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McDonald's beefs up
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November 12, 1997: 7:36 a.m. ET
Fast food behemoth plots new technology, regional marketing
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NEW YORK (CNNfn) - Fast food giant McDonald's Corp. announced new sales initiatives Tuesday after reporting disappointing earnings earlier in the week. The burger chain is re-evaluating its marketing strategies and plans to introduce new technology aimed at faster service. McDonald's Chairman and CEO Michael Quinlan appeared on CNN's "Moneyline with Lou Dobbs" to discuss his company's vision for 1998. Following is a partial transcript.
DOBBS: First of all, let me ask you about your decision to announce earnings targets. That in itself is a departure. Why the decision?
QUINLAN: Well, we thought it was time to be very, very candid with our analyst community and let them know what our long-term plans were, and we feel very good about them. So we picked a target of somewhere between 10 and 15 percent EPS growth over the next five years -- and we feel very, very confident that we can achieve those goals, when we look at all the things we have going, not only in international but also some of the initiatives we're planning here in the U.S.
DOBBS: Now you have had a number of marketing problems [including the Arch Deluxe and the "Campaign 55" advertising strategy]. How are you going to deal with that? How are you going to reverse the marketing problem that you've got ?
QUINLAN: The marketing problem we had basically centered around the Campaign 55 which came out of the blocks very, very slowly, and then we pulled it after a couple of days. The customers were telling us that they thought it was a bit confusing, so we pulled it. We've decided to retrack our marketing starting in 1998 in the U.S. We've retained DDB Needham, our new advertising agency, and we're going to shift more of the marketing effort toward brand advertising on a national level, letting the local markets carry more of the value-oriented message. Our licensees, who I think the world of, have been asking for value-oriented advertising, and we're going to give it to them and let them take the ball on a local basis.
DOBBS: Now no company is considered better or brighter in marketing to the consumer than McDonald's has been. What have you learned from the experience? What is your foundation for going forward?
QUINLAN: Our foundation for going forward is to take the world's strongest restaurant industry brand -- in fact, we were just rated the number one most recognized brand in the world -- and play to our brand strengths, using the brand power that we have not only in the U.S. but around the world and letting the value message be carried right along with it. We think this is a very, very powerful message. Our consumers are telling us that's what they expect us to do, so we're going to give it to them.
DOBBS: Now you mentioned the franchisees. Some of them in near revolt against McDonald's. What are you going to do specifically to appease them and to move ahead?
QUINLAN: I think the 5,000 owner/operators or licensees we have around the world are one of the strongest attributes of our company. We've been a franchising oriented company since our foundation. We have 2,800 licensees here in the U.S., and by and large they are a terrific group. They're well financed, they're aggressive, they're entrepreneurial, and they're bonded very, very closely with the company. They're aggressive, and we like that relationship. It's a good symbiotic relationship.
There's a few disgruntled people. In my opinion, most of them are disappointed that they haven't received new stores, but I think they're in the minority. We have several operator organizations that we think give them very, very good representation. So, all in all, I'd say our relationship with our licensees is terrific.
DOBBS: Well, now market share has slipped over the past year. Those franchisees and Wall Street analysts alike are looking for new products. You've said that you're not going to introduce any new products over the next year or two. Why is that?
QUINLAN: Our market share around the world is climbing very, very strongly, Lou. We've got about 40 percent of the outlets but 60 percent of the sales. Here in the U.S., market share was down just a squiggle last year and our reports this year tell us that it's back up on a year-to-date basis.
As far as new products go, we're working with some regional products right now and some flavor promotional products, and I think in 1998 you'll see a bit more regionalization of promotional and variant flavor products that will be tailored to the local tastes.
DOBBS: Now, Mike, a lot of people are talking about the company being in transition. A lot of cultural events are taking place, with more emphasis being placed on healthy foods, even in fast food. How do these marketing issues fit into your vision at this point as you move to 15 percent EPS growth and bring back those franchisees, make them happy, and keep your consumers happy? Give us your vision of the next few years.
QUINLAN: Well, my vision, if you go forward five years, is that we'll take a company that's the premiere company in the QSR industry in the world and make it even more so. When I look at our awesome strengths around the world, I'm very, very encouraged by our ability to grow carefully and with good returns for the shareholders and for the licensees. As far as cultural changes here in the U.S. go, we're trying to retrack our organization to become closer to the licensees and more regionalized. We've created five new divisions now, and so far, the reaction from both the company people and from our owner/operators has been very, very positive.
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McDonald's
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