculation of its world-class fries, but the trend has accelerated with the ascension of Michelle Obama to First Lady. She rails tirelessly against affordable and wholesome-but-bland food which parents can actually get their kids to eat, because buttinskies can’t be happy without buttinsking. McDonald’s has tried to comply by offering healthy apple wedges in place of french fries in children’ Happy Meals, but it’s obvious that the Left won’t be happy with anything short of the chain converting to McTofu & Gruel.
McDonald’s is feeling the squeeze on its core customers: undiscriminating children and hurried adults on a budget. Most everyone else abandoned McD for the likes of Five Guys or Panera, and the chain has so far shown no talent for winning them back.
It’s going to take much more than just a new CEO if McDonald’s is going to have a chance of victory on any of these three fronts — it’s going to take a reimagining of the company — or a return to serving its core customers, and serving up a super-size middle finger to the Left.