McDonald’s: Looking for a Winning Recipe

Confronted with eroding sales, the fast food giant McDonald’s just made a sweeping change in its structure. It still, however, needs to take on the challenge of conquering hearts and stomachs.

“In the last five years, the world has moved faster outside the business than inside,” admits the CEO of the multinational company in a video released Monday.

Conversion of 3500 existing restaurants into franchises, the merging of international activities according to their type of growth, promises of savings and redistribution to stockholders: The announcements made by Steve Easterbrook essentially touch on operations. When your domain extends to more than 36,000 branches in 100 countries, it is sometimes useful to review your organization.

Growing the proportion of franchises, a trend also seen at Wendy’s and Burger King, will increase the stability and the predictability of the yield, believes the president. At a minimum, selling off the corporate restaurants will put some money in their coffers. They’ll need it. The company, which had already promised to return up to $20 million in dividends and purchases of stocks between now and the end of 2016, is committing itself to do close to half the work this year. Enough to weigh down the debt if the results aren’t there, fear the rating agencies. Moody’s put the rating under surveillance; Standard & Poor’s downgraded it.

Its status as a heavyweight isn’t in danger. In the United States, where the company makes 40 percent of its profits, it is still, by far, the biggest restaurant chain. The second, Starbucks, makes barely a third of its revenue. But when you dominate a sector, it becomes difficult to generate growth or simply to hold on to gains. The Technomic rating shows that three of the five biggest chains have, in fact, seen their sales go down in the United States in the last year. It’s particularly blatant with McDonald’s where the sales of comparable restaurants have fallen behind the previous trimester, for the sixth time in a row.

How do they reverse the trend? Going by the competitors who are rising, like Chipotle, Shake Shack or Panera, the formula seems simple. It’s about offering a targeted menu, putting the emphasis on ingredients that seem fresh, minimally processed, and good quality ingredients, even if means charging more.

As we’ve seen here, McDonald’s is also trying to play the card of fresh preparation. In the United States, it’s testing all kinds of offers, like delivery, a high-end sirloin burger, “artisanal” bread, etc. But unlike its young competitors who have made their name with their current positioning, McDonald’s often sees its efforts welcomed with skepticism.

Despite its difficulties, the chain has no choice. It must find a winning recipe. Because beyond the efficacy of its business practices, it’s by selling meals that it makes its money.