McDonald's: No Longer the Great American Meal

            
 
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Case Details:

Case Code : BSTR044
Case Length : 17 Pages
Period : 1965
Organization : McDonalds
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Food Retailing

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"The McDonald's type fast food isn't relevant to today's consumer."

- A McDonald's Franchisee.

"The world has changed. Our customers have changed. We have to change too."

- James R. Cantalupo, Chairman and CEO, McDonald's, 2003.

Introduction

In 1973, when Richard Steinig became a junior partner with a McDonald's franchisee in the USA, just one year after starting as a manager trainee with a salary of $115 a week, he was excited.

His stores generated $80,000 in annual sales and he earned a profit of more than 15%. But thirty years later, in 2003, though Steinig's four restaurants had an average annual sales of $1.56 million, he was not at all happy. Sales had not increased since 1999 but costs kept rising. His profit margins were not more than half of what they used to be when he started off as a McDonald's franchisee. In December 2002, after McDonald's stock plummeted 60% over a period of three years, (Refer Exhibit I) the board sacked CEO, Jack M Greenberg (Greenberg) and replaced him by James R. Cantalupo (Cantalupo), who had earlier retired as the vice chairman of the company. In January 2003, McDonalds announced its first ever quarterly loss of $344 million, (Refer Exhibit II) since it went public in 1965.

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McDonald's lost $20 billion in market capitalization in 2002 and at $14 a share in early 2003, its stock was trading at nearly a ten year low.

Though McDonald's was still the leader in the fast-food market, with a marketshare of 42%, it was not just the same McDonald's that it used to be in the 1980s.

Analysts felt that McDonald's had lost its position at least in the US as an American icon. They attributed many reasons such as increased competition in the fast food industry, lack of innovation, and poor marketing to McDonald's poor performance.

An analyst commented: "They were the Great American Meal, and they have gone from being the Great American Meal to being the leader in fast food. From a brand perspective, that is a really big drop."1

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1] Fortune, March 30, 2003.

 

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