By Adam Hartung, CEO, Spark Partners
McDonald’s pioneered the fast food industry, and along the way created a now popular business format known as franchising. McDonald’s become the icon for fast food by inventing prepared food that was consistent, tasted reasonably good, inexpensive, delivered quickly and served in a family friendly, clean atmosphere – all of which were not common at the time. By dominating national U.S. advertising, and many foreign countries, McDonald’s became known in every household and its franchisees grew a global chain of restaurants that achieved unheard of revenues per store, and were wildly profitable.
But McDonald’s is losing industry relevancy – or it may already be lost. Even though it remains huge.
McDonald’s market has shifted. Customers increasingly exhibit different tastes in product, quality and atmosphere by eating at brands such as Chipotle, Panera, Corner Bakery, Chik-fil-a, Panda Express, Five Guys and Starbucks. The trends that drove McDonald’s growth from the 1960s through the 1980s are gone, replaced by new trends created by a new generation.
As McDonald’s loses relevancy its fate will likely end up like other companies which lost relevancy:
- Hostess in consumer bread products,
- Sears in general merchandise retail,
- GM in autos,
- Zenith, RCA, GE and most recently Sony in consumer electronics,
- Blackberry in smart phones,
- Microsoft in personal technology,
- And Howard Johnson’s and Big Boy in restaurants.
Companies lose relevancy because they do not shift when their core markets shift. Focused on operational execution, and doing more each year to defend and extend the original success formula, they miss emerging trends and the need to seriously change with demographics and tastes. They focus on doing things right, according to past best practices, and forget they must first figure out the right things to do.
McDonald’s lost touch with its core market when it sold Chipotle. They achieved a high valuation for Chipotle, because investors recognized it was on modern trends. But then McDonald’s used those funds to invest in tactical improvements to its old success formula. Leadership’s focus on doing more, better, faster and cheaper of what had worked in the past created a large reinvention gap between McDonald’s and current trends in fast food – toward organic, higher quality ingredients and improved taste, seasonal menu variations and more adult-oriented environments.
Very few companies ever close a reinvention gap and regain relevancy. Ongoing operational focus and tactical tweaking remains a substitute for real strategic planning and development of a dramatically different plan. Thus we can expect Starbucks to continue growing as the new industry icon, while McDonald’s continues to slowly, but undoubtedly, fade away.