Chipotle a Threat to McDonald’s – How McDonald’s Plans to Fix This

Chipotle, the fast-rising Mexican food chain, has been keeping Americans away from the iconic burgers and fries, says McDonald’s, one of the country’s leading fast food companies with over 3,000 franchise owners across the United States.

As though one for the business ironies, Chipotle was once financed by McDonald’s Corporation. Following failed efforts to get Chipotle to serve the market with specific, low-cost menu items that secured high sales, McDonald’s decided to sell its stake in the then-small chain in 2006.

Fast forward to today, many are seeing how Chipotle is slowly taking over McDonald’s throne, with Steve Ells’ chain now operating in over 1,400 locations across 43 states. The industry had been buzzing as the “fast casual” Mexican Grill chain reported that in as early as 2011, it had earned $2 billion in sales with a 25 percent profit margin.

McDonald’s admits the competitor’s gourmet burritos and tacos are hurting not only their sales, but their strategies, too, prompting the giant franchisor to rethink its approach to innovating American fast food and to work out a plan that will get customers to love them again, and even more this time.

The threat is real, and as McDonald’s would have it, a-year-and-half’s worth of planning should be underway. McDonald’s leaders and executives have echoed what have been reported in papers about the franchisor’s resurgence. The new, bigger and better McDonald’s will have its menus simplified, its locations remodeled and some modern, digital perks added for customers, such as Wi-Fi.

Food product priorities and placements will be put on overhaul, as more focus will be placed on the core menu accounting for roughly 40% of sales. Along with that, new additions to the menu will welcome customers, with emphasis on premium chicken and beef, breakfast, as well as popular beverages such as coffee and blended ice products. With these changes, customers are promised a “feel-good” dining experience.

The team behind the top food chain in the country – and one of the world’s most popular, in fact – is bracing for 18 months of brainstorming, planning, assessing, taking the right courses of action, implementing and evaluating the results of such plans to try to win back their customers.

Bloomberg Business Week shares the mighty step the once unshaken franchisor is embarking on:

The chain told investors this week it is taking the next year and a half to regroup after sales continued to slide in the recent quarter and such competitors as fast-growing Chipotle Mexican Grill (CMG) seem to be leaving the burger leader behind. In McDonald’s case, however, the repositioning won’t necessarily involve the typical hallmarks of a rebrand, such as a new logo or total design overhaul (a strategy Olive Garden (DRI) has taken), but will instead focus on reworking the basics: better value, service, marketing, and menu. Why else would it plan to start serving “sustainable beef” in 2016 and add more fruit and vegetable options?

The goal is to become a “more trusted and respected brand,” said Don Thompson, McDonald’s chief executive, on Tuesday’s earnings call. The McDonald’s brand—eroded over the years by service problems, dietary concerns, lack of blockbuster product launches, and recent employee-pay issues—isn’t one many consumers feel too good about anymore. According to Infegy, a company that analyzes social media, 38 percent of online conversations about McDonald’s over the past year have been negative.

Photo by Mike Mozart

Leave a Reply