As readers of this BLOG, you know that I find McDonald’s a risky company that is horribly Locked-in to its old Success Formula. So, I wasn’t surprised when I recently read about McDonald’s latest plan to grow.
McDonald’s is planning to pump up sales by opening a series of drive-through units in China (see Chicago Tribune article.) Sounds like a decent idea you say? Well, let’s see, only 10% of all food in China is eaten out (and 90% of that comes from full service restaurants.) People in China don’t view their cars as eating places, and they still prefer to sit together and eat. The largest western food chain in China is KFC (remember that the next time someone says Asian bird flu is a detraction to their sales), with about 3x the number of units McDonald’s has.
But McDonald’s is ready to predict great success. Why? Well, firstly 74% of people in the U.S. get their McDonald’s from a drive-through, so surely the Chinese will do the same thing – right? (Lock-in #1, people want drive-throughs). Secondly, they have found a company willing to be their partner, the state-owned gasoline retailer, so that insures success – right? (Lock-in #2, McDonald’s is a franchising company so it loves partners that will roll out units for it.) McDonald’s has to be appealing to the skyrocketing Chinese middle class, who are buying cars like won-ton noodles, right? (Lock-in #3, the McDonald’s brand is appealing to middle-class consumers globally.)
McDonald’s has passed on a number of growth opportunities. Remember the hot growing Chipotle’s chain that McDonald’s shipped out the door? Remember the McCafe concept that was to challenge Starbucks but that can’t get beyond 30 units opened? The fact is that McDonald’s will only attempt growth ventures which fit inside its Lock-in. Will the Chinese venture work? The odds look long given the approach McDonald’s is taking. Only when viewed through the lens of McDonald’s Lock-in does this venture look like something to brag about.
Cut cost, extend product lines and go to new markets – that’s the same strategy Krispy Kreme said would turn around their lagging fortunes. That was before they went bankrupt. There’s nothing insightful about that strategy, and it’s not likely to put the fizz from its soda into McDonald’s stock price either. It’s a Defend & Extend strategy, when what McDonald’s needs is more White Space, the ability to listen to changing market needs, and some really new ideas for growth.
