Why McDonald’s Should Stop Worrying About Its Image and Embrace Its Reputation
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For years, McDonald's (NYSE: MCD) has taken heat for selling allegedly nutritionally deficient food. But instead of going to battle each and every time it's criticized, McDonald's should stop touting the health benefits of its food, acknowledge that some of the items on its menu are not healthy, and even take advantage of diners' demand for unusual, uber-unhealthy cuisine
The Guilty Pleasure
Last week, when a nine-year-old girl berated McDonald’s CEO Don Thompson about the company’s marketing of junk food to children, he refuted the notion that McDonald’s sold junk food. He described the freshness of the food, he pointed to the restaurant's healthy items, and said that his own kids have remained healthy, even after eating at McDonald's.
The company's been trying desperately – and understandably – to depict itself as a health-conscious, high-quality fast food restaurant that can help consumers lose 20 pounds. But while McDonald’s does offer salads and fruit along with its more-traditional (and indulgent) menu, its core demographic isn’t latching on to those healthier options.
Thompson acknowledged that consumers aren’t buying salads at McDonald’s – they make up between 2% and 3% of U.S. restaurant sales, while its Dollar Menu accounts for 13%-14% of McDonald's sales. When health-conscious consumers decide to go out for a quick meal, McDonald’s won’t be their No. 1 choice.
So why is the company trying so desperately to suppress the idea that its food may be high in fat and calories?
The McDonald's Brand and Reputation
The McDonald’s brand is one of the most recognizable in the world, and it’s far from being associated with healthfulness. Documentaries have been made with the intent of vilifying McDonald’s and the quality of its food.
In 2010, the Center for Science in the Public Interest helped file a class action lawsuit against McDonald’s, claiming that the company unfairly advertised harmful and unhealthy foods to children. The same year, San Francisco banned the practice of including free toys in McDonald’s Happy Meals.
But while McDonald’s avoids advertising itself as a guilty pleasure, Taco Bell and KFC have generated fantastic sales by embracing exactly that idea.
The Fruits of Fat-Filled Fast Food
Contrast McDonald's shamefaced attitude with Dunkin' Donuts' plans to roll out a bacon donut breakfast sandwich. With this simple concept, Dunkin’ Brands is adopting the same strategy deployed time and time again by fellow McDonald's rival Yum! Brands (NYSE: YUM): throw together decadent foods to generate buzz, increase sales, and invite commentators to use words like “artery-clogging” and “gluttonous."
Taco Bell’s most recent innovation – a taco in a Doritos-flavored shell – generated such high sales volume that Yum! Brands had to hire 15,000 workers just to keep up with demand. Sales of Doritos Locos tacos helped raise Taco Bell’s same-store sales by 8% in 2012. While KFC’s Double Down sandwich -- two fried chicken patties as the "buns" surrounding bacon and cheese -- generated only modest sales, the free advertising provided by countless news outlets justified its existence.
The Missed Opportunity
McDonald’s keeps trying to erase its reputation as the iconic unhealthy fast-food restaurant. But the company isn’t going to win this fight. It doesn’t do well selling healthy food; it does well by providing low-priced food delivered consistently across the country, as the Dollar Menu shows.
By stubbornly denying that it “doesn’t sell junk food,” McDonald’s is only attracting further negative publicity and outrage. It's also sacrificing the kind of buzz Dunkin’ and Yum! can generate with their interesting, over-the-top limited-time products.
McDonald’s should stop worrying that its unhealthy image is bad for sales, and embrace its reputation as a low-priced guilty pleasure.
The Bottom Line
As McDonald’s continues to grapple with its PR issues, investors should watch for changes in comparable guest counts. Growth in guest counts has been slowing each year over the past three years in the U.S. market, and a further decline would be indicative of softening demand for its menu offerings. While the company has a phenomenal business model and an unmatched global reach, it needs to seriously reevaluate its marketing strategy.
McDonald’s turned in a dismal year in 2012, underperforming the broader market by 25%. Looking ahead, can the Golden Arches reclaim its throne atop the restaurant industry, or will this unsettling trend continue? Our top analyst weighs in on McDonald's future in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.
Robby Greengold has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!