McDonald's Real Trouble: It's Losing Millennials

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Unstoppable McDonalds
AP/Charles Rex Arbogast
McDonald's (MCD) is still the king -- sorry Burger King (BKW) -- but a lot of competitors are making it's reign uneasy.

The company is losing ground among a key demographic -- people in their 20s and 30s. These young consumers, who often have young children, have long been the foundation of McDonald's empire.

While millennials have not entirely abandoned McDonald's, they're much more willing to try new things -- especially fast-casual restaurants such as Chipotle Mexican Grill (CMG), Panera Bread (PNRA), Five Guys and others.

"Those are the brands that are seeing the greatest amount of growth right now," said Rich Shank, senior consumer research manager at Technomic, a restaurant consulting firm.

At the same time, McDonald's has been stagnating, raising questions about its dominance. A key measure of sales at its more than 14,000 U.S. restaurants has been consistently flat or slightly lower over the past year, compared the numbers from a year earlier. While the Golden Arches has stagnated, its competition has grown in terms of sales and the number of restaurants. Technomic says the number of fast-casual restaurants in the U.S. has more than doubled over the past decade, while the number of McDonald's outlets has increased only slightly.

The latest in a series of brand tracking surveys by Technomic finds that McDonald's has not been growing its base. Shank says millennials have taken advantage of the tremendous growth in restaurant options. A recent Consumer Reports survey found that consumers are also demanding better food quality and healthier options. "A lot of younger diners go out of their way for a tastier meal," according to Tod Marks, senior project manager at Consumer Reports.

The magazine ranked McDonald's last among the 21 burger restaurants on the survey list.

Analysts say that millennials are driving a lot of the consumer ingenuity in food industry, thanks to their willingness to pay up for better quality meals.

But this is hardly the first time McDonald's has faced a serious threat. "Around 2000, they faced a similar slump and they had a fairly successful time before and during the recession," according the Shank, as the company emphasized value. "And in 2004, they were getting beat up with the 'Super-Size Me' phenomenon, but they focused on food quality, launched McCafe, refreshed the brand."

He says the fast food industry needs to recapture some of that excitement and innovation, and he thinks it will. "We're fairly optimistic they'll figure things out, based on past performance."

In fact, McDonald's is working to shed its reputation for serving cheap, unhealthy food, and improve how it's perceived by younger consumers. It recently rolled out chicken and vegetable McWrap sandwiches, as well as egg white substitutes in its breakfast sandwiches.

And earlier this summer, the company opened what the company calls a "learning lab" at a restaurant in California to experiment with various menu items.

"McDonald's gets beat up," said Shank. "People rate their brand lower than others, but they still go there quite often. McDonald's has nostalgia behind it which is quite powerful." Despite its troubles, McDonald's remains one of the most recognizable brands in the world.

"People will go to Panera when they want a salad," according to Shank, "but they'll still go to McDonald's when they want a burger and fries."

He adds that McDonald's has been in this position before and it has the resources to steer the ship in the right direction. "I wouldn't count them out," Shank said.


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mychaelalchemy

I never liked their burgers, take away all the garnishes and the meat is like pulverized, reformed cardboard, and used ot have chewy bits of cartilage or something. The fries were once the best out there, but no more, nearly tasteless. The bacon agg and cheese biscuit, my favorite of all thing McD's, is $3 for one small biscuit. I recall a much cheaper price once. much cheaper. It is too high for what you get.

August 27 2014 at 6:20 AM Report abuse +1 rate up rate down Reply
1 reply to mychaelalchemy's comment
mychaelalchemy

I could go to a diner and get a BIG plate of food for around $7, tastier, too...McD's is more expensive for so little.

August 27 2014 at 6:25 AM Report abuse +1 rate up rate down Reply
alfredschrader

It's become bland. The shakes are 50% modified food starch, not milk and ice cream.

August 27 2014 at 5:08 AM Report abuse rate up rate down Reply
bucs146498

There food is just a smidge over a can of dog food,They changed the menu and tried different things all the while ignoring the staples. Big Mac,Quater Pounder and Filet o Fish were set on the back burner along with thebreakfast staple Egg McMuffin as well.They are the foods that brought us all to Mcdoalds many many years ago,not the salad,or 1 of the wraps they have tried as there food today would send you to jump off the flat edge of the world.I grew up in the 70,s and 80,s on McDonalds with the only issue back then being they put onions on all the burgers they had They seemed to change in the 90,s food

August 27 2014 at 1:51 AM Report abuse +1 rate up rate down Reply
Toray99

Mcdonalds food totally sucks. I have never liked it. Everything is pre-packaged. Frozen hamburgers, biscuits etc. I hope America wakes ups and sees that this restaurant chain has had its day and time to change your food and lower your prices. Its ridiculous spending almost 5 bucks for just the sandwich that tastes like cardboard and fries that really taste aweful where salt doesn't do it any justice.

August 27 2014 at 12:11 AM Report abuse +1 rate up rate down Reply
1 reply to Toray99's comment
kng20

I visit MD about once every 2-3 months and latley its been even longer. Their Burgers are terrible.

August 27 2014 at 3:41 AM Report abuse +1 rate up rate down Reply
n2tangles

I think McD's has done a fabulous job with it's breakfast menu, adding healthier options and keeping the prices reasonable. What I can't see is going to McD's and paying almost $7.00 for a chicken sandwich meal, for that price I can go to any number of places and pay that price. I think the price point is the issue???

August 26 2014 at 11:59 PM Report abuse +1 rate up rate down Reply
dracura94

McDonalds needs to learn how to make tasty hamburgers. Every time I try to enjoy a McDonalds Hamber - which is seldom - it becomes very clear why a BK Whopper - without cheese is always the better choice. Whoppers taste like a burger made at home. I imagine flame broiling is the solution. I knew a family that began building a McDonalds empire in the mid 1960s. Back then it was good. Unfortunately McDonalds "food technology" has made the product worse with time. The solution is so simple it is beyond the decision makers comprehension. They sell this fabricated crap and spend a fortune on adverstising whose impact is supposed to offset the horrid taste.

August 26 2014 at 10:34 PM Report abuse +1 rate up rate down Reply
dingo8yrbaby

I've noticed no problem with employees, its just the food. Like they say in the article, it has a reputation for unhealthy, artery-clogging food. I'll go there for breakfast if I'm in a hurry, but I haven't eaten a Big Mac or a Quarter Pounder in years. My kids never ask to go there, either. They prefer to eat at sit-down places like Chipotle or Noodles and Company. They might have established a healthy menu, but I'm unlikely to know about it.

August 26 2014 at 3:25 PM Report abuse +1 rate up rate down Reply
freshmurj

The restaurants are filthy, lazy employees and managers refuse to clean, or pretend they don't see, especially the bathrooms, gross! It's everywhere, I seldom see a clean Mcdonald's.
Try hiring some normal, middle class folks instead of people with a chip on their shoulder that can't put two sentences together. You get what you pay for McD's. That's why sales are down, it ain't rocket science.

August 26 2014 at 1:33 PM Report abuse +1 rate up rate down Reply
1 reply to freshmurj's comment
gee.effwye

Minimim wage....obama's middle class.

August 26 2014 at 3:04 PM Report abuse -1 rate up rate down Reply