The fast-food business has become extremely competitive in the U.S. over the last couple of years as McDonald’s key competitors, Wendy’s and Burger King, came out with aggressive deals to attract customers. Examples of such offers are Burger King’s deal of 10 chicken nuggets for $1.69 and Wendy’s “four for four dollar” menu, which have been extremely successful. McDonald’s has been losing U.S. market share to these aggressive players and has lost the loyalty of some of its most cost-conscience customers, according to analysts.
Surprisingly, versus tackling its menu deficiencies, McDonalds recently announced it will cut layers of management as part of a half-billion dollar plan to shrink administrative expenses by the end of next year. In more detail, the number of layers would be reduced from 8 to 6 between the field personnel and the CEO level, yielding a very large headcount reduction.
In an email message to all U.S. employees, suppliers, and franchisees, McDonald’s CEO’s main message was that the company is restructuring and that “I recognize that change is difficult and that eliminating layers within our organization means some employees will ultimately exit our system.”
There is nothing wrong with an aggressive effort to keep the organization lean but what is strange about this big announcement, and the CEO’s message is that the company seems to be doing nothing in regard to its basic problem; fixing its U.S. menu.
Menu problems are not new to McDonald’s. It had spent several years altering its menu to address what it thought health-minded consumers would prefer; items such as salads, snack wraps, and oatmeal. A major study in 2016 by an independent consulting firm revealed that McDonald’s had lost about 500 million orders in the U.S. over the past 5 years to rival fast-food chains who were continuing to focus on the basics of making a better burger and offering attractive incentives.
McDonald’s management needs to get its priorities straight. First, it needs to fix its basic product line-up. No doubt eliminating layers and cutting costs is a good idea, but it shouldn’t be an excuse for not tackling the core problem of having a weak menu compared to the competition.