Risk Management

Is Mickey-D Marketing Souring McDonald’s Bottom Line?

Despite an executive shakeup at McDonald's, it still doesn't seem to get that times have changed.
David McCannFebruary 13, 2015
Is Mickey-D Marketing Souring McDonald’s Bottom Line?

One time when I was interviewing the CFO of a coal-mining company, I suddenly wondered whether he ever felt any guilt, conflict or even mild unease over his choice of employer. After all, while today we have so-called “clean coal,” a more accurate term would be “cleaner” coal. Coal is still dirty, and burning it harms the environment.

The CFO claimed coal was not dirty anymore and offered that he also wasn’t concerned about global warming. Whatever. But the conversation got me musing about how much fun it might be to put the question to executives in other industries that large swaths of society frown on. Of course they’d have their rationalizations (or delusions), but hearing leaders in the tobacco and porn and gun businesses spin their way free from the question could prove entertaining.

Sadly, it turned out that when CFOs in those fields heard that’s what I wanted to talk to them about (“Gotcha!” isn’t really my style), they wouldn’t come to the phone. But the idea stirred anew a few weeks ago when McDonald’s reported declining U.S. sales for a fifth consecutive quarter, after a 2014 in which it suffered its first systemwide sales falloff in at least 30 years. The slump cost CEO Don Thompson his job. CFO Pete Bensen, on the other hand, was promoted to a new position, chief administrative officer. The new CFO, Kevin Ozan, who had been corporate controller, reports to him.

Opinion_Bug7I really wanted to speak with Bensen, but McDonald’s, shockingly (queue smiley-face emoji), did not respond to requests for an interview. What I wanted to ask him (rhetorically) was: Come on, ’fess up, the fact that you’re still selling unhealthy food in what’s become a more health-conscious society has finally knocked your sales engine into reverse — right?

To be fair, if McDonald’s isn’t doing well, and it’s not, some of the blame has to be placed on its marketing, which represents a huge segment of the company’s corporate strategy. It often seems as if the company has four main products: burgers, fries, soda, and marketing. And, judging by the appointment of chief brand officer Steve Easterbrook as the new CEO, the ongoing blitz of promotions, new products, gimmicks and games that has defined the company for many years, but especially so recently, almost surely will continue, even if reshaped.

Of course, a good deal of the company’s marketing is aimed at children. That’s not only bothersome from an ethical and perhaps moral standpoint, it’s also bad for business, according to Corporate Accountability International’s “Value [the] Meal” campaign.

Will he ever stop smiling? Maybe soon.

Will he ever stop smiling? Maybe soon.

“We believe McDonald’s is at a crossroads and must deal with the impacts of its business practices head-on to address its financial performance,” says Value [the] Meal director Sriram Madhusoodanan. “In the past, marketing campaigns and promotions may have been enough to overcome these brand liabilities, but as the public climate has continued to shift, it appears even McDonald’s most recent round of marketing will not be enough to avoid seeing these brand liabilities reflected in its bottom line.”

The campaign is not pushing for McDonald’s to stop selling burgers, fries and soda. In fact, it’s not offering any sort of advice to the company. It is looking for investors to do that. Value [the] Meal regularly attends McDonald’s shareholders’ meetings, lobbying investors to use shareholder resolutions to push for changes in corporate practice.

“McDonald’s marketing practices are unethical, and investors can require it to change those practices,” Madhusoodanan says. “Much as with the tobacco industry before it, the healthfulness of the product this corporation is selling is no longer in question; what’s in question is the manner in which it preys — just like Big Tobacco did—on the innate vulnerabilities of children to drive up demand.”

Truly, heavily marketing its wares to children just doesn’t seem to make bottom-line sense for McDonald’s anymore. The millennials who are parents to today’s children “are far more concerned about everything from food ingredients to genetically modified food to organic foods than are their parents and grandparents,” USA Today wrote last month, citing a recent Nielsen health and wellness survey of 30,000 consumers.

That’s why McDonald is fast losing market share of millennials’ restaurant spending to newer “fast casual” restaurants like Panera Bread, Chipotle and Five Guys, which offer fresher, healthier food as well as customizable menu options for little more than the price of a combo meal at McDonald’s. And if millennials are cutting back on McDonald’s visits, so are their kids.

In a press release on McDonald’s abysmal 2014 financial results, Bensen issued the kind ofgarden-variety corporate speak you’d expect to hear from a struggling company.

“Last year, we announced a set of financial goals for the three-year period from 2014 through 2016,” he said. “We outlined specific targets to return $18-$20 billion to shareholders through a combination of dividends and share repurchases, refranchise at least 1,500 restaurants and reallocate resources to higher growth initiatives. These targets are designed to enhance long-term shareholder value while supporting the work underway to reignite our business results, and we remain on track to meet these targets.”

If you didn’t know otherwise, you might not realize that such comments came from the CFO of a company whose time may have already passed. Jeff Macke, an independent asset manager and host of “Breakout,” Yahoo Finance’s daily stock-picking show, says he doesn’t think McDonald’s can do much to change its image at this point, and that it might be time for investors to simply go elsewhere.

I really do wonder how Pete Bensen feels about that.

Image: Lindsey Armstrong, lindseyarmstrongphoto, CC BY-SA 3.0