The challenges facing McDonald’s

Chick-fil-A is one of many competitors taking business away from McDonald's.

Chick-fil-A is one of many competitors taking business away from McDonald’s.

by Dan Rafter

McDonald’s has long been important to the Midwest. The golden arches dominate the fast-food industry in the Midwest’s major cities. And the company’s headquarters is located right outside of Chicago, in the suburb of Oak Brook, Ill.

That’s why it’s such bad news for the region that the fast-food giant is struggling through such tough times.

News outlets across the country reported a pair of shocking news items: First, Don Thompson, chief executive officer of McDonald’s, announced that he will retire from the company as of March 1. Steve Easterbrook, the company’s senior executive vice president and chief brand officer, will replace him. The move wasn’t overly shocking: Thompson had been under pressure as McDonald’s sales continue to fall.

More surprising? On the same day that Thompson announced his upcoming retirement, McDonald’s announced more than 100 layoffs at its Oak Brook headquarters.

Becca Harry, a spokeswoman, said in a written statement that McDonald’s officials decided that it was time to adjust how it invested its time and resources. This meant eliminating positions at its headquarters building.

It’s been a rough month. Earlier in January, McDonald’s eliminated 63 additional employees at its Oak Brook headquarters. It’s not certain that the layoffs announced yesterday are the last, either.

Upscale grocers like Trader Joe's are providing a different form of competition for McDonald's.

Upscale grocers like Trader Joe’s are providing a different form of competition for McDonald’s.

The financial numbers for McDonald’s are grim. The Wall Street Journal reported on Jan. 23 that McDonald’s earnings fell 21 percent in the fourth quarter of 2014. Customer traffic at McDonald’s restaurants dropped 3.6 percent across the globe and 4.1 percent in the United States.

So, what’s behind the chain’s slump? McDonald’s officials have put part of the blame on the chain’s overly broad menu. And late last year, McDonald’s did take steps to reduce the size of this menu.

But the bigger threat? The rise of fast-casual restaurants — many offering healthier alternatives — is placing significant pressure on McDonald’s. Chipotle Mexican Grill is drawing customers away from McDonald’s, as are more upscale sandwich chains such as Five Guys Burgers and Fries and Smashburger. And here in the Midwest? You can bet that the popularity of Chick-fil-A is having an impact. Every time a new Chick-fil-A opens in a Midwest market, it attracts local headlines. When was the last time the opening of a new McDonald’s has attracted that kind of attention?

When a Mariano's opens, it generates excitement. Does this happen when a McDonald's opens?

When a Mariano’s opens, it generates excitement. Does this happen when a McDonald’s opens?

At the same time, upscale grocery stores — places like Trader Joe’s, Mariano’s and Whole Foods, all of which are expanding in the Midwest — are offering healthier pre-made meals that parents can pick up on their way home from work. Instead of going to McDonald’s for a batch of chicken nuggets, they’ll hit their local gourmet grocer for fresh salad and roasted chicken.

It all adds up to a continued challenge for McDonald’s. If the restaurant chain wants to see same-store sales grow again, it will have to adapt. How will it do this? That remains to be seen.

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