McDonald's serves jillions of Happy Meals each year, but not many are being shared around the company's pleasant headquarters in a Chicago suburb these days. "There's no question we've been under more stress than we're used to," says McDonald's USA chairman Jack Greenberg, who runs the company's 12,100 domestic restaurants.
Top management is unhappy because sales in U.S. stores have been flat as a frozen beef patty in the past two years and profit margins are eroding. Some of the 2,750 franchisees are unhappy--some downright testy--because rapid store expansion has cannibalized sales and the company's advertising and promotion, although ubiquitous, have been ineffectual. Most recent case: a deep-discount program called Campaign 55 (the company was founded in 1955), which hasn't been a rousing success.
And the customers? Funny thing: the customers are still reasonably happy--22 million of them show up every day--and they'll gladly take a bargain where they can get one. But McDonald's biggest problem is that customers are, increasingly, just as happy to go elsewhere for their junk-food fix: to Burger King for arguably better burgers, to Wendy's for better variety, to Starbucks and Einstein Bros. for better coffee and bagels in the morning, and to Boston Market or any number of gussied-up supermarkets for dinner. Says Greenberg: "I really believe our restaurants are running better today than we were six years ago; but I think our competition is also running a lot better today than they were six years ago."
McDonald's is still the king of convenience--nobody runs a better fast-food operation than Mickey D--but it has become vulnerable, outflanked on such factors as price and taste. It's having a hard time playing ketchup. Campaign 55 was designed to address pricing, and last year's Arch Deluxe introduction the food issue; neither has gone according to plan.
Take prices. For the past 18 months, the company has been raising some prices selectively, and consumers have begun to stray. "Comp sales," an internal company statistic that tracks performance in existing stores, turned negative for six consecutive quarters through the third quarter of 1996, an unheard-of reversal for a company that lives on growth. Greenberg had to improve McDonald's value equation fast. "The question is, What do you do about that? Lower prices a couple of cents on everything, or go on TV and talk about 55[cent] meals?" He called the media department and got out the price ax.
Campaign 55, which started in April, has a seemingly simple premise: Customers can buy a Big Mac or other designated sandwich for 55[cents] if they also buy any size beverage and fries. "My Size" meal is the tag line. Patrons, the theory goes, love the cheap burgers. Owners pocket profits on the soda and fries. The plan proved less than simple, particularly when details appeared in the Wall Street Journal before franchisees approved it. Fears of an all-out industry price war sent the stock spinning, and some franchisees, already struggling against rising wages, worried openly about the cost. "From a sales point of view, it's not what a lot of operators expected," explains J.M. Owens, who operates eight stores in the Atlanta suburbs. Owens voted against the plan, but he believes that over the long haul, its value message will work.