Customers
in Their 20s and 30s Are Defecting to Fast-Casual Restaurants Like Chipotle,
Five Guys
 |
| McDonald's is trying to enhance its credibility with young customers by marketing more on digital channels and testing mobile ordering and payment. Associated Press |
Behind
McDonald's Corp.'s worst slump in a decade is a trend that may augur even
tougher times ahead: The Golden Arches is losing its luster with younger
consumers.
The world's
largest restaurant company by revenue earlier this month reported its sharpest
monthly decline in global same-store sales since early 2003, adjusted for
calendar irregularities.
In the
U.S., with more than 40% of McDonald's 35,000-plus global locations, sales at
restaurants open at least 13 months have been flat or falling for most of the
past year.
The
hamburger giant on Friday announced it was replacing the head of its U.S. division
for the second time in less than two years. The company tapped a former
executive, Mike Andres, to take the helm of the domestic business—another sign
that the company is trying to revive its fortunes at home.
McDonald's
stock has traded in a relatively narrow range in the nearly 26 months since
Chief Executive Don Thompson took the helm, while the share prices of many of
its rivals have soared. McDonald's shares are down about 2% since the start of
the year, closing at $94.45 Friday.
Demographics
help shed light on McDonald's woes. Data compiled for The Wall Street Journal
by restaurant consultancy Technomic Inc. point to an age problem for the chain.
Customers in their 20s and 30s—long a mainstay of McDonald's business—are
defecting to competitors, in particular so-called fast-casual restaurants like
Chipotle Mexican Grill Inc. and gourmet-burger chain Five Guys Holdings LLC.
Increasingly,
younger diners are seeking out fresher, healthier food and chains that offer
customizable menu options for little more than the price of a combo meal.
The
percentage of people age 19 to 21 in the U.S. who visited McDonald's monthly
has fallen by 12.9 percentage points since the beginning of 2011, according to
Technomic, while the percentage of customers age 22 to 37 visiting monthly
during that period has been flat.
 |
| McDonald's U.S. sales have been flat or falling for much of the past year. John Taggart for The Wall Street Journal |
During the
same period, the percentage of 19-to-21-year-olds increased their monthly
visits to fast-casual restaurants by 2.3 percentage points, and
22-to-37-year-olds by 5.2 percentage points, Technomic says.
Alec
Petersen, a 21-year-old from Hoboken, N.J., rarely visits McDonald's anymore.
"I do have nostalgic memories of McDonald's, but Chipotle has much better
quality food, or at least it feels like they do," said Mr. Petersen, who
recently graduated from Duke University.
McDonald's
says new items like its McWrap sandwiches—chicken and vegetables rolled in
tortillas—are helping to woo millennials, consumers in their midteens to
mid-30s. The Oak Brook, Ill.-based company also is trying to enhance its
credibility with young customers by marketing more on digital channels and
testing mobile ordering and payment.
"The
millennial generation has a wider range of choices than any generation before
them," McDonald's Global Chief Brand Officer Steve Easterbrook said in an
interview. "They're promiscuous in their brand loyalty. It makes it harder
work for all of us to earn the loyalty of the millennial generation."
McDonald's
U.S. sales struggles have also been compounded recently by other woes
challenging Mr. Thompson, a 24-year company veteran who became CEO in July 2012
after a decade of strong growth.
In China, a
former bright spot, sales have fallen after authorities last month accused a
key supplier of selling expired meat. McDonald's said the problem drove sales
at existing locations in its Asia/Pacific, Middle East and Africa region down
by 7.3% in July.
In Russia,
amid heightened tension between the West and Moscow over the conflict in
Ukraine, authorities last week closed some McDonald's restaurants in Moscow for
alleged sanitary violations and are now inspecting its outlets across Russia.
Meanwhile,
at home, it also is grappling with growing worker protests calling for higher
wages and the right to organize. And the National Labor Relations Board last
month determined that McDonald's could be treated as a joint employer with its
franchisees in labor complaints, which could make the company liable for the
actions of its franchisees.
McDonald's
has acknowledged other recent missteps, including an overcrowded menu that
slowed service. Executives have said that the nearly 60-year-old company has
lost relevance with consumers. In June it set up a "learning lab" at
a restaurant in Laguna Niguel, Calif., to better understand what people want
and to experiment with customizable burgers.
The
fast-casual concept took shape in the 1990s, melding the fresher ingredients
and custom ordering of table-service restaurants with the convenience of
fast-food joints.
Other
examples include Panera Bread Co. , Noodles & Co., and Corner Bakery Cafe.
The chains appeal to younger consumers who came of age at a time of skepticism
of fast food—evident in the 2001 book "Fast Food Nation" and the 2004
documentary "Super Size Me"—and a burgeoning foodie culture that
emphasizes fresh ingredients.
A decade
ago, there were 9,000 fast-casual restaurants in the U.S., versus nearly 14,000
McDonald's. Now, fast-casual restaurants number more than 21,000, according to
Technomic, while McDonald's U.S. restaurant count has risen only slightly.
Chipotle,
founded in 1993, today has more than 1,600 U.S. outlets and a market value of
about $21 billion. Five Guys, which boasts that it offers more than 250,000
ways to order a burger, has grown to more than 1,000 outlets since it was
founded 28 years ago.
Last month,
Consumer Reports magazine said that in a survey of more than 32,000
subscribers, readers rated McDonald's burgers as the worst-tasting of 20 rival
burger chains.
The
magazine cited the preferences of younger consumers as a main factor.
"Diners, especially younger adults in the millennial generation, may be
more willing to go out of their way to get a tasty meal," Consumer Reports
said.
McDonald's
responded that it is "proud to serve 27 million customers" daily in
the U.S., and "It's important for us to listen to their feedback as it
helps us better meet their needs and expectations."
Fast-casual
chains like Chipotle and Panera also have cultivated an image of social
responsibility that appeals to many young people, such as by offering organic
ingredients and pork from "naturally raised" pigs
Millennials
"want to buy into a brand not just from it," said Mr. Easterbrook. He
said McDonald's is developing mobile apps that will enable people to access
information about the company's social responsibility. "What we've got to
do is find interesting and engaging ways to share that information with
millennials, not old-fashioned corporate lecturing.
Yet
adjusting to the new competitive threats is tricky for such a giant and its
huge, complex supply chain. Fresher ingredients and more customizable orders
could appeal to some customers but alienate others by driving up prices or
slowing preparation times.
Some
analysts and investors feel McDonald's is simply too big to make meaningful
changes within its U.S. restaurants. Scott Rothbort, president of LakeView Asset
Management, who sold his McDonald's shares earlier this year, says the company
needs to do something bold to juice growth, such as acquiring a fast-casual
chain.
McDonald's
has been a player in the fast-casual segment before. It bought a stake in Chipotle
in 1998, which it later increased before selling it eight years later for $1.5
billion.
"McDonald's
has an image problem and it needs to set out a vision of what it wants to
be," said Dieter Waizenegger, executive director of CtW Investment Group,
which advises pension funds that have holdings in McDonald's. "They need
to chart a new course."
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Let me give you another potential. This country that I sit in right now [USA] will set the mold for that particular attribute. I have no clock. Watch for the youngsters to set this in motion, and they will, for they are the voters of tomorrow and they do not want the energy of today. To some of them, it's so abominable they won't even register to vote in this energy. You're going to see this soon. That was number five.. ..."
"Recalibration of Free Choice"– Mar 3, 2012 (Kryon Channelling by Lee Carroll) - (Subjects: (Old) Souls, Midpoint on 21-12-2012, Shift of Human Consciousness, Black & White vs. Color, 1 - Spirituality (Religions) shifting, Loose a Pope “soon”, 2 - Humans will change react to drama, 3 - Civilizations/Population on Earth, 4 - Alternate energy sources (Geothermal, Tidal (Paddle wheels), Wind), 5 – Financials Institutes/concepts will change (Integrity – Ethical) , 6 - News/Media/TV to change, 7 – Big Pharmaceutical company will collapse “soon”, (Keep people sick), (Integrity – Ethical) 8 – Wars will be over on Earth, Global Unity, … etc.) - (Text version)
“…5 - Integrity That May Surprise…
The Unthinkable… Politics, A Review
Humans will begin to search for integrity and fairness and it's going to happen in the places you never expect. I said this last week, so this is a review. There'll come a time when you will demand this of your politics - fairness and integrity. So when the candidates start calling each other names, you will turn your back on them and they won't get any votes. They're going to get the point real fast, don't you think? How about that?
Let me give you another potential. This country that I sit in right now [USA] will set the mold for that particular attribute. I have no clock. Watch for the youngsters to set this in motion, and they will, for they are the voters of tomorrow and they do not want the energy of today. To some of them, it's so abominable they won't even register to vote in this energy. You're going to see this soon. That was number five.. ..."
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