Falling Arches

Falling Arches

Falling Arches

Oct. 24 1997 3:30 AM

Falling Arches

Did somebody say McDonald's was having a midlife crisis?

Falling Arches Did somebody say McDonald's was having a midlife crisis?

27_cleardot
Advertisement

By James Surowiecki (posted Thursday, Oct. 23)

27_cleardot
27_cleardot
27_cleardot
27_cleardot
13_singlepixdrkred
27_cleardot

But expansion 25 years ago meant something very different from expansion today, when the supply of new fast-food restaurants is two or three times ahead of demand. In that sense, McDonald's bottom-line problems are the classic problems of a capitalist economy: overcapacity and overproduction. And it's harder to take a franchise away from an owner than to idle an assembly line.
     In a deeper sense, McDonald's woes illuminate the vagaries of a business built almost entirely around a brand. The genius of the brand strategy has always been its ability to simplify the task of selling by making one attribute--the name--essential. Consumers consistently give McDonald's poor marks for the quality of its food relative to Burger King or Wendy's. In part, they continue to go to McDonald's because there are so many more of them. But it's also safe to say that they go to McDonald's because it strikes the right cultural chords, whatever those are. If the company stops striking them, then presumably more conventional concerns--like quality and price--will matter still more.
     The underlying assumption of the the brand-marketing strategy has been that brands do not become obsolete. But no brand name is unassailable: Remember that more Americans were drinking Pepsi than Coke just before Coca-Cola introduced New Coke, and 10 years ago Reebok sold nearly as many shoes as Nike. The problem with staking everything on your brand is that if you lose your brand there's nothing to fall back on. Thanks in no small part to the allure of the global market, brand-name companies have been held up as the avatars of the New Economy. But what McDonald's recent experience suggests is a simpler lesson: Nothing lasts forever.
Links Aside from its major systemic worries, McDonald's has spent much of the last three years dealing with strange and self-inflicted legal headaches. The first, of course, was the memorable " hot coffee" case, in which a woman won a big damage payment from the company after spilling coffee and scalding herself. The second, and more telling, was the McLibel case, where the corporation spent millions of dollars to sue two hapless--and penniless--British environmentalists for saying the company was chopping down the rain forest, and so forth. Here's a whole Web site set up in the wake of the suit to detail McDonald's transgressions, and here's a copy of the original leaflet that caused all the problems. (This is just a link. We're not printing the leaflet. So don't sue us. Even in Britain.) On a less confrontational note, DDB Needham Interactive has just the kind of Web site you'd expect from a hip advertising agency. And here's a paper on what brand personality is all about. Finally, find out how much protein is in that Big Mac you just ate. Of course, you'll find out how much fat is in it, too. James Surowiecki writes for the Motley Fool. He can be e-mailed at surowiecki@juno.com.

27_cleardot

Illustrations by Scott Cunningham.

James Surowiecki writes the financial column at The New Yorker.