I’m (Not) Loving It

Behind the scenes, McDonald’s employees call them the blockbusters: Big Macs and cheeseburgers, hamburgers and chicken nuggets. The blockbusters, those are the best-selling products, the revenue drivers. They have shaped the company’s image: McDonald’s stands for fatty, meaty, cheap fast food. It is an image that is now becoming a problem for McDonald’s.

The American fast food chain with the big M still remains the market leader in German franchise eateries. This lofty position simply belies the company’s problems: McDonald’s is not only experiencing economic woes at home in the United States, but also in Germany. Long has McDonald’s advertised its products with the slogan: “I’m loving it!” But its customers’ devotion is waning.

A look at the numbers can confirm this: While McDonald’s still managed to achieve record revenues of $3.45 billion in Germany in 2012, the company has published no more data since then. As Zeit Online has learned from business circles, revenue has dropped in both of the subsequent years. The trade journal Food Service estimates that the losses in 2013 were around 4.5 percent; in 2014, almost 3 percent — although the company has actually increased the number of franchises since 2012. And while McDonald’s was shrinking, the fast food market was actually growing, as estimates from Food Service show. That means the market share of McDonald’s has tumbled even more than the revenue numbers indicate.

The Advertisements Are Losing Their Impact

There are different explanations for this development. According to McDonald’s own interpretation, the price increases are to be blamed above all. In Germany the company was long known for its one euro offers: cheeseburgers and chicken sandwiches, fries and soda were sold for one euro each until 2012. Then McDonald’s modified its special offers and raised the price of the cheeseburger to 1.19 euros. As a result, younger customers, who are particularly sensitive to prices, are coming into the restaurants less frequently, according to internal understanding.

On top of that, the ads have stopped having an effect: “The language was no longer contemporary, we no longer conveyed to the customer the feeling of being a young brand,” so it goes within the company’s environment. However, experts are voicing other reasons for the crisis: structural problems within the company and cultural developments that have tended to work against McDonald’s.

Consumers desire regional products more strongly than before, says Martin Fassnacht, professor of business administration with a marketing focus at the Otto Beisheim School for Management. Indeed, McDonald’s has already done a lot in this area, Fassnacht commends. The company sold its burgers with Nürnberger bratwurst, portrayed happy cows grazing on lush, green, presumably German fields in their ads.

McDonald’s has a believability problem, says Fassnacht. “As an American company and as a global brand, it’s much more difficult for McDonald’s to convey a sense of regionality to its customers than the small burger joint down the street.” Even McDonald’s appears to be acknowledging that: In this context it means that the company wants to utilize its current ad campaign to more strongly emphasize the efforts it is undertaking in quality and sales.

Eating Habits Are Becoming More Individual – to McDonald’s Detriment

Michael Greiner, professor of system catering at Weihenstephan-Triesdorf College, sees yet another development that is compounding McDonald’s problems: Eating habits are becoming more and more individual, says Greiner. “The trend is that there are no more consistent trends.” Previously everyone went to McDonald’s; today, some want organic, others vegan, many just want a sandwich for lunch, others want it more chic and healthy — and no one wants what the others are having.

Over the past few years many new fast food businesses have popped up. Obviously none among them is as a big as McDonald’s, but little by little they have stolen customers from the market leader. Sometimes they take the form of a unique burger joint found only in one city; others are national chains such as Hans im Glück. The concept of the business: Burgers, but with richer ambiance. The company is still comparatively small — there are only about 30 franchises in Germany — but the demand for burgers from the chain is already enormous: Last year Hans im Glück increased its revenue by 210 percent.

However, McDonald’s is not only losing customers to higher-value competition like Hans im Glück, but also to cheaper offers in bakery chains, for example. The fast food company has indeed become more individualized and has begun to offer salads in the meantime, says Greiner. An additional innovation has been the McCafé, which has also been well received by customers. “But in the consciousness of consumers the company stands for one product above all: the burger,” he says. The most important blockbuster.

McDonald’s now wants to switch to more differentiated food habits. At the end of this month the company is introducing a new concept in Frankfurt, which will presumably be about more individualized offers.

A Difficult Change

The fry cooks are increasingly finding themselves in contradictory position: They cannot lose their core customer base, but they must win back the others as well in order to be more financially successful once again. They have to pair off lovers of fatty fast food with those who only want a small salad — the ingredients of which would in the best case originate from the farmer around corner. “But the more McDonald’s differentiates and fragments its menu, the bigger the risk of alienating its base clientele, because they no longer feel comfortable,” warns Greiner.

In view of this balancing act, marketing expert Fassnacht is skeptical whether McDonald’s can survive the change. “For the company it is now about not losing a yet larger portion of its market share,” he says.

As expected, the company sees it differently: At the beginning of this year it started an advertising campaign that is already showing an effect, company insiders are saying. The German division has already contributed a small plus in the European market, as the company announced in a message to its investors.

But to already believe in a turn for the better is pie in the sky wishful thinking says Martin Fassnacht. “When I place more television ads, more customers will come into my stores. But that is only a short-term effect,” he says. A change in company’s image lasts 10 to 15 years — if it works at all. “In doubt, the customers will rather go to the competition who has had a new concept from the beginning and therefore appears to be more authentic.”