Businessweek covered the story about McDonald’s turnaround plan but analysts were not impressed with the company’s strategic roadmap. McDonald’s sales at US restaurants fell 2.1% in 2014, the biggest decline since 2000 (US restaurants account for 40% of the company’s operating income).
The turnaround plan announced by the new chief executive officer, Steve Easter Brook, involves making the company more efficient, making its food more appealing to the healthy, a new company structure, selling off corporate stores and reducing expenses.
What would you do if your small business had declining sales and increasing costs? What sort of turnaround plan would you come up with?
If you look at McDonald’s, for example, and do a profit analysis, you will see that on the revenue side unit sales have declined by 2.1% in 2014. The reason looks likely to be increased competition. On the cost side the cost per unit is determined by fixed cost and variable cost. Fixed costs are most likely increasing. So is more materials for preparation of fast foods. Cost pressures are mounting because of lower units sold. Sales are declining and costs (fixed and variable) are rising which means pressure on profits.
What should McDonald’s do? McDonald’s should increase share of household or family meals. Why do I say this? Let’s look at their customers. Their customers are mainly people who want to eat out – families, children, single people and commuters. In South Africa more people are eating out because of the blackouts. Basically, customers want tasty meals at an affordable price. You hear all the time about McDonald’s needing to make the food more healthy but just ask for a chicken salad and you may be lucky to get one – it’s not something that they advertise. Competitors, while not exactly offering healthy food themselves, are trying to change perceptions with things like sandwiches and hand-cut fries.
On the product side, McDonald’s goes for taste, quick, filling meals at reasonable cost. They also sell complimentary products such as sodas, ice cream, deserts, coffee and egg and muffin breakfasts. On average people may eat about three meals a month at McDonald’s of the 90 meals each person consumes a month. This share of consumer spend and offers a possible opportunity.
If you look at the company itself, competitor strength is high not only in America with Five Guy, Chipotle, Burger Fi, supermarkets offering on-the-go foods and Shake Shack but also here in South Africa with Spur, Steers and Wimpy. Competitors are under similar cost pressures but rely on sharp positioning and react faster to change. For example, think of the Burger King sandwich and Shake Shack going for antibiotic-free beef where only some time later McDonald’s is talking about introducing antibiotic-free chicken in its restaurants in the US. Now it’s also thinking of an “artisan” grilled chicken sandwich and sandwiches featuring premium sirloin burgers.
McDonald’s should increase its share of household or family meals to increase revenues. It should attract potential customers for more lunch-time meals with the correct product. It has a strong competitive advantage and should be more proactive to take advantage of this.
You can come up with a turnaround strategy for your business when you clearly map out the profit pressures and identify new ways to increase product sales, attract more customers to your business and lower costs. If you are looking to innovate in your business, get yourself a copy of “Breakthrough Ideas”, which gives you a number of tools and increases your competitive options.