In the 42 years since Ray Kroc founded McDonalds with his fast food restaurant in Des Plaines, Illinois, the McDonalds hamburger has become one of the worlds most successful consumer products. Last year, according to the Interbrand consultancy, McDonalds ousted Coca-Cola as the worlds best known brand.
Yet even as McDonalds continues its relentless international expansion Belarus, Tahiti and Ukraine are among the latest countries to experience the delights of the Big Mac the company is facing its worst-ever difficulties at home. Americans seems to be losing their appetite for McDonalds and US profits have taken a tumble.
Last week the company announced a sweeping reorganisation of its US operations. It said it would split the company into five geographical divisions, each operating as a separate business with its own president. It also announced that Edward Rensi, the long serving head of the US company, was leaving because of personal family commitments.
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But this was just the latest in a series of attempts to restore growth to the US business, none of which has had the required result. It came only weeks after the embarrassing withdrawal of a 55 cent burger promotion that failed to generate the expected sales because customers decided there were too many strings attached to the offer.
Last year McDonalds launched the Arch Deluxe line of higher-priced burgers that were supposed to appeal to adults with a spicier, more grown-up taste than could be satisfied by its traditional burgers. But the initiative hardly set sales alight: indeed, McDonalds has failed to come up with a successful new product since the introduction of Chicken McNuggets in 1983.
Meanwhile, the company has been trying to increase US sales by the simple expedient of building new restaurants. Some 70 per cent of decisions to visit a fast food restaurant are made on impulse: so theoretically, the more restaurants a company has, the more opportunities it will have to capture this spur-of-the-moment trade.
After increasing its US outlets at the rate of about 200 to 300 a year for many years, McDonalds opened 841 restaurants in 1994, 1,130 in 1995, and 726 last year. But instead of generating a big increase in sales, the new restaurants mainly succeeded in taking sales from existing ones.
That produced a fall in average sales per store: and because the stores overheads were largely fixed, their profits went down too. McDonalds US operating profits fell by 9 per cent to $1.1bn last year, partially offsetting the robust growth in international profits and leaving net earnings ahead just 10 per cent at $1.6bn.
Outside the US McDonalds has been doing well. As the company frequently points out, it still serves less than 1 per cent of the worlds population each day, so it has been able to expand rapidly overseas without running the risk of market saturation. Operating profits from outside the US have risen at a compound annual growth rate of 23.3 per cent in the past 10 years.
By contrast, US operating profits have risen by just 3.5 per cent. McDonalds has now retreated on its restaurant opening strategy in the US, saying it plans to cut the number of openings to about 500 this year. But just at a time when it needs the support of its franchisees, who operate 85 per cent of its US restaurants, it has alienated many of them by hurting their profitability with the store-opening programme.
Dick Adams, a former McDonalds employee who now runs a group of disenchanted franchisees named Consortium Members Inc, blames poor management for McDonalds problems. The original entrepreneurs who were around in the days of Ray Kroc have passed on, he alleges, to be replaced by non-entrepreneurial corporate bureaucrats who have allowed lawyers and accountants to take too much control over the company.
Mr Adams says one example of the companys bureaucratic attitude was its decision to pursue a libel action against two environmental activists in Britain in what turned out to be the longest trial in English legal history. The case ended last month in a legal victory for the company, but was widely perceived as a public relations disaster.
Jack Greenberg, now chairman and chief executive of McDonalds US operations, says that in the days when Ray Kroc was around, McDonalds was a very different organisation, with only 2,000 restaurants. Today, with over 20,000 restaurants in 103 countries, you are talking about an organisation that is as big as some countries. So I dont think being able to replace that is practical.
Even so, Greenberg says: The whole idea of reorganisation was to try to create smaller units, to recapture some of that informality and entrepreneurial effort, and to break up the bureaucracy that got so strong and centralised.
Bureaucracy apart, however, Greenberg says the main reason for McDonalds difficulties in the US is tougher competition. Some 26,000 quick service restaurants opened in the US in 1995 and 1996, he says, outstripping the increase in consumer demand by a factor of two or three.
Wall Street analysts believe something more fundamental may be to blame: McDonalds products. They point to the fact that, while Burger King and Wendys have increased their share of the US burger market, McDonalds share has shrunk.
When consumers were asked to name their favourite burger restaurant in a recent survey for Marketing News, 37 per cent chose Wendys, 31 per cent chose Burger King and just 23 per cent named McDonalds.
Damon Brundage, an analyst at NatWest Securities, says: Its difficult for McDonalds to go on blaming a difficult competitive environment when Wendys second quarter US sales were up 10.2 per cent.
Greenberg says McDonalds is developing new production systems that will allow it to serve fresher food faster and allow people to choose their own garnishes, as they can in Burger King and Wendys. It also expects to go back to toasting its hamburger buns, something it stopped doing a few years ago, and it is experimenting with new products.
But Greenberg says there is no magic bullet that will turn the US operations around: it is just a question of pleasing every customer every day with quality, cleanliness and service.
Marketing helps, new store openings help, the rest of it helps, he says, But the fact is that this business is about what Ray Kroc called grinding it out, which was his way of saying fresher, faster, cleaner.