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Customers have had a tough time figuring out whether the deal, which has at least nine permutations, is a good one. A My Size meal generally costs 50[cents] to $1 less than one purchased a la carte, or 10[cents] to 30[cents] less than an Extra Value meal. Got it? Customers seem reluctant to perform this sort of cash-register calculus. Salomon Brothers estimates that same-store sales fell 4% in May. McDonald's is equipping stores with explanatory signs and promising that consumers will catch on. A reported $66 million in advertising may help.
Campaign 55 does not account for taste, which has become a more complicated issue. The older boomers get, the more they worry about food quality. "McDonald's got obsoleted on their food," says Malcolm M. Knapp, a food-industry consultant based in Manhattan. "For a long time, it was good enough to be consistent and clean. Now America wants taste." That was the idea behind the Arch Deluxe, which the company unveiled last year after extensive testing, promoting the product as a burger for grownups. It bombed. Arch Deluxe failed to deliver on the taste front. Says franchisee LuAnn Perez, one of the company's harshest critics: "We were going to make a sign that said, 'It's the food, stupid,' and send it to the board." Janice Meyer, who covers McDonald's at Donaldson Lufkin & Jenrette, notes, "Arch Deluxe was not really a higher-quality product."
Having added hundreds of stores year after year, McDonald's is finding the specter of reaching market saturation very real. Fortunately, overseas sales are robust and last year kicked in 59% of the company's $2.6 billion in operating income. But in the U.S. the $103 billion-a-year fast-food industry is slowing down, and McDonald's, far and away the leader, is feeling the loss of momentum hardest. Its stock has been a notable laggard, returning a paltry 1.2% to investors last year.
The company's systemwide sales in the U.S. (which includes corporate-owned stores, franchises and partnerships) advanced just 3% last year, to $16.4 billion. Even that was only because the company added 726 stores, giving it 12,100 nationwide. But sales in stores open a year declined by a like amount last year.
It's crowded out there. Operators of quick-service restaurants (QSRS, in the industry lingo) have been expanding the number of taco stands, pizza parlors and burger joints 6% to 7% annually. Compare that with the increase in available mouths, 1% annually, and the equation becomes clearer: the only way to grow business is to bite off a piece of the other guy's sales.
That's what the competition has been doing. Pesky outfits such as Wendy's and Carl's Jr. have been nicking pieces from the hide of the Golden Arches. Its share of the $39 billion hamburger market has fallen to 41.9%, from 42.3%, in 1996. Doesn't sound like much, but founder Ray Kroc was famous for noting that a company that isn't growing is dying.