What’s Up with Retail: Invention easier than Transformation

 

170422153016-store-closing-signage-780x439The business headlines have been full of news about store closings.  Multiple chains are closing 100s of stores.  This once flourishing sector employed thousands, and now flounders. What strategic lessons can be learned from US retailers mistakes? The question and the learning opportunities for other sectors became the basis of the April 21, strategy roundtable’s diverse group of attendees.  A few articles  offered some summary context of the state of the sector, a little history about Macy’s and a series of growth related insights from disruptive innovation strategy firm , published in MIT Sloan Review offered by Fahrenheit212.

Surprisingly, after posting the articles in late March, a flood of store closings and their back stories continue to appear, leaving many to wonder what’s up for several of the biggest brand names in retail.  In the short horizon that  Macy’s lost $10billion in value, Amazon rose $300bil to reach its current six year low of $6bn, considerably off its peak of $24bn in 2006, Amazon’s current valuation just north of $370bn continues to accumulate market share.

The US Big Box Retailer’s current state isn’t just bad luck and it turns out to be less than easy to pinpoint. As Macy’s and other retailers struggle to maintain a fresh look, their poor performance ripples across the sector as one domino topples over another. No excuse for Management to become such terrible shop keepers, no matter how much online competitors divert their attention.  A poorly appealing store worsens its merchandise and thin staffing ratios erode service combine to turn off customers too.

Sears posted year on year decline over 9 percent, and 1.5x losses for its mobile application as it’ digital transformation efforts prove insufficient.

Cost cutting may help a business survive, but won’t deliver growth that makes it thrive. The creative fuel behind the early growth of Sears, Macy’s and the general merchandisers also expanded their market and showed their competitive capabilities. Amazon isn’t a new disruption and the blanket of doom seems to spread uniformly across the sector.

The Data vs. the Narrative

Did you know from 1990 to 2014, US retail employment grew by 2.3 million, of which the vast majority was among non-store retailers?  The total sector grew by 17 percent, while non-store employment grew 27 percent. In this same period, a combination of productivity gains and drops in labor compensation reduced the sector’s unit costs.

These reversals in historic trends pointed out by  Chicago Booth faculty Chad Syverson and Ali Hortaçsu in their recent review of US retail, should help large retailer’s right? More part-time workers, more automation and lower wages do improve operating margins, but doesn’t mean growth will follow.

The bigger strategic problem is timing and the ability to compete. The efficiency gains across the sector appear just as retail’s share of total US economic activity continues to shrink, and correspondingly its share of total US employment diminishes too.

Syverson and Hortacsu found ample research that relates technology, management, variety and productivity with shaping the success and survival of some retailers.  Surprise, greater productivity may or may not result from any one of these factors, and growth from greater productivity seems less causal too. Physical operations, however do prove important to both e-commerce and store based retailers. In other words, the formula for growth has grown more complex. Hold these thoughts.

Many explanations of changes in the sector, they say, “ …build on two, powerful and not fully consistent narratives, a prediction that retail sales will migrate online and physical retail will be virtually extinguished, and a prediction that future shoppers will almost all be heading to giant physical stores like warehouse clubs and supercenters.”

Their extensive data review also makes clear that the data does not support these narratives.  Online retail supremacy has not yet arrived, and likewise the scale and influence of the supercenter/Warehouse merchandisers continue to grow.

“Between 2000 and 2014, the fraction of all retail sales accounted for by e-commerce has risen steadily from 0.9 to 6.4 percent…The increasing share reflects an 11-fold increase in nominal annual e-commerce sales, in contrast to a 55 percent increase in nominal retail sales as a whole.”

The latest (4Q2016) US Census reports total retail sales of goods and services at $1,235.5Billion and estimates ecommerce at $102.7Billion (8.3 percent of total). Year over Year growth rates of 4.1 overall were considerably lower than ecommerce, which grew by 14.3 percent. Both grew only 1.9 percent over 3Q2016.

The analysis by category over time and projection of the trend lines summarized below makes the story more interesting.

Syverson and Hortacu’s                                                 Projected year that product’s 

 Table I: Product-specific E-commerce                        share expected (purple achieved):  as a Share of Product Total Sales

US census retail sales ecommerce table

The summary resembles an 80/20 analysis.  The categories with the biggest ecommerce sales represent the smallest category of total sales.

A Theory We tested

A recent edition of MIT Sloan Review published three “new” growth-related truths, and framed our discussion. The truths as you see, resonate with many of the common precepts around innovation focused strategy not just those of its authors from Fahrenheit212, part of Deloitte.

  1. Analysis won’t reveal your way to the future, you must invent it.
  2. Competition is not linear, it’s exponential and disruptive.
  3. Success depends on internal capabilities to catalyze an organization into action, and make something new happen.

First, analysis has broadened in many ways, but its purpose and practice still largely  determined by Leadership and its management priorities.

Limiting the scope of Analysis to tactical issues, confirms what works, or drives larger strategic projections as in what’s possible. Today, analysis and analysts review data in every function across the entire enterprise. Organization benefit from analysis when they also  commit to standards of consistency and integration, that also assure their results don’t confuse but reveal factors important to business growth.

Successful analysis also relies on the availability of data and analysts capable of its interpretation. Today’s connected world offers ever increasing opportunities to collect, store and process more data cheaply, and Enterprise Resource Planning Software systems greatly simplify and automate the reporting of standard views of activities in every function.

Planning and Process Improvements both suffer from a shortage of analysts capable of integration and interpretation of big data within a business context. The standards for business reporting reinforce old habits, rely on established metrics and existing interpretations, and thus miss cross-functional opportunities to share findings and develop new insights.

Is perspective and Interpretation hard to come by, or just hard to hear?

For example, to reach $150 million in annual sales, took Walmart 12 years and 78 stores. From its inception in 1994, Amazon took only three years. Further, Bezos reported 1998 net income remained close to zero as he his continuous focus on growth tirelessly plowed cash back into business development.  Not only did Amazon’s sales success patterns defy conventions of growth metrics, their unconventional use of data, analysis supports their creative capabilities and discoveries to understand what was contributing to their growth and working for their customers too.

In 1999, Forrester Research reported annual web retail sales as a whole jumped from $700 million to $20 billion, though it remained less than 1% of total retail sales. Growth was anything but linear—but the base too small to catch the eye of established, experienced retailers.

In 2001, Border’s CEO Greg Josefowicz was a very experienced and sophisticated retailer and no stranger to Ecommerce having come from Peapod. The fractional contribution of the chain’s online sales however led him to outsource the channel to Amazon. This was the same year, that Apple released the iPod. Unless you were closer to online data, and keenly understood its opportunity to track customer journeys and gain behavioral insights, chances are you too would have overlooked the value of further investment.

Image result for online vs in store customer journey

source: https://www.altocloud.com/blog/online-buyer-behavior.-what-we-can-learn-from-traditional-buyer-behavior

A 2016 interview with Michael Edwards, interim CEO Borders from January 2010 through its bankruptcy and liquidation in July 2011 revealed something else. Edwards buys into Fahrenheit212 philosophy that little can prepare you for wholesale disruption.  2010 was a period of widespread economic growth and US retailers sales were growing, but not uniformly; and not if you were in the book and electronics industry (aka ESMOH)—again hold that thought.

“The pivotal moment for me is when Apple launched the iPad,” Edwards said. “That foundationally changed the (book) industry forever.”Essentially, the iPad was a Borders in your hand. It had books, music and video. And people had access to millions of books.”

These hindsight claims made me wonder why Border’s didn’t feel any sales fallout from the iPod or Apple earlier, or when and why they misread Borders’ customers  change in shopping patterns?

Is your analysis reporting monitoring activity or action oriented?

What analysis and shared insights did Borders leadership encourage? Were traditional metrics misdirecting their strategic priorities and explain how their widespread physical presence was suddenly without value?

Remember the dominant narrative that Syerson and Horascu found?

Put that thought together with the analysts’ tunnel vision driven by elaborate ERP systems that accurately report established growth metrics. Monitoring Same Store Sales, Sales by channel or category breakdowns do reveal changes in shopping patterns, but are they actionable?  Even the Ecommerce reports from outsource vendor Amazon likely to include detail level data and helpful comparisons.

Different stories and trends emerge when analysis incorporates outside reference points. Benchmarking internal data to publicly available government statistics, for example, not just aggregate retail sales vs ecommerce but within their category might have raised alarm bells early.  Time pressures and priorities don’t have to stop anyone from creating a look similar to  Syerson and Horascu cumulative look.

What are you using to define your market and meet the needs of your customer?

Rethinking how to deal with consumers is more than a marketing plan it’s a strategic imperative.

At least that’s what Mike Edwards realized when he stepped up from the role of Chief Marketing Officer to help turnaround Border’s in 2010.

Conventional analysis techniques and formats don’t address deeper questions that test the validity of your strategy, or draw attention to important indicators affecting your results.

If you are a big retailer, and you moved online, you have big data. Macy’s and Sears both moved somewhat early to create an online presence before 2001. Maybe they saw online as an efficiency improvement to catalog sales, they still kept them independent of ongoing business activities.

Perhaps their experience relied too heavily on mass-market demographic information that large vendors like IRI made easy to digest.  Capabilities to analyze the flood of big data and the detail byte size moves of website visitors exceeded the capabilities of the most nimble and agile of digitally born players.

In 1998, the year Google was released, Wired reported the evolving capability of a website to gain intimate knowledge of their visitors. Excite, the leading search engine at the time, collected 40 Gigabytes of data daily in its log files based on 28 million daily Page Views. They only tracked directional patterns, though “for the first time, the continuously updated empirical evidence needed to assess relationships and deliver better experiences was available.”

A gap emerged between traditional marketing training and opportunities the web’s detail user journey tracking revealed. Do you appeal to demographic and assembled personas, OR are you responding directly to individual users’ needs?  This gap mirrored the unfolding of a larger competitive divide across all businesses and  further segregate online activities into separate operating units.

Bigger organizations’ centrally controlled decision making contrasted sharply with the emergent capabilities of online technologies and few recognized the important tasks required to rethink how to deal with evolving learning by their consumers and suppliers.  No problem for Excite, the leading search engine in 2001 and Amazon.   “Any active data we get, [Joe Kraus, VP of Excite explained] we put to instant use on the page…simulating personalization such as zip-code based weather forecasts.” Amazon without knowing any personal information, began to pass on simple recommendations based on the cookie data.

Cookies track specific behavioral data online, that was difficult to connect to purchase and profits, but still offered considerable strategic insights to anyone who took the time to look. Ironically, only a handful of advertisers possessed the technical and marketing experience with this growing data, which meant the playing field for ably using the information to optimize profits was wide open. Instead of investing and experimenting, many continued to apply the store sales success criteria to online sales.

Narrative Backstories: Perspective colors perception

I’m no retailer, but I did learn a few things from my father who created a handful of custom drapery stores that flourished in the 50s and 60s only to succumb to changing demographics in the 70s.

  • Purchasing frequency and customer loyalty aren’t accidental. Relationships build on more than serendipity.
  • Knowing your customer earns trust, most evident when your recommendations produce sales. Note, this approach doesn’t depend on markdowns or price drops to attract interest or make a sale.
  • Convenience is a perception not the reason passers-by cross the threshold (or click through).
  • Locations with heavy traffic create greater opportunity, sure, creative storefront displays (content) arouse interest or curiosity, and sales follow when entering visitors rewarded positively.
  • Invention matters but delivers greater value when balanced with conventional, basic goods and service options.

Drawing customers in, attractive presentation of merchandise has always helped successful merchants move what had to be moved. It’s been true for sellers regardless of their circumstance and environment.

Three longer term trends

Every trend has an origination point, successful analysts recognize the significance early because they often understand change as relative.  It’s easy to see the internet as a significant force today, but in the mid-1990s, analysis shown earlier documents  the case’s weaknesses and risks.

In 1995, Grace Mirabella, former editor of Vogue  broadens the context in her memoir In and Out of Vogue.  She describes dramatic shifts in the minds of consumers about department stores’ relevance compared to their hey day in the post-war period. 22 years later, her words don’t sound the least bit out of date.

“[B]efore malls and discount outlets and chain stores…[department stores] were the great halls of merchandise, and they provided an enormous variety of goods at much more varied prices than the present.  …each store aimed for a certain style, a certain specialty market, and a certain clientele, and you knew the minute that you walked into any one store, and smelled the perfume and saw the flowers and doormen or bargain tables, precisely where you were. “

Each family owned store’s attitudes and sensibilities she explains, accompanied the details that clued in customers, established unique contracts with manufacturers and made evident by the difference in merchandise they carried.  In the 1970s, Mirabella remarked on two major shifts:

  • Designers became all-powerful, cutting deals that promoted their name, and reducing retailers into commodity distributors who all carried the same things.
  • Consolidation by conglomerates followed.

“[The named department stores] started to take on the feel of the real estate ventures that they had become.  They lost their sense of purpose, of conviction.”[p. 45]

In 1994, Jeff Bezos, left his job as hedge fund manager for DE Shaw. Interviews reveal he spotted opportunity in the expanding internet, which led him to start the company he later names Amazon. His analysis skills suggest he was deeply familiar with another trend that began in the 1970s, one, that Mirabella in her backward look from her publishing perch misses–the evolution of Electronic Digital Interfaces (EDI) streamlining procurement.

In his first 1997 letter to shareholders, Bezos lays out his vision and writes:

“Today, online commerce saves customers money and precious time.  Tomorrow, through personalization, online commerce will accelerate the very process of discovery.  Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.”

Personalization historically differentiated the high end of the market. Sales persons kept coveted black books that contained intimate notations about their customers ranging from size, color and style preferences to  special occasion dates and family details. Amazon wasn’t the first to collect user data, and was by no means able to mine it and yet they produced “personal recommendations” beginning in 1998 without investing in developing complex analysis capabilities. That came considerably later.

They took a shortcut that other websites  noticed satisfied customers. Chris Bayer writing about personalization for Wired in June 1998 explains it this way:

“The trick is to use technology to achieve the same economies that you have in a mass-marketing model, while delivering some personalized messages to the consumer,” says Rex Briggs of Millward Brown Interactive. A less visionary goal than one-to-one, surely, but far more realistic. It’s called mass customization, and if you can get past the oxymoronic bounce, you can see that its possibilities are not lost on the consumer-products retailers who have carved out a market for themselves on the World Wide Web.”

In 1999, Academics Joe Pine and James Gilmore publish The Experience Economy continues to shape many retailers strategic perceptions.  Their thesis builds on the retailer narrative and emotions Mirabella evokes, and connects to my own Dad’s experiences as a lifelong retailer.  Experience, they explain is now the metaphor of choice.  What else summarizes the combination of factors that attract and convert a visitor into a loyal, frequent customer and/or influencer?  Keeping  experiences relevant and meaningful amidst the backdrop of rapidly changing forces that impact every aspect of your business model demands rethinking of the employee not just the customer experience.

Direct learning

Unlike the leading CEO retailers failing, Bezos shares more in common with the great merchandisers of the past.  His digitally born and situated store front owes its business growth to continuous, bold experimentation as well as deep analysis. I don’t know what metrics are commonplace at Amazon, but their investments in data analysis capabilities and machine learning are self-evident by the efficiency and sideline cloud business they produced.

The speed in which consumers change their behaviors prove challenging for every retailer, non-store or store.  The online e-tailers’ unique environment, fully equipped to capture detailed user journey references and history can use the same mechanics to deliver immediate responses ranging from mass personalization to levels of deeper customization.

Amazon’s strategy embraces the principles of continuous learning at its core to control every aspect of the buyer’s experience. Similarly Apple, another company with astronomical market valuations entered the retail market in order to control and enhance the buyer’s experience.  Today, both have physical presence that emphasizes service and consumer education.

Retailers who miss the ability to construct a holistic strategy, increasingly are dying in the evolution of  responses or deeper customized, delivering valuable feedback enabling the business to continually improve its offerings and willingly take risks associated with invention. Amazon learned quickly how to draw customers online, present the merchandise attractively and yes move what had to be moved.  He didn’t have to balance the demands of managing existing outlets, nor accept established practices associated with large scale distribution networks, instead he invented his future.

In 20 years of online commerce, only a few companies strategy match Chris Bayer’s  observation that “”serious” companies are rethinking the ways they deal with consumers, and the idea of  mass customization ….using the trick of technology to deliver a personalized message that isn’t really personal at all.”

ARTICLES

Reframing Growth Strategy, Sloan MIT Review

http://sloanreview.mit.edu/article/reframing-growth-strategy-in-a-digital-economy/


Contrast in transition: Sears and Macy’s

https://centricdigital.com/blog/digital-strategy/how-sears-and-macys-are-transitioning-into-an-improved-digital-strategy/
Macy’s relationship trouble with Luxury brands

https://www.bloomberg.com/gadfly/articles/2016-08-11/macy-s-earnings-relationship-trouble-with-luxury-brands


Five Trends driving traditional retail towards extinction

https://www.forbes.com/sites/jjcolao/2012/12/13/five-trends-driving-traditional-retail-towards-extinction/#11487bd51efd

 

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What strategy will help Coca Cola and McDonald’s continue to Grow?

Publié le 25/03/2010 à 23:33 par papillondereveMcDonald’s and Coca-Cola, two of America’s most iconic brands were the focus of the January 2015 discussion.  Why pick on them?

  1. The market has been digesting repeated disappointments over quarterly earnings and fueling speculations about their future.
  2. The availability of ample data and a broad set of analyses serve up a perfect opportunity to further our own understanding of the strategic challenges related to sustaining growth.

Typically, most organizations begin a strategic assessment with a simple SWOT analysis.  Instead,  we followed the Chicago Booth tradition and began with a look at available data.  We reviewed a  series of articles before discussing these two companies’ prospects for future growth. (Click here for the links and discussion preview.)

Both companies offer evidence demonstrating how their history and initial value proposition continues to dictate their forward strategic paths. Or as Michael Porter would say,

“Strategy 101 is about choices, you can’t be all things to all people.”

Once you decide whether your organization will be a cost or benefit leader, aligning your resources and messaging becomes simpler. Price doesn’t fully substitute for quality, and consumer preferences are not always consistent. An organization’s successful growth demonstrates it’s priorities and reflects its consistency to deliver on its commitments to customers and their preferences centered around price or quality.

McDonald’s and Coca-Cola sensibilities and capabilities embody the management principles of post war industrialization. The hallmarks of efficiency embodied by these two brands commanding distribution networks reflect their unwavering commitment to quality, consistency and convenience. Each however has defined value differently in the eyes of their customer which further enabled their brand’s rapid, organic growth.

McDonald’s initial automation and efficiency enabled it to deliver meals affordably, conveniently,consistently in an atmosphere that maintained a high standard of cleanliness equal or better than its competition. In 1953, these standards proved themselves effective differentiators.

Coca-Cola chose to deliver on the benefit side, historically limiting its physical assets and focusing on relationships, advertising and consistency around quality.

Operating within the boundaries of these original value proposition, both brands performance over time demonstrates how their responsiveness and sensitivity to regional differences and changing customer sensibilities allowed them to continuously add value and grow. Each brand’s commitment to experimentation and innovation proved central to fueling organic growth. Further,  their individual strengths allowed them to leverage new ideas, even when introduced by competitors.

TaB adIn 1963, Coke’s introduction of TaB followed the success of Diet Rite Cola, a first entrant in the sugarless soda category. In 1962, McDonald’s introduced the Filet-o-Fish as a meatless alternative for observant Catholics following the suggestion of an Ohio Franchisee responding to local competition

Eww Arch Deluxe ad For each, their share of successes also included colossal failures. Who can forget New Coke, or McDonald’s Arch Deluxe? Per Daily Finance.com these two were the #1 and #4 biggest product flops of all time. Both however learned from these experiences and were quick to renew the good faith of their customers and keep growing.

That is until now.

The value defined by their strengths, brand status advantages and considerable market dominance delivered significant success, but now cloud their vision and impede their path to future growth. After all, what’s really left for them to tweak? What haven’t they tried and learned?

Beyond Strength

Both companies continue to demonstrate long term value for their shareholders.  Each provide great capital returns and margins.

  • Coca-Cola has paid a rising dividend since 1963 and has a current yield of 2.88%.
  • McDonald’s has paid a dividend since 1976 and has a current yield of 3.72%.

Each holds the leadership position in their category, continue to show signs of forward thinking and planning at levels of coordination and integration that few companies achieve. Their initiatives, irrespective of success rates are also lessons and templates offering competitors a looking glass into the future.

According to data from the National Restaurant Association, fast food accounted for about 28% of the $683.4 billion in overall U.S. restaurant sales in 2014. The Palo Alto Medical Foundation reports that 25% of Americans eat at fast food restaurants every day.  . Quick Service Restaurant (QSR) magazine identified McDonald’s as the world’s biggest restaurant chain by revenue-$36B in US sales in 2014.  This equates to an estimated 18.6 percent market share of the entire fast-food industry. (Per IBISWorld market research 2014 as reported by franchise chatter.)

“McDonald’s stands for value, consistency and convenience,” says Darren Tristano at Technomic,”and it needs to stay true to this. Most diners want a Big Mac or a Quarter Pounder at a good price, served quickly. And, as company executives now acknowledge, its strategy of reeling in diners with a “Dollar Menu” then trying to tempt them with pricier dishes is not working.”

Just as McDonald’s typifies the fast food industry, Coke is the soda industry, or as Mike Weinstein, a former president of A&W Brands told Business Week,

  “Whatever Coke does, it’s seen as what the soda industry does. What happens to Coke eventually happens to everyone.”

And So?

The strengths of these two brands and value propositions sound good for McDonald’s and Coca-Cola. Their future growth however depends on just how they renew their efforts and focus and capitalize on their key strengths. The forward position challenges you to see and respond to changes  in your business environment faster. Their sheer size and market share visibility also make both more vulnerable to wider market pressures.  Especially in the U.S., where both companies current experiences and declining sales volume indicate they somehow misread the significance of changing American attitudes  around nutrition and choice.  For example,  the 3% decline  in 2013 of the entire carbonated drink market in the U.S. hurt both companies’ sales.

For Coca-Cola, the emergent energy drink category displacing their sales creates challenges for which they  have not had an effective response.Similarly, the alternative fast growing Fast Casual category represents McDonald’s biggest threat. Further growth in this category limits further expansion in the corresponding Fast Food category, and McDonald’s too has yet to effectively compete.

In addition, both new categories prove highly appealing to millennials whose behavior and preferences some analysts contend prove influential to other segments. No wonder both brands chose to leverage their considerable resources around what they know. Each reportedly are investing $1bilion in advertising in efforts to re-establish awareness among this key market segment.

Holding the value of your brand

Interbrand’s 2014 Best Global Brands
2014 RANK 2013 RANK BRAND SECTOR 2014 BRAND VALUE (USD $billion) % CHANGE IN BRAND VALUE
1 1 Apple Technology 118.863 21%
2 2 Google Technology 107.439 15%
3 3 Coca-Cola Beverages 81.563 3%
 ….   ….
24 22 Pepsi Beverages 19.119 7%
38 37 Nescafe Beverages 11.406 7%
72 69 Sprite Beverages 5.646 -3%
….   ….
9 7 McDonald’s Restaurants 42.254 1%
68 66 KFC Restaurants 6.059 -2%
76 91 Starbucks Restaurants 5.382 22%

Source: Business Wire, Oct, 9, 2014

As shown above, in 2014 Coca-Cola’s increased its estimated brand value of $81.56 billion 3% from 2013 permitting it to hold it’s #3 position a second year in a row. This is after losing the #1 spot it held in 2012 and a decade long decline of American soda sales. Their continued brand dominance reflects the impact of their recent marketing, acquisition and diversification strategies.  Business Week explains it this way:

“In 2007, Coke found that 20 percent of the sales and 50 percent of the growth in the $120 billion beverage industry came from small, independently owned brands, a third of which hadn’t existed five years before. That year, Coke launched its Venturing & Emerging Brands (VEB) division to cultivate relationships with and ultimately purchase some smaller startups.”

In Contrast, McDonalds estimated brand value of  $42.2 billion increased only 1% over 2013 reflected its slowing growth and dropped it to #9,  down from #7 position it held in both 2013 and 2012. (Note the distance between these icons and their nearest category competitors shown for comparison).

The marketplace loves a good story of failed leadership. When the mighty fall the press and public are quick to pounce and in some ways, fresh eyes and alternative experiences and optimism may prove more than beneficial. Will activist investors get their way?

Then again, in taking a close look at the fundamentals of size and respective asset valuations our disccusants were reminded of the difficulties around sustaining organic growth.

Below you’ll find the participants takeaways following our most recent discussion. Read the articles, see if you agree. After our usual wrap-up, you will also find a series of simple questions we plan to raise with a few folks with deeper knowledge and a more intimate understanding of McDonald’s.  We will post their responses when they arrive.

TAKEAWAYS

  • The one size fits all notions that produced cookie cutter efficiency and passed on volume savings to maintain quality suited the growing quick service restaurant category, when there were few comparable alternatives. Today, the US market especially its urban centers, reflects far greater diversity in the category. The growing variation along the price value continuum illustrates the market’s response to changing attitudes, palates and preferences of consumers as well as differentiating  perceptions. Use your strengths to build alternative restaurants, maybe tailoring them  to regional preferences and further diversify your portfolio holdings.
  • Separate the brand from the occasional value meal inspiration.  Sure everyone appreciates getting the best value for the lowest price, but it’s difficult if not impossible to deliver differential value messages within the same location as in the value meal combination vs. purchasing off the dollar menu. Turn your attention to differentiate your value relative to your competitors at similar price points.
  • The strengths that prove appealing to shareholders don’t indicate your understanding of individual customers.  Declining customer counts along with infrequency of return visits suggests the absence of resonating experiences necessary to meet the demands of the increasing segmentation within your broader competitive category. How can you continue to benefit from your existing strengths? Pare down your menu further to deliver the essentials of what your core customers want, assuming you really understand who that is.  Once you do, use a loyalty program to reward them and keep closer tabs on their responses as you continue to test.
  • If increasing customer price points is key to your growth equation then you also need to offer higher value for the price in order to avoid losing the core brand identity.  Obviously in rural areas where the choices are fewer, you retain a firm grip on the market and can delay changes. Unless the $1 menu, or $1 menu plus offers acceptable margins you may need to find alternatives to pass your volume discounts on to consumers.
  • Separate supply and demand functions as you manage the business going forward.  The benefits from your superb asset management capabilities on real estate, currency risk and supply chain have been impeccable and thus puzzling to watch your miss on the demand side. Are there lessons in creativity and management that could prove helpful?
  • The proliferation of segmentation in the marketplace let alone in your customer base requires a more innovative approach than mere brand building activities offer. In focusing on the customer experience you may miss aligning around your core identity. Another reason it may pay to try an alternative diversification strategy through new restaurants, concepts that don’t compromise but complement the existing franchise.
  • One of the problems of being so big and maintaining a healthy distance from your nearest competitor means you were insulated from the small ripples of changing sentiment that others were quicker to seize upon.  Your crumbs became their meal and growth ticket.  In order to get out front again, you may need to get much closer to your customers, and surprise them, delight them or even choose to get cozier with your competitors again to find a way to grow the category together.

Concluding remarks:  We know we didn’t discuss Big Data or social media or even mobile so there’s plenty of things we missed in 90 minutes. Please, share your suggestions or comments on what you find to be effective growth strategies for market leaders who seem to have hit the end of their runway.  We’d love to hear from you.