MCDONALD’S restaurants stand among American capitalism’s greatest success stories. Starting out with just one burger stall in 1948, the fast-food chain’s emphasis on quick service and a standardised menu has helped it to grow to more than 35,000 outlets across the world. It has been profitable: after a wobbly period in the early 2000s, the firm’s share price went from $12 in 2003 to more than $100 at the end of 2011. But now McDonald’s has lost its sizzle. Global sales have been declining since at least last July. When the company announces its annual results on January 23rd, analysts think it will reveal its first full-year fall in like-for-like revenues since 2002. What’s gone wrong?
Some of McDonald’s problems stem from operational mishaps across the world. In particular, its business in Asia—where it makes nearly a quarter of its global revenues—has been hit by several health scares. Sales in China fell sharply after one of its suppliers was discovered last July to be using expired and contaminated chicken and beef. More recently, several Japanese customers have reported finding bits of plastic and even a tooth in their food. Geopolitics has not helped. Last year some Russian outlets were temporarily closed by food inspectors, seemingly in retaliation for American and European sanctions against Russia over its military intervention in Ukraine. Some politicians in Russia have even called for the chain to be thrown out the country completely.
But McDonald’s also has problems at home. It faces competition from other fast-food chains such as Burger King, which has been gaining market share with a simpler and cheaper version of the McDonald’s menu. And it is being squeezed by more upmarket "fast-casual" restaurants such as Shake Shack and Chipotle Mexican Grill, which are rapidly growing. They have been luring customers—particularly younger ones—away from McDonald’s chicken nuggets and chips by offering slightly better quality food, a high level of customisation (such as the option to choose the ingredients in a burrito or burger) and some table service.
McDonald’s seems to have two options: to emulate the likes of Burger King and go back to basics, or to spruce itself up to compete with the likes of Shake Shack. The chain seems to be trying to do both. It now has two new formats, one offering a simpler menu, and another called “Create your taste”, letting customers customise their burgers. Similarly, it has opened “McCafés” in several countries. In France, one of the few parts of the world where McDonald’s sales are still rising, these offer macarons, tea and coffee in china cups and saucers, as well as some limited waitress service. It hasn't always gone smoothly: some of the restaurants in Paris were forced to put signs on the bins saying “please do not throw away the crockery”. As McDonald’s tries to reinvent itself, it may find that disposing of its traditional image will prove much harder.
