McDonald - The Arthur Page Society

For 40 years the world's appetite for Big Macs has been insatiable. Still the McDonald's
formula rolls relentlessly on into more and more markets, with 2,600 new stores expected
to open this year (three-quarters of them outside the US) and more than 100 countries
already blessed with the Golden Arches.
But in the US, signs of desperation, some might say panic, are setting in. The world's
biggest restaurant chain continues to grow, but only through aggressive expansion. Likefor-like
store sales, the barometer of a fast-food chain's underlying health, were down
between four and six per cent in May, according to US analysts.
Marketing strategies keep going as soggy as an old cheeseburger. New products have
repeatedly flopped; the last major pricing strategy - launched on April 25 and designed to
run well into 1998 - has all but foundered in a the most humiliating of circumstances.
Mitchell Speiser, analyst at Lehman Brothers in New York, says: "In the US its business
is weak. McDonald's has not put together an effective message. Its strategic direction is
unclear."
The corporation's overreaction to a couple of penniless environmental activists handing
out libellous leaflets in the UK is perhaps symptomatic of a company so insular and so
rigid it has lost its perspective.
Everywhere else in the world McDonald's continues to grow. International expansion is
good for the bottom line because international sales are more profitable than sales in the
domestic market. Competition is much less intense outside the US, so McDonald's gets
more people flocking to its stores and can charge higher prices.
The power of the brand sweeps everything before it. The arches are a potent symbol of
democracy and freedom of choice, as witnessed so poignantly in Moscow when
McDonald's opened its first restaurant and citizens queued for hours to buy the luxury of
a burger and fries.
But in the US, where that symbolism is largely meaningless, selling cheap burgers fast is
not enough to keep attracting new customers. There is unprecedented domestic
competition for "share of mouth", from big rivals Burger King and Wendy's and new
chains of quick-service restaurants offering everything from tacos to pizza to sushi.
McDonald's wins the war of convenience hands down, with 12,000 US restaurants
compared with its nearest rival Burger King with 7,000, but some observers argue the
corporation has become a victim of its own success.
As McDonald's opens more units in this saturated market, so it cannibalises existing
restaurant sales and squeezes franchisees' profits.
According to research from Technomic, a Chicago-based restaurant consultancy firm, the
number of McDonald's units grew in 1996 by 6.4 per cent but sales increased by only 2.9
52