McDonald’s Poor Profits

During the 1990’s, McDonald’s was facing a severe crisis as it lost US market share to competitors and as a result, franchisees started complaining of poor profits. Every new product started by McDonald’s turned out to be flop and there seemed to be disconnect between the management and customers. There were also a number of problems between the management and the franchisee owners. The company seemed to be at loss to find a winning strategy.

As a result, the stock prices plummeted and had it not been for robust sales in foreign markets, McDonalds might not have been able to recover.

The company seemed to have learned from this crisis, and its present strategy is much sounder. It is regaining market share and in 2008, it posted strong results with the operating income in US market increasing by 8%. Obviously the organization has made some major strategic changes to achieve these results.

Unlike the 1990s strategy of opening a number of stores which resulted in declining same-store sales, McDonald’s current strategy is “being better, not just bigger”.

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In 1990s, McDonald’s introduced a 55 cent burger which was a major flop. However, dollar menu currently selling at McDonald’s is a big hit. After much trial and error, the firm has found the right nerve of paying public. The biggest problem that the company faced in 1990s was that of franchisee owners. Back then, the franchisee’s found it very difficult to contact headquarters and there were a number of bureaucratic issues.

The company has improved its franchisee’s relations and franchisee owners can now directly contact the head office and get support. Having good relations with franchisees and limiting the number of stores has helped McDonald’s regain its market share. McDonald’s seems to have found the formula of success: understand what the customer wants and maintain good relations with the franchisees. By taking these simple steps, McDonalds has succeeded in reversing the negative trends it saw in 1990.