Fast-Food CEOs Are Caught in Perfect Storm of Woes

If you think you’ve got problems, maybe you should be running a fast-food company these days. The challenges faced by CEOs and brand owners and franchisees in the quick-serve-restaurant (QSR) business begin with disinterested customers, stretch to striking workers, include problems with products and positioning, and extend to increasingly formidable competition, along with increasing pressure from legislation.

McDonald’s is just one example of a company facing such industry woes, but it’s also the globe’s fast-food icon, so no one in the industry is getting closer scrutiny these days than CEO Don Thompson. And Thompson has been weathering a perfect storm of difficulties. They include a safety scandal at McDonald’s biggest meat supplier in Asia, arrests and protests recently at some of its restaurants over “living wages,” a decided lack of new-product excitement and an important Consumer Reports subscribers survey that rated McDonald’s burgers as worst-tasting.

“Signs are proliferating that QSRs are reaching a saturation point.”

Thompson was left with the verbal equivalent of throwing up his hands in a statement accompanying McDonald’s most recent earnings report. “We are diligently working to effectively navigate the current market conditions to regain momentum,” he said. Perhaps just in case Thompson can’t do that quickly enough after his first two years as CEO have proven problematic, the company recently named Mike Andres, CEO of Logan’s Roadhouse and a former McDonald’s exec as its new president of U.S. operations.

All of this is not to mention the difficulties endemic to the fast-food sector as a whole that McDonald’s also faces. Signs are proliferating that QSRs are reaching a saturation point, per Technomic data, having grown from 9,000 to more than 21,000 over the last decade. Meanwhile, overall sales at major fast-food chains grew only 1.1% last year versus 4% in 2012.

One major reason is the growing competition from fast-casual chains including Chipotle and Panera. In a slow-growth economy, it might be reasonable to assume that value-oriented fast feeders would be growing while higher-priced fast-casual competitors would be suffering. But exactly the opposite is happening. Lured by sublime brands and more healthful menus, Millennial consumers have been flocking to fast-casual outlets and leaving behind traditional fast-feeders—and so have more boomers.

McDonald’s and industry rivals have been trying for years to overhaul their menus with just enough better-for-you options to remove vetoes on visiting their restaurants by health-first moms and other consumers. But as much as they attempt to cater to this concern and innovate, it’s mainly been a case of taking two steps forward and one step back. Exhibit A: Burger King just axed its lower-fat “Satisfries” after just a year on the market.

Meanwhile, what passes for product innovation by QSRs are mainly just combining ingredients in new ways and invading one another’s traditional day parts. That explains, for instance, why Chick-fil-A just launched a big coffee initiative and why Taco Bell now has a breakfast menu.

Chiefs in the fast-food business are working hard for their pay these days. But it seems as if they’re still not effective enough in doing so.


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