Perhaps no episode captures what’s ailing the world’s largest restaurant company better than the Mighty Wings Debacle of 2013. In September of last year, McDonald’s launched an ambitious program to sell deep-fried chicken wings across its 14,000 U.S. locations. The wings were a staple in Hong Kong, where the crisp cayenne-and-chili-pepper coating was developed. And a similar version tickled palates in Atlanta during testing. One blogger wrote: “Holy crap, those are really freakin’ good.” The wings were giant (“bone in,” as the jargon went) and meaty. And by the end of the heavily advertised eight-week promotion, McDonald’s was left with 10 million pounds of unsold chicken, a whopping 20% of its inventory. The Mighty Wings didn’t flap.
At corporate headquarters in Oak Brook, Ill., executives began pointing fingers. Some blamed the coating, which was too spicy for broad American tastes, they said. Some blamed the price, at a hefty $1 per wing. A box of five Mightys cost a buck more than the equivalent number at KFC. McDonald’s had justified the lofty price because the wings were so immense, taken from its suppliers’ gigantic eight-pound chickens. The wings were arguably a bona fide deal. But this brings up problem No. 3: Customers didn’t make that connection. Cost-conscious diners gazing up at the menu didn’t realize they’d be getting “absurdly huge drumettes,” as the blogger put it. “This was quality for price,” a former executive tells Fortune, “but McDonald’s is known for quantity for price.” McDonald’s might have thought they were value. Customers simply viewed them as expensive.
CEO Don Thompson, then in the job for a little over a year, had needed the wings to be a hit. The company’s performance had slipped on his watch, suffering from disappointing sales growth and deteriorating margins. Since then things have gotten worse—much worse. In late October, McDonald’s reported a significant loss of market share and its fourth straight quarter of negative same-store sales in its U.S. operations. Overall, the company reported a distressing 30% decline in profit. Expenses were growing even as sales were falling—a big problem for any company.
Analysts are now predicting that 2014 will be the first year of negative global same-store sales since 2002. “People have seen results go from the best in the industry to one of the worst in the course of three years,” says Stephens analyst Will Slabaugh. The year has been written off—there will be no bonuses for anybody.
Some of the pressures facing the company are beyond its control: higher commodity costs, fiercer competition, a restaurant industry showing little to no growth, and a strapped lower-income consumer. There have also been a handful of one-off disasters, including a supplier in China accused of selling expired meat and the closure of nine company-owned restaurants by the government in Russia. With its $28.1 billion in revenue—the average McDonald’s restaurant brings in $2.6 million in sales, compared to Burger King’s $1.2 million, according to research firm Technomic—the company’s scale makes it harder to move the needle. McDonald’s size makes it a target too, putting it in the cross hairs of minimum wage and nutrition battles.
But the company has even bigger—dare we say, Mighty Wing–size—challenges, not least of which is an existential one: McDonald’s is the quintessential quick-serve restaurant. It has risen to the top of the fast-food chain by being comfortably, familiarly, iconically “mass market” and so ubiquitous as to be the Platonic ideal of “convenient.” Neither of these selling points, however, is as high as it was even a decade ago on Americans’ list of dining priorities. A growing segment of restaurant goers are choosing “fresh and healthy” over “fast and convenient,” and McDonald’s is having trouble convincing consumers that it’s both. Or even can be both. “It is a battle over perception, and they’re losing,” says Aaron Allen, a global restaurant consultant.
by Beth Kowitt, Fortune | Read more:
Image: Adam Voorhes
