McDonald’s Corporation in the New Millennium
J. Paul Peter and Ashish Gokhale University of Wisconsin—Madison
Jack Greenberg, CEO of McDonald’s Corporation, stared into the clear September skies thinking about the “Big Mac Attack.” At one time, the term was an advertising slogan referring to a craving for a McDonald’s Big Mac burger. However; “Big Mac Attack” now referred to McDonald’s earnings declines in the late 1990s and early 2000s. Dynamic market expansion, new products, and special promotional strategies had made McDonald’s Corporation a leader of the fast-food industry. However, sales growth in the United States had slowed to below the industry average in recent years. Jack ...view middle of the document...
The average fast-food restaurant has sales of about $560,000 per year.
Another segment of the fast-food industry is comprised of a number of non- hamburger fast-food restaurants. Major players in this segment include Pizza Hut, KFC (Kentucky Fried Chicken), and Taco Bell. Sales in these restaurants have grown faster than hamburger chains in recent years. A growing trend is the move by customers to non-hamburger sandwiches. Subway dominates the market with more than 13,200 U.S. outlets. Prepared meals and sandwiches available in supermarkets, convenience stores, and gas stations are competitors as are the variety of microwave meals available to consumers.
Another trend is the recognition of the importance of heavy users of fast-food restaurants. It is estimated that heavy users comprise 20 percent of customers but account for 60 percent of all visits. Some of these customers visit fast-food restaurants 20 times per month and spend up to $40 per day in them. Heavy users have been described as single males, under 30 years of age, who have working-class jobs, love loud music, don’t read much and hang out with friends.
A major change in the fast-food industry is the increase in the fast-casual segment that includes restaurants like Boston Market, Panera Bread Company and Atlanta Bread Company. These chains offer deli sandwiches and meals that are more upscale than traditional fast food, served in nicer restaurants with more comfortable surroundings, but faster than in traditional restaurants. It is estimated that the fast-casual sector is growing from 15 to 20 percent per year, while growth in the quick service sector is only about 2 percent a year. “People are willing to pay a couple dollars more for a better dining experience, yet don’t want to sacrifice the convenience of quick service. Fast-casual combines all the elements for what the on-the-go consumer—which seems to be almost everyone these days—is looking for,” said one analyst.1
Americans are eating out less often compared to previous years and eating habits are changing.2 Though the recession is a major reason why folks aren’t eating out as much at upscale restaurants, it’s another story at fast-food restaurants. Many younger consumers are getting tired of fast food and are thinking about their health. There seems to be a growing dissatisfaction with the quality aspect of the McDonald’s and Burger Kings of the world. It’s not just young adults who are turning away from fast food. Baby boomers are also looking for “better” alternatives and fast food is not as appealing to this large group who frequently eat out.
McDonald’s system wide sales for 2001 were over 540 billion, but net income shrunk 17 percent to $1.64 billion, as shown in the exhibit. McDonald’s U.S. market share remained above that of competitors, but grew more slowly. Its share was up 2.2 percent in 2000 compared to 2.7 percent growth for Burger King Corp. and 2.5 percent for Wendy’s...