McDonald’s is losing its McCachet. The company recently reported a 30% drop in third-quarter profits. It’s the fourth consecutive decline for the world’s largest fast-food eatery.
The plunge has media outlets such as Bloomberg and Forbes wondering if McDonald’s is losing its relevance, failing to adapt to changing palates and dining preferences. Analysts say McDonald’s has to deal with two perceptions—low quality and low price—not easily resolved by some slick Madison Avenue marketing campaign.
Millennials are shifting spend from McD’s in part based on perceptions that McDonald’s food is worse for you than that of, say, Burger King, and that the Oak Brook, Ill.-based establishment is an emblem of bad health.
There is also the aspect of price sensitivity. McDonald’s model in many ways mirrors that of Dell, the computer manufacturer that in the late 1990s/early 2000s dominated the PC laptop market. Both built business models anchored in speed and low cost.
The problem with such a recipe is that eventually others catch up, finding new efficiencies within their supply chain. The other challenge arises when commodity markets on food products—beef, pork and soy—go up. Suddenly, a Happy Meal isn’t so happy for the purse strings.
And the story at McDonald’s appears more severe, according to Technomic’s proprietary Consumer Brand Metrics:
▶ Consumer ratings of their overall satisfaction with recent visits to McDonald’s were the lowest since they started tracking the brand in 2011.
▶ Little more than one-fifth of patrons (those who frequented McDonald’s at least once in 30 days) rated their visit as “excellent,” the top choice in the consumer metrics’ satisfaction scale. A year ago, the ratings were closer to three in 10 (28.9%). General trends in the reasons for lower ratings include complaints about quality, issues with service and a sentiment that the experience is, to quote several consumers, “nothing special.”
▶ Millennials actually rate their overall visit a bit higher (28.9%) than the average consumer, but they rate McDonald’s food quality much lower than all other consumers do. Year to date, less than one-quarter of millennial McDonald’s users said McD’s was “very good” on their last visit in terms of food quality, compared to 33% of consumers overall.
At the other end of the spectrum, Whole Foods is engaged in its own battle. Its sales growth has decelerated, and a retail experience that was once considered unique is now facing an increasingly crowded field of upscale grocers specializing in natural, organic and other healthier foods with captivating displays.
Whole Foods is the opposite of McDonald’s, and yet it faces some of the same challenges: that of distinguishing its brand from competition, of defining its value to the customer within a higher cost structure, and reversing some negative stereotypes.
Unlike McDonald’s, Whole Foods was not known for TV marketing—but that may be changing. The grocer recently introduced its first national marketing campaign. The $15 million to $20 million initiative aims not only to counter the perception of Whole Foods as “Whole Paycheck,” but also to emphasize the value customers are getting for their money, including confidence in where their food comes from and how it is grown, raised or processed.
Technomic’s Consumer Brand Metrics presents the Whole Foods customer as the “anti-McDonald’s,” someone with a significantly higher base income who is attracted to a concept that garners a high level of satisfaction from nearly seven out of 10 customers.
So, at opposite extremes, two venerable chains are facing challenges. The question is: How will their core strengths manifest in overcoming these obstacles?
For McDonald’s, its strength has been its cheap prices. For Whole Foods, it’s about values. For us in the convenience industry, both models—and their trials— hit home. Which of us measures success on having the lowest street prices on gasoline? Who’s centered on inferior quality at lower prices? For certain markets, such a strategy can work, but for how long?
The lesson for Whole Foods is one that hits home for the top convenience operators: knowing that no matter how good I am today, I must get better tomorrow. Because if I don’t, someone will surpass me.
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