A New Column by Marketing Guru Al Ries


The Myth of Never-Ending Growth

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"We have to grow the business" is usually the first public statement from a new CEO.

Growth solves all problems, goes the current thinking.

So the CEO sets the target for next year's sales increase. Five percent, 10%, 15%, depending on how aggressive the new chief executive is.

Even if a company misses its target, a "stretch goal" is considered to be a good thing. As Leo Burnett once noted, if you reach for the stars, you may not get any stars, but you won't wind up with a handful of mud, either.

Mathematically impossible
When you look at the situation from a mathematical point of view, a stretch goal may not be such a good idea after all. Except for small increases made possible by increases in population and in the consumer price index, never-ending growth is mathematically impossible.

Fifteen percent annual growth over a 50-year period would mean that sales in the last year would be 1,083 times the initial period. While this might be possible for a startup, it's

physically impossible for any mature company.

Sooner or later, a mature brand (not company, but brand) reaches an optimum point where further growth can come only from population and consumer price index increases. Recognizing this fact will solve many marketing and management problems.

Per-unit sales
Take McDonald's, for example. Per-unit restaurant sales in the U.S. have been essentially flat the past nine years.

1993: $1,550,000
1994: $1,577,000
1995: $1,538,000
1996: $1,439,000
1997: $1,399,400
1998: $1,458,500
1999: $1,514,400
2000: $1,539,200
2001: $1,548,200

In other words, domestic sales last year (on a per-unit basis) were actually less than they were in 1993.

What has McDonald's management done in the past nine years to try to "grow the business?" They have spent heavily on new menu items,

new cooking equipment and new promotions. All supported by massive consumer advertising programs. (Over the past nine years, McDonald's has spent more than $5 billion on U.S. advertising.)

$1.5 million optimum?
Maybe, just maybe, a McDonald's restaurant of a given size and location has reached its optimum sales level of about $1.5 million a year. McDonald's has nothing to be ashamed of. The average Burger King unit does only $1.1 million in the U.S.

Suppose this assumption is true. Suppose McDonald's has reached its optimum sales level. What are the implications for McDonald's strategy?

McDonald's should reduce its menu options, reduce its advertising budget and reduce the number of its consumer promotions. The goal should be to try to maintain that $1.5 million a year per-unit average while reducing expenses and increasing profits.

Does that mean that the McDonald's Corp. should give up on growth? Not at all. They always have the option of introducing new brands that could go through the same cycle of (a) startup, (b) accelerated growth and (c) maturity.

There is a time to grow and a time to take your foot off the accelerator. Now might be the time for McDonald's and other brands in similar situations to face that reality.

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Al Ries is the author or co-author of 11 books on marketing, the most recent of which is The Fall of Advertising and the Rise of PR. He and his daughter Laura run the Atlanta-based marketing strategy firm Ries & Ries.

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