{"id":3852,"date":"2012-07-27T10:12:49","date_gmt":"2012-07-27T00:12:49","guid":{"rendered":"http:\/\/blogs.unsw.edu.au\/knowledgetoday\/?p=3852"},"modified":"2012-07-27T10:12:49","modified_gmt":"2012-07-27T00:12:49","slug":"bigmac","status":"publish","type":"post","link":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/blog\/2012\/07\/bigmac\/","title":{"rendered":"A Big Mac Setback"},"content":{"rendered":"

From the Knowledge@Wharton today\u00a0blog<\/a>.<\/strong><\/p>\n

It\u2019s enough to give management at McDonald\u2019s heartburn: On Monday, the company announced that its second quarter earnings fell 4.5%<\/a>, reporting a profit of $1.35 billion compared with $1.41 billion a year earlier. \u00a0<\/p>\n

McDonald\u2019s is the world\u2019s largest hamburger chain \u2014 it has 33,000 stores operating in 119 countries \u2014 and is viewed as a bellwether for the global fast food industry. Until recently, it also was seen by analysts as recession resistant, given the nature of its offerings \u2014 value-priced meals. What went wrong? According to Larry Hrebiniak<\/a>, an emeritus professor of management at Wharton, the firm is suffering from the same conditions that \u201care plaguing other companies around the globe: a weakening global economy, especially in Europe; a stronger dollar worldwide, which in McDonald\u2019s case cut an estimated seven cents a share from earnings; rising commodity costs; and increasingly frugal customers, not only in Europe but in Asia, Africa and the Middle East as well.\u201d<\/p>\n

Given those factors, and the likelihood that the recession will continue, the company does have cause for concern, Hrebiniak notes. However, he adds that sales in the U.S. during the same period were up 3.6%, and \u201cinvestors are still hot for what McDonald\u2019s is doing, with some Wall Street analysts espousing a \u2018buy\u2019 rating for the dividends-producing machine. Other food chains are also feeling the pressure, and McDonald\u2019s is holding fast against the vast majority of them. The company shouldn\u2019t relax, but it shouldn\u2019t panic, either.\u201d<\/p>\n

The chain has made recent efforts to appeal to a wider array of customers, an article in The Wall Street Journal<\/em><\/a> points out. In early summer, McDonald\u2019s introduced a new Cherry Berry Chiller smoothie, and it launched a \u201cfavorites under 400 calories\u201d campaign to attract more health-conscious consumers. And for the cost conscious, it plans to introduce value menus in Japan and Australia, while keeping prices as low as possible in other regions.<\/p>\n

It also has expanded its specialty coffee drink offerings to lure customers away from higher-priced coffee houses, like Starbucks. According to one analyst<\/a>, higher margin specialty drinks now account for 10% of McDonald\u2019s sales in the U.S.<\/p>\n

But Hrebiniak is not so certain that McDonald\u2019s should stray very far from its roots in an attempt to capture more consumers. \u201cWhat it should do is basically stick to its knitting and continue to do what it has always done best \u2014 control costs and provide low-priced meals that customers enjoy. A real danger would exist if the company tried to expand products in an attempt to be all things to all people. Selling high-priced coffees and exotic drinks may be exciting in the short term, even profitable, but the danger over the longer haul is that too many new, exotic products may eventually detract from the McDonald\u2019s brand and put the company in increased competition with other established, well-known companies, such as Starbucks. Product variety is nice, but excessive product diversification also holds dangers.\u201d<\/p>\n

Meanwhile, the appeal of McDonald\u2019s popular, longstanding offerings like its Big Mac probably won\u2019t wane any time soon. Hrebiniak himself notes that he plans to eat one today.<\/p>\n

This blog was previously posted in Knowledge@Wharton today\u00a0blog<\/a>: A Big Mac Setback<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

From the Knowledge@Wharton today\u00a0blog. It\u2019s enough to give management at McDonald\u2019s heartburn: On Monday, the company announced that its second quarter earnings fell 4.5%, reporting a profit of $1.35 billion compared with $1.41 billion a year earlier. \u00a0 McDonald\u2019s is the world\u2019s largest hamburger chain \u2014 it has 33,000 stores operating in 119 countries \u2014 […]<\/p>\n","protected":false},"author":336,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12809,12668],"tags":[],"class_list":["post-3852","post","type-post","status-publish","format-standard","hentry","category-economics-2","category-knowledge-today"],"_links":{"self":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/3852","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/users\/336"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/comments?post=3852"}],"version-history":[{"count":2,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/3852\/revisions"}],"predecessor-version":[{"id":3854,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/posts\/3852\/revisions\/3854"}],"wp:attachment":[{"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/media?parent=3852"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/categories?post=3852"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.unsw.edu.au\/BTOpinion\/wp-json\/wp\/v2\/tags?post=3852"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}