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

By James SurowieckiPosted Friday, Oct. 24, 1997, at 3:30 AM ET

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

By James Surowiecki
(posted Thursday, Oct. 23)

Can a world-famous brand die? Or after a certain point do brands just become so influential, so much a part of the fabric of everyday life, that even fading away is no longer an option? Well, if McDonald's most recent attempts to rescue its faltering American business don't succeed, we may find out the answer to that question.
To be sure, I'm exaggerating for effect. McDonald's still owns 41.9 percent of the U.S. hamburger market, and it now has stores in 103 foreign countries. Last year, the Interbrand consultancy firm said that the company's brand was the most-recognized in the world, replacing Coca-Cola's. And that apostle of the global economy, the New York Times' Thomas Friedman, has seized on McDonald's as the standard-bearer of globalization's benefits. McDonald's franchises keep countries from going to war with each other, Friedman argues, since "people in McDonald's countries don't like to fight wars."

In some respects, then, the cultural authority of the Golden Arches--however dubiously interpreted--has never been stronger. But it's worth remembering that McDonald's is a corporation, and over the last three years it's done a remarkably poor job of translating the value of its brand into bottom-line success. Since 1995, McDonald's has lost U.S. market share to Burger King--which now has about a fifth of the market--for the first time in its history. It has seen sales at stores that have been open more than a year fall quarter after quarter, even while it embarked on a massive expansion of new stores. Most tellingly, McDonald's has put together one misconceived promotional campaign after another. If brands succeed because they have what marketing gurus call a "personality," McDonald's recent efforts appear to be those of a schizophrenic.
The first, and most expensive, of those campaigns was the $80-million attempt to sell America on the Arch Deluxe, which McDonald's tried to position as an "adult" burger by running ads featuring children scrunching up their faces in disgust at the thought of tasting this new abomination. Now, one might have thought that the idea of doing something because kids don't like it stopped being appealing to adults once they turned, say, 17. But then, we're not ad people, are we? More importantly, the campaign was at odds with the longest-standing feature of McDonald's advertising, namely its appeal to the family. Coupled with an abortive attempt to make Ronald McDonald hipper by showing him disco dancing and bowling, the whole thing had the melancholy air of a midlife crisis. And it didn't help that the sandwich was just not very good.

Arch Deluxe occupied the company's attention for most of last year, but when it became clear that the burger was not going to become a breakthrough product along the lines of the Egg McMuffin or Chicken McNuggets, new solutions were sought. Unfortunately, they were not found. Instead, the company produced Campaign 55, which sort of cut prices on Big Macs to 55 cents and sort of seemed to violate the company's policy of avoiding price wars but then really didn't because it really didn't cut prices, since you had to buy a Coke and fries at the regular price to get the supposedly cheap Big Mac. More curiously, the company promoted Campaign 55 with earnest and sweet ads called "My McDonald's" that were intended to make customers realize that the people who ran their local McDonald's were friends and neighbors and not faceless corporatoids. The timing was perfect: Just as the company's pricing shenanigans were making you angry, you were told it was your friends and neighbors who were to blame.
McDonald's canceled Campaign 55 just six weeks after it began. It also dropped longtime ad partner Leo Burnett in favor of DDB Needham, the agency that came up with "You deserve a break today." Just two weeks later the company unveiled Needham's new campaign, "Did somebody say McDonald's?" The campaign's TV ads feature short narratives that go more for laughs than the heartstrings. The radio ads, meanwhile, come across as an odd attempt to combine hipness and family values, since they center on storytelling children who narrate their adventures in hip-hop rhythms that recall downtown New York bands like Luscious Jackson. Go figure.

Did somebody say McDonald's?" has gotten solid reviews in the ad press, and most analysts have seen the move back to Needham as an important step in helping the company refocus itself. What seems clear from the past two years is that McDonald's doesn't have a real idea of what focus would mean. Even as its marketing efforts have grasped at one straw after another, its headlong expansion--the company built 841 U.S. restaurants in 1994, 1,130 in 1995, and 726 last year before finally putting the brakes on--may have finally made oversaturation a reality rather than a threat. (Certainly angry franchise owners who have seen their profits drop think so.) Though the company keeps unveiling restructuring plan after restructuring plan, so far they've all seemed somehow beside the point.
Now, it's true that failed product introductions, rapid expansion, and complicated relations with franchisees are all familiar problems to McDonald's. Ray Kroc, after all, tried to add kolackies--Bohemian pastries--to the menu in the 1950s, and also failed with the Hulaburger, which featured grilled pineapple and two slices of cheese. And we all remember McRib and McLean. As far as expansion goes, moreover, it was precisely McDonald's willingness to build new stores that allowed it to crush Burger Chef in the early 1970s, which is when the Golden Arches' dominance was established.

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.

Illustrations by Scott Cunningham.