Ready, Fire, Aim! - Mihail's Public Blog: McDonalds unable to supersize earnings

The global mega-brand, with 30,000 restaurants and 46 million customers a day, just reported its first ever loss in 47 years according to this Knowledge at Wharton article.

McDonald’s has tried to expand its brand with new menu items, including pancakes, ham and cheese sandwiches and mango shakes. But the new items slowed McDonald’s hallmark speedy service and created quality problems. “They have gone down the road of trying to expand their sales through broadening their menu and I think have recognized – correctly – that this is a slippery slope,” Hoch adds. They end up hurting operations “when they veer too far away from a core set of items.”

 

Wharton marketing professor David Reibstein is worried that the same underlying issues currently bedeviling McDonald’s will take a toll on Starbucks, which is also trying to grow sales by expanding the kinds of products it sells. “It used to be you could say Starbucks is coffee. You could envision Starbucks selling coffee-related items such as mugs, beans or coffee pots,” says Reibstein. “But now they sell greeting cards, music, sandwiches and mango juice. My concern is that Starbucks is losing what Starbucks is … That’s a risky thing to do.”

Coke and several automobile manufacturers have successfully added additional brands but McDonald's has struggled except for where it bought complementary existing companies such as Boston Market, Donatos Pizzerias, Chipotle Mexican Grill and Aroma Cafe, a London-based coffeehouse chain.

Still, non-burger sales are tiny, amounting to only $1.2 billion of the company’s annual sales of $40 billion, according to Carl Sibilski, who follows McDonald’s for Morningstar Inc. in Chicago. He says the new acquisitions will be less important for sales than as a source of new ideas for products and business operations.