MacDonald’s earnings for the quarter of 2012 were beyond the expectation of many but the company was well aware that it will continue to face challenges in the coming years. In the year 2012, the world’s largest restaurant chain reported the greatest in nine years as a result of the turbulent global economy. This slide in performance was a big surprise to money investors who had keenly noted the firm’s robust performance for nine years from the year 2003 with the net effect being an increase in profitability as well as the stock price for the same period refried. Prior to these, the firm had engaged in over expansion that caused the retail giant to lose focus and the getting into the helm of James R. Cantalupo is what brought the firm into profitability and stock price surges of the decade. The plan to win as it was referred involved centered on increasing sales at the already existing locations through menu improvement, refurbishments, and extension of the operating hours(Samsie, 2013).
This plan was adhered to despite the changes in management over the period as the chain expanded its menu over the years through more salads and sandwiches as well as the addition of snacks and drinks to the menu. This is the only area of the restaurant where sales have been on the increase irrespective of the economic downturn. The addition of specialty coffee to the menu did result into the average customer spending marginally more and also attracting them to the restaurants during off-peak hours of the restaurant(Samsie, 2013). Despite these, challenges still abound for the retail giant which includes a continuously fragmenting market as the clients are increasingly becoming choosy as they quest for exotic healthier foods. There is also increased competition from competitors especially Wendy’s and Burger king hat are increasingly adding to their menu and refurbishing their restaurants. Moreover, chains like Taco bell, Chipotle and Subway are snatching away customers from this retail giant.
The company under its CEO Don Thomson did embark on pricing as a model of making sure the menu remain affordable irrespective of an increase in commodity prices. The strategy of the extra value menu, where items have priced a dollar higher affected the competitive advantage of the restaurant and this made it revert back to the Dollar menu that accounts for almost 15% of the total revenue from sales. The affordable dollar menu is a great asset for the company as people do want value for their money. The fast food business has always been defined by MacDonald since it was formed more than 5o years ago, providing employment opportunities for Americans while changing their eating patterns and habits. In those fifty years, the chain rose to form a single outlet in a Chicago suburb to a multinational that it is currently. But over the years, it is slowly sliding down in revenue sales due to a myriad of problems facing the corporation. This is attributed to its expansionist policy of the 1990s that led to a drop in McDonald’s service and quality.
During this period, the head office administration ceased to grade the restaurants in terms of cleanliness, speed, and service. The tighter labor market brought in more challenges at the end of that decade making the corporation slash on training while seeking new recruits resulting in skill loss. Moreover, MacDonald’s new product introductions eg low-fat Mclean Deluxe and Arch Deluxe burgers failed terribly as it struggled to diversify away from burgers. This was attributed to the product development process. In 1998, McDonald posted its first decline in earnings that led to the then CEO Michael R. Quinlan to b replaced by Jack M Greenberg who had a sixteen years experience with the firm. He cut back on expansion but his effort was thwarted by his acquisition of Chipotle Mexican Grill and Boston Market as well as the introduction of 40 new menus items that failed to take off(Samsie, 2013).
In December of 2002, the firm’s stock price had declined 60% in three years leading to his ouster. His failure was attributed to his trying of too many things at the same time while executing them poorly.
At the starter of 2003, McDonald was heading to a disaster, hence, the firm brought back retired vice chairman James R. Cantalupo at 59 years to turn around the company. He had overseen the corporation’s expansion in the 1980s and 1990s and had the experience. He realized the company lacked the values of consistency, fast and friendly service for the whole family experience. He realized that the franchise needs , as well as the employees, need to be inspired and retained on their role indoor for the smile to be back on the McDonalds experience. The turnaround strategy of 2003 centered on getting the basics of service provision right together with the quality through a hard-hitting tough or out grading system that endured underperforming franchises aware kicked out. His strategy aimed at rebuilding the foundation instead of growth addition as without it’s an exercise in futility(Samsie, 2013).
Hence, the opening of new outlets was dropped, with the focus being on sales generation from the existing 30,000 outlets in the world. It focuses on new products that were healthier led to a positive response. The biggest success of the corporation came with its launch of McGriddles breakfast sandwich in June 2003 that brought in over one million new customers that gave Macdonald a health perception by the American populace concerned with obesity. In 2004, a new CEO Jim Skinner made his ambition to be a focus on the unhealthy image of McDonald where he phased out super sizing by the end of that year. It also introduced nutrition information on its products to inform customers on calories, fat, and protein.
Finally, it removed the artery clogging Trans-fatty acids from the oil used in its cookeries as it strived for healthier offerings. As part of its turnaround strategy, McDonald has also been selling off many of its outlets nd this has made up to 75% of its outlets to be in the hands of the franchise and related affiliates(Samsie, 2013). Emphasis has also been on the look and feel of the aging stores. The long-term success of the firm is well dependent on its ability to compete with the rival burger chains as well as the way the corporation handles the short-term drawbacks.
References
Samsie, J.S. (2013). MacDonald's*. In Eisner, A.B.E (Ed), Microfinance (pp. C88-C93). Michigan State University: Jamal Shamsie and Alan B Eisner.
