During this winter’s NFL playoffs, you’ve undoubtedly witnessed a veritable blanketing of the airwaves by the McDonald’s corporation. After four straight quarters of declining sales and horrific losses of market share to competitors, the restaurant chain’s executives in Oak Brook, Ill. Have gone on the offensive with a snazzy new message centered around “love.”
They’ve clearly spared no expense, with commercials during every other break and appearances from some of America’s most beloved characters—Dorothy and the Wicked Witch take a selfie, the Joker hands Batman a balloon animal, Super Mario offers a flower to the villainous Bowser, etc. And then the product push comes in: Freddy Krueger spears a handful of McNuggets for a hockey mask-clad Jason while a Packers fan hands a Bears fan a french fry. The message is that “Love is Endless” and the animation in the ads is quite beautiful.
Unfortunately, while it may temporarily juice store visits and “reposition the brand,” it does nothing to fix the underlying problems that have driven away the young parents and middle income millennials McDonald’s (MCD) has lost. These people are not coming back so long as their perception of the food quality is poor. Ads featuring SpongeBob aren’t going to cut it in the eyes of the modern consumer, who has unfettered access to nutrition data online and a consciousness about the production and retailing of the items they buy.
Frozen factory-produced meals are increasingly out of the question these days while being seen walking out of a McDonald’s has become socially unacceptable for a new generation of consumers. Last July, 30,000 consumers took part in a Consumer Reports study that ranked McDonald’s signature offering—the Big Mac—as America’s worst hamburger. McDonald’s placed 21st of 21, dead last behind burgers from Wendy’s, Burger King, White Castle, In-N-Out, Sonic, Five Guys, Jack In The Box, and every other chain you’ve ever heard of.
Against a backdrop of such devastating national perception of the company’s food, I’m not sure why an increase in ad spending would be considered a solution so long as McDonald’s products remain unchanged. Naturally produced food, sold in a more pleasant environment, is what people now demand—even if it costs more and has a higher calorie count than the old fast-food experience.
The good news for McDonald’s is that another company in its industry, Chipotle Mexican Grill, may offer a solution—but only if the incumbent is willing to be bold.
This past October, McDonald’s reported a 30% plunge in net income along with a sinking revenue line. Wall Street, which had not been expecting much from the report, was shocked nonetheless. The same day, Chipotle (CMG) reported a 31% increase in revenue along with an incredible 57% jump in profits. It’s almost impossible not to see the almost perfectly symmetrical negative correlation between the two firms. These reports represent a sort of gastronomic yin and yang.
Of course, the comparison is somewhat unfair, given that McDonald’s has a store count that’s almost 10 times that of Chipotle’s in the U.S. (14,000 versus 1,500). But customer losses for McDonald’s are customer gains for Chipotle. The irony in all of this is that McDonald’s was, at one point, the parent corporation of Chipotle and had shepherded the brand from 16 stores to 500. It divested itself of the red-hot “Fresh Mexican” concept in 2006 for a tidy profit of $1.5 billion. Fast-forward less than a decade later and Chipotle is worth more than $22 billion, having more than tripled its store count while doing over $1 billion in sales per quarter.
Just as McDonald’s is out tweaking its marketing message, using Pac-Man and the Smurfs to pump up the appeal of its brand, Chipotle is concerning itself with the integrity of its product.
Last week, at approximately one third of Chipotle’s stores around the world, a sign went up in the window that read, “Sorry, No Carnitas.” For the uninitiated, Carnitas is a filling for tacos and burritos comprised of pork shoulder that’s been braised and shredded, and it accounts for approximately 7% of Chipotle customers’ orders. The chain found out that one of its pork suppliers was not living up to Chipotle’s “Responsibly Raised” standards. There was no rationalization or “we’ll get ’em next time” after-the-fact justification made by the company after learning of this slip. Instead, the offending product was removed from stores immediately.
Note that this was not sub-standard or tainted meat; it was simply not in compliance with the company’s promise to its customers.
While Chipotle may take a short-term financial hit on Wall Street for living up to its “Food With Integrity” mission, the longer term benefit should become apparent immediately to anyone paying attention to consumer tastes and trends. While the Golden Arches fiddles with its marketing in an attempt to bring back the eaters who’ve been turned off by its production methods, the managers at Chipotle are moving aggressively to safeguard the customer experience itself.
The contrast in words and deeds between these two companies could not be more stark. It should be obvious which one is going to win.
