OPINION: Stuart Elliott in America

The theme of the current flagship image campaign by DDB for the McDonald's fast food chain is "Smile", recently shortened from "We love to see you smile". But the opening lyrics of Charlie Chaplin's song Smile might be more appropriate, as in: "Smile, though your heart is aching/Smile, even though it's breaking."

The reason? McDonald's remains the US's, and the world's, largest fast feeder, but of late its financial performance has been as appealing to investors as, well, an order of burger and fries wilting under a heat lamp. The company has suffered two years of disappointing results, hampered by six straight quarters of earnings declines.

Consumers in countries such as Ukraine may still find the Golden Arches a welcome addition to their neighborhoods. But in its largest market - the US - sales have softened as street corners become as saturated with restaurants as the standard fare on the McDonald's menu comes saturated with fat.

It hasn't helped matters that the fast food category is losing favour to a new type of eatery such as Applebee's, Outback Steakhouse and Chili's, which offers service and amenities a step above burger barns but not as stuffy or pricey as formal sit-down restaurants.

Worse yet, one direct McDonald's competitor, Wendy's, is thriving, partly because of the continued success of ads from its longtime agency, Bates, while Burger King is unleashing a barrage of advertising and marketing initiatives as it's dressed up for sale to new owners.

An extensive, and expensive, effort by McDonald's to stimulate revenues at the 13,000-plus American stores, by redesigning the kitchen operations to get the food out hotter and faster, has yielded lukewarm results to date. Nor have myriad marketing ploys produced anything that would put the "Big back in "Big Mac"; those have ranged from new DDB advertising to sponsorship of the Winter Olympics to offering bargain-priced value menus.

As McDonald's finds it increasingly difficult to make headway in its principal business, the company has begun veering off into expansion schemes and line extensions. There have been acquisitions of sandwich shops (Pret A Manger) and pizza joints (Donatos) and experiments with other products such as Diner Inside, stores peddling "comfort food" including meat loaf and mashed potatoes in a nostalgic mid-century diner format. Adweek reported last week that along with its roster agencies, DDB and Leo Burnett, McDonald's was talking to Ogilvy & Mather about pitching Diner Inside.

Even more startling was word that McDonald's executives are, in the words of the spokesman Walt Riker, "looking at concepts that might go beyond restaurants, which could involve retail extension". The goal of the experiment, at least two years away, Riker said, would be to leverage the real estate in the McDonald's portfolio; the company typically owns the land on which a restaurant is built and leases it to the franchisee who operates the store. Wall Street was flabbergasted at this trial balloon for nonfood retailing, wondering what could fit that description and be sold across a counter over which workers usually push Egg McMuffins. Videotapes? Clothing?

Watches? (Watches would only remind customers how long they've been waiting for their food orders.) Analysts urged McDonald's to focus on core operations and, as one bluntly put it, "run better restaurants".

That would put a smile back on the faces of consumers far faster than any McVideo or McKhakis ever could.

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