McDonald’s isn’t having a very good week. On Monday it made the news for expired meat turning up in as many as a quarter of its restaurants in China. And on Tuesday it released its second-quarter earnings report, which revealed stagnating profits and falling same-store sales, continuing an eight-quarter losing streak. Is the fast-food behemoth in trouble?
This news is only the latest in a string of bad publicity this year. Back in April, when McDonald’s announced its iconic clown mascot’s new presence on social media and unveiled its makeover, the blogosphere flooded with mockery of the missteps. A “whimsical” red blazer? Yellow cargo pants? One blogger said the unfortunate look came “straight out of 1998.” The hashtag #NotLovinIt trended on Twitter.
Then in May, when McDonald’s launched its next big makeover — this time of its Happy Meal mascot — the Twittersphere erupted again. “Congrats #McDonalds, first you fatten our kids, then you haunt their nightmares” was one of the many taunting tweets. The company defended its bizarre redesign — a smiling red box with big, creepy teeth and spindly arms, named “Happy.” “We are not unhappy about [the response],” McDonald’s senior marketing director told CNN at the time. “Happy is not for everyone. He’s about having fun. Really for kids and families.”
The makeovers seemed to be part of the company’s broader strategy to regain footing in the face of eight quarters of stagnating returns and the rise of competitors like Starbucks and Chipotle. It’s a move all the more salient given McDonald’s announcement of its returns this week: Profits fell again, by 1 percent, and same-store sales continued their slump, dropping 1.5 percent.
In its Tuesday call with reporters, the company’s CEO, Don Thompson, said this poor performance was expected: McDonald’s is focusing on “strengthening the foundational elements of our business,” he said. The company also blamed “ongoing broad challenges” (i.e., the problem isn’t McDonald’s, it’s the economy).
Meanwhile, though, one of its biggest competitors, the burrito giant Chipotle, saw a whopping 17 percent jump in same-store sales — and is being dubbed a “market star” for its ability to woo customers with fresh, good-quality ingredients.
While McDonald’s is still the world’s largest fast-food chain, its profit struggles are just another indication of its bigger identity problem. (The only reason stock prices didn’t dive further in the face of these results is that they were basically in line with expectation.) As the fast-food sector’s leader in sales, McDonald’s has repeatedly come under fire for being a key driver of the epidemic of diet-related illnesses sweeping the planet, especially among children.
It’s time the company took a hard look at what it could do to turn this around. Groups such as Corporate Accountability International, with which I work, have called on the industry giant to take the lead in curbing its predatory marketing of kids, asking the company to, for instance, shut down HappyMeal.com, its flagship Web portal that targets preschoolers.
In the face of mounting public pressure, McDonald’s needs to implement much more than mascot redesigns. The new looks for Ronald and “Happy” were supposed to give the company a boost with a rebrand of its signature target-the-children features, but what’s on the menu and in the box remains just as concerning to parents. A typical Happy Meal configuration I tried out on its online MealBuilder interface would serve half the calories my 5-year-old daughter should eat in a day and deliver more than half the recommended sodium and as much as four times the recommended sugar — a whopping 42 grams.
As McDonald’s comes under fire by parents and educators around the world for targeting kids — and serving poor-quality food — its rebranding efforts seem even more out of step. This quarter’s poor returns might be further evidence of it. Seeking to explain its poor performance, the company presented a host of reasons, mostly factors outside its control, and its focus on long-term growth. But based on the success of Chipotle, a competitor focused on higher quality, it’s clear something more is going on here.
On the heels of another poor quarter, I would hope the company would finally listen to the concerns of its customers who want better food and less marketing to kids. Doing so might just help it see that targeting children, whether with creepy, toothy boxes or creepy, dopey clowns, is out of step with popular opinion — and that serving up high-calorie, high-salt and high-sugar foods (not to mention questionable meat) is too. It might just realize the tide is turning against companies that ignore the impact of their junk food offerings. It might just realize it must change or continue to face returns like the ones we saw this week, or, worse, see its market share slip into the hands of companies delivering better food with less of the ick factor.