MCDONALD'S*
Althougli McDonald's earnings for the fourth quarter of 2012
beat expectations, the world's largest restaurant chain stated
that it will continue to face considerable challenges in 2013.
During 2012, the firm reported the first monthly same-store
sales decline in nine years, reflecting the effect of the shaky
global eeonomy (see Exhibits 1 and 2). On January 23, 2013,
Chief Executive Don Thompson, who had stepped intő the
job just six months before, told inves-tors, "More
specifically, growth in the informál eating-out industry has
been relatively fiat to declining around the world and we
expect that to continue."
1
The dip in sales figures came as a surprise to most
analysts, because McDonald's had managed to show con-
sistent performance since 2003, leading to a surge in oper-
ating profits and stock price over almost a decade. Most of
this could be attributed to the "Plan to Win," which was first
outlined by James R. Cantalupo, who came out of retirement
to guide McDonald's after overexpansion had caused the
chain to lose focus. The core of the plan was to increase sales
at existing locations by improving the menu, refurbishing the
outlets, and extending hours.
In spite of management changes, McDonald's has
remained committed to pushing on various aspects of this
*Case developed by Professor Jamal Shamsie, Michigan State University, with the
assistance of Professor Alan B. Eisner, Pace University. Matériái has been drawn from
published sources to be used for purposes of class discussion. Copyright © 2013 Jamal
Shamsie and Alan B. Eisner.
plan. The chain has continued to expand its menu over the
years, with more sandwiches and salads. It alsó started to add
snacks and drinks, two of the few areas where restaurant
sales have still been growing in spite of the economic
downturn. Its addition of speeialty coffee, ice-cold frappes,
and fruit smoothies in its newly added McCafes has helped
boosted the average spent by each customer and lured them
to its outlets for snacks during slower parts of the day.
Nevertheless, McDonald's is aware that it is facing a
rapidly fragmenting markét, where consumers are looking
for healthier and even more exotic foods. The chain is facing
tougher competition from Burger King and Wendy's, both of
which have been adding to their menüs and remod-eling their
outlets. At the same time, McDonald's is alsó losing
customers to chains such as Subway, Chipotle, and Taco
Bell, which had not previously been viewed as strong
competitors. Many analysts therefore believe that the chain
must continue to work on its turnaround strategy in order to
meet these challenges.
Thompson has been monitoring pricing in order to make
sure the menu stays affordable even though commodity
prices have been rising. He believes that the chain was hurt
by its increased emphasis on the Extra Value Menu that
included items priced higher than a dollár. It has since shifted
its focus back to the Dollár Menu, which has continued to
generate almost 15 percent of totál sales. Steven Kron, an
analyst with Goldman Sachs, emphasized the attractiveness
of the firm's
