McD's wrestles with marketing miscues

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Following its sixth straight quarterly earnings decline, McDonald's Corp. heads into its annual shareholders meeting May 23 with a mammoth task-to show it has the right strategy and the right team to overcome operational struggles, marketing miscues and a saturated industry landscape.

The meeting comes as systemwide sales grew a paltry 1% to $40.6 billion last year, and net income fell 17% to $1.6 billion. Moreover, McDonald's has been losing market share since 1999 while some rivals, most notably Wendy's International, have gained, according to industry consultant Technomic.

No doubt newly re-upped CEO Jack Greenberg will spell out a sunny growth plan for the Golden Arches despite recent admissions at last month's worldwide franchisee convention that he's not satisfied with operations or marketing.

"McDonald's is extremely committed to growth," said Mats Lederhausen, exec VP-strategy and business development at the Golden Arches. Central to the company's future, he said, is a three-tiered strategy: execution, expansion and extension, with a heavy emphasis on the first. "It's fair to say we are not happy with the way we execute in the U.S. restaurants," he said.

With the current market saturation in mind, Mr. Lederhausen said that although the company will continue to build new stores, it will focus more on driving global revenue via existing stores and accelerating specialty concepts like McTreat and McSnack and partner brands like Chipotle to increase meal occasions. It will also enhance service with self-order kiosks and cashless payment systems.

`have the ability'

"We have the ability, management and staff to drive same-store sales and build new stores," he said. "If we don't we should be fired."

More importantly, he said McDonald's, the country's 17th largest U.S. advertiser, with $1.3 billion in 2000 spending, has a new, intensified focus on the brand. "It's a lot less about advertising than what people may think," Mr. Lederhausen said. "When people enter our restaurants, they enter our brand. We have to focus on what we do to deliver the brand promise."

Repairing marketing may be a tougher task. Last month, Mr. Greenberg told franchisees "marketing was broken" and said the company was searching for a global chief marketing officer (AA, April 25). Company executives declined to comment, but several executives with knowledge of the recruiting efforts said McDonald's has yet to identify how this post would fit into the corporate structure.

Earlier this month, the chain summoned alumni from its heyday to help spell out how to fix brand McDonald's. Described as a "boot camp" by one attendee, the meeting was attended by two retirees-former Chief Marketing Officer Paul Schrage and Chief Creative Officer Roy Bergold-which does not signal great confidence in McDonald's current marketing leadership. A spokesman said McDonald's has "enormous confidence" in its team.

Meanwhile, even as it seeks to hire a global chief marketing officer, two executives close to McDonald's say the chain is negotiating to rehire Steve Nubie, formerly Mr. Bergold's No. 2 man, to be a peer to his successor, Chief Creative Officer Marlena Peleo-Lazar, as VP-Brand in the international division. Mr. Nubie, who has consulted with the company since leaving in 1998, declined to comment. "We have no confirmation of that," said the spokesman.

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