McDonald's Mixed Message Morass

If only its advertising had been better, McDonald's (NYSE: MCD  ) might not be in the midst of a major struggle to regain its footing among fast-food diners, or so says management by suggesting its marketing is at least partially at fault for the chain's stagnating growth.

An article at Advertising Age reports that CEO Don Thompson said at the McDonald's biannual investor conference that while it wasn't the only cause for its current troubles, its advertising hasn't "resonated" with its customers and the restaurant chain has been shuffling its personnel as a result. Moreover, it might even consider hiring a new ad agency because of it.

Admittedly there are times when a company's ads are so off the mark they can readily be blamed for a drop in sales. Just before Hewlett-Packard (NYSE: HPQ  ) made its $1.2 billion bid for Palm, the smartphone maker debuted a series of ads for its then-new Pre handheld that were widely trashed as being everything from plain "weird" to downright "creepy." That debacle led to profits plunging 29% and undoubtedly helped set up the buyout offer HP ultimately made. 

Similarly, Burger King Worldwide (NYSE: BKW  ) also came in for criticism for its equally creepy giant head king ads that it thankfully killed. Was it just coincidence that systemwide comparable sales turned positive after finally ending the much-maligned campaign. According to SEC filings, comps were negative through the June 2011 quarter and turned positive the next one and have remained positive since. The Creepy King ads were killed off in August 2011.  Just fun, tongue-in-cheek speculation? I think not!

And it may have been a lack of appropriate marketing by Nintendo (NASDAQOTH: NTDOY  ) that accounted for the dismal performance of its Wii U initiative this year, though just as much blame could be heaped on its lack of third-party games to support the console that resulted in it dropping the price of the console in comparison to the Xbox or Playstation. 

In McDonald's case, though, there seems to be many more problems that a finger could be pointed at beyond simply bad messaging. Out of its control, for example, has been the growth of the fast-casual dining niche popularized by Panera Bread and Chiptole Mexican Grill, though rivals Wendy's (NASDAQ: WEN  ) and Burger King are successfully tapping the periphery of the market.

While fast casual is a step above the McDonald's experience, when it tried to expand beyond the confines of fast food, it suffered from disappointing results. Not because its offerings weren't marketed appropriately but rather because its customers are too wedded to its Dollar Menu, a low-cost dining option that one could argue was too successfully marketed.

While it tried to "break the buck" on its value meals by using the low-priced items to up-sell into higher margin items as a means of enhancing profitability, the burger joint ran into customer resistance on one end and higher input costs on another, such as rising beef prices that caused it to kill its Angus burgers. I'm not sure more or "better" marketing would have made a difference.

A company's message certainly needs to be conveyed in a manner that resonates with its target market, and over the years McDonald's has made itself a premier destination for a discounted dining experience. What I think gets lost in the translation is the chain's image on whether it's going to be fish or fowl, fast food or fast casual. Trying to walk the middle of the road has not been successful because, as the saying goes, the only thing you find in the middle of the road are dead squirrels. 

McDonald's might not be roadkill, but it's not a burger shop investors are ready yet to flip for, either.

I'll have some fries with that shake
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2736697, ~/Articles/ArticleHandler.aspx, 4/19/2014 9:02:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...