The Times They Are McChangin’

After years of slumping sales growth, McDonald's has made significant changes to its internal operational model and its food. What can credit unions learn from a brand in transition?

burgerTuesday, fast-food chain Taco Bell offered one free Biscuit Taco per customer from 7-11 a.m. The ads leading up to the giveaway made it pretty clear that Taco Bell is aiming directly at McDonald’s.

And that’s just one more blow at the Golden Arches. The venerable fast-food giant has of late fallen behind fast-casual darlings such as Panera, Shake Shack, and Chipotle. Same-store sales at the chain’s 14,000 U.S. stores have fallen over the last five years. In the first quarter of 2015, revenue fell 11% from a year earlier to $5.96 billion. Earnings per share fell 31% from the previous year. (April sales figures will be announced May 8, and McDonald’s has said they are likely to be negative).

On March 1, McDonald’s replaced its CEO and changes were adopted quickly, including testing an all-day breakfast offering, the meal that accounts for 25% of McDonald’s sales.

The largest changes, however, have occurred internally. Here are three of the most significant, along with what credit unions can learn from each.

The Only Way To Survive Is To Modernize

On Monday, CEO Steve Easterbrook announced a shakeup. Instead of international divisions based on geography, there will be four groups with shared characteristics. Lead markets like the United Kingdom, Canada, Germany, and Australia; high-growth markets like China and Russia; a U.S. market; and one more that comprises more than 100 countries. The change will allow similar markets to more easily work and communicate together.

In a video message, Easterbrook made clear his goal to eliminate legacy structures in favor of agility. The world has moved faster outside the business than inside, he said. I will not shy away from the urgent need to reset this business.

Easterbrook also said he would sell more company-run stores to franchisees, a strategy known as refranchising. Worldwide, 81% of the company’s locations are currently run by franchisees. By 2018, Easterbrook wants to sell off 3,500 restaurants, increasing the percentage of stores that are franchises to 90%, contributing to approximately $300 million in net corporate savings per year.

McDonald’s also has announced it would stop using chicken raised with human antibiotics, wanting to alter popular opinion that its food is less healthy than fast-casual counterparts; health being a driving factorof millennial dining decisions. McDonald’s has also announced new menu items meant to appeal to both health- and quality-conscious consumers, such as a sirloin burger and artisan grilled chicken.

Less than two weeks after Chipotle announced a delivery option, McDonald’s announced that customers in Brooklyn, Queens, and Manhattan will be able to order anything from the menu (except ice cream cones) for delivery through a partnership with Postmates the same service used by Chipotle.Consumers want convenience.

Like McDonald’s, the credit union industry also is in transition. Time stops for no one, and the best way for credit unions to compete not only today, but tomorrow, is to take a page out of the McDonald’s playbook.

That means: Modernize.

Competing on Image

McDonald’s has more than 39,000 locations worldwide and, according toFast Food Nation,a survey by Sponsorship Research Internationalfound that88% could identify McDonald’s golden arches while only 54% could identify the Christian cross.

Like it or not, McDonald’s does serve an important need. Cheap, simple food, made quickly. However, as the rise of the fast-casual restaurants showcased a market for healthier, higher quality and more customizable dining fare, McDonald’s chased the trends, throwing more wood on the proverbial fire.

It now offers 121 menu items, compromising its famously short wait times while complicating its supply chain for products without a proven market. In the eyes of many, this overly complex (and underperforming) menu cost the former CEO Thompson his job.

Consider the Premium McWrap. To summarize the New York Times, the McWrap (not yet Premium) was born as an extension of the popular Chicken Selects. The demand was greater than the supply and the McWrap would use just a single strip. Add sauce, cheese, lettuce, and wrap in a tortilla. Easy. All but the tortilla were already used for different menu items. It was so successful in Europe that in the U.S. franchisees asked for a version they could sell at a higher price.

That would be the Premium. It didn’t perform well. It took McDonald’s two years to establish a supply chain for cucumbers, which it had never used before, and each wrap takes 60 seconds on average to assemble, six times longer than its burgers. So will we see the wrap go away?

Barry Klein, a former McDonald’s marketing executive, thinks so.

It seems that [ex-CEO Don] Thompson thought that by trying to be all things to all people, by getting more products into the lineup, he would be able to maintain volumes. Instead, operations got so complicated that waiting times went up, and people didn’t come in droves for the new menu items, he said to theTimes.

Now, McDonald’s wants to be known as a modern, progressive burger and breakfast restaurant, more similar to Shake Shack, Five Guys, and Smash Burger. In the coming months, McDonald’s will roll out a Create Your Own tablet which will cost franchisees approximately $100,000 per store that allows customers to build custom sandwiches and burgers. However, these are priced roughly $1.50 more than a Big Mac and, as each takes seven to eight minutes to prepare, requires customers to wait at a table to be served.

For the last three or four years, they’ve been saying the biggest problem is menu complexity, said Richard Adams, a former McDonald’s franchisee who surveys approximately one-third of current franchisees every quarter. Now management is finally talking about menu simplification on the one hand, and on the other hand, with this Create Your Own thing, starting to roll out an entirely new restaurant system within the restaurants.

Klein expressed pessimism: When something like two-thirds of the business is drive-through, this is not the solution.

Since its creation, McDonald’s has competed and succeeded on two fronts: price and speed. As more customers become health conscious, it made sense that McDonald’s would try to compete on that front, too. But under Thompson’s leadership, and with new CEO Easterbrook’s changes, the price of a meal and time spent waiting for it will only increase. Will this price out its loyal customer-base?

How will a more complex menu and increased wait times affect customer satisfaction? Who,really, wants a $7 cheeseburger from McDonald’s? It’s a sharp change in brand image that doesn’t appear to solve any of the company’s underlying problems. Throwing more wood on the fire doesn’t necessarily make it hotter, just more likely to collapse.

Tell Your Own Story

I remember when Morgan Spurlock released Supersize Me. I was in eighth grade and for the next three years teachers of my health and physical education classes would play the movie whenever they didn’t feel like letting us run around in the gym. It was effective. Even though you’ve eaten McDonald’s since watching the film (hey, no one’s perfect), chances are good this film has changed your relationship to McDonald’s.

But why? Sure, fast food is bad for your health, portion sizes are too large at most American restaurants, and failing to exercise regularly contributes to weight gain. But it’s not a McDonald’s problem. Still, the restaurant got slammed on several fronts including the dubious morality of marketing to children and the quality of the food itself.

But the lesson here is not, and was never, how McDonald’s failed to respond to the film (and wider criticisms), but how it has consistently failed to tell its brand story.

That’s a change that new CEO Easterbrook will try to make.

One of his first decisions as CEO was to announce that within two years all the chicken served at its restaurants will be free of antibiotics used in humans, a conscious attempt for the company to eliminate or quiet its image as unhealthy food.

In fact, McDonald’s sells more chicken than it does beef and is actually the country’s largest seller of apples, according to the Times. The problem arises when the average consumer doesn’t know that.

Instead of telling consumers that they’ve allowed the fringe groups and so-called influencers to define McDonald’s as the company that’s made America fat, said Mike Donahue, McDonald’s communication chief from 1987 to 2006, to the Times.

McDonald’s new marketing campaign, Our Food, Your Questions, is an attempt by McDonald’s to influence its own narrative, instead of letting popular culture do it for them. Consumers can learn more about McDonald’s products, from what’s in a Chicken McNugget, to why the Coca-Cola tastes good, with the intended end result being better transparency between consumer and McDonald’s.

But is that a good thing? According to the Times, customers pointed out that McDonald’s uses 19 ingredients to make its fries in the U.S. but just five in Britain.

Transparency’s fine, said Adams, the former franchisee. But I don’t think anybody wants to see big slabs of beef being ground into hamburger.

Credit unions need to tell their own stories as well. It’s not enough have competitive products and services to compete with banks and payday lenders for potential members. Like food service, the financial services industry is competitive and crowded. And with the number of conversations going on it’s easy for the narrative to fall out of control (see 1-800 Flowers). But that’s the thing about conversations: If you don’t like what’s being said, change the subject.

May 6, 2015

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