A Tough Branding Question for McDonald’s
I suspect executives at McDonald’s are wrestling with a key branding question facing the company: should McDonald’s Corporation continue to focus all its efforts on the McDonald’s brand or is it time to broaden the brand portfolio and invest in a second brand?
This isn’t an easy question.
McDonald’s has been one of the great business success stories of the past decade. The stock is up from about $24 a share in July, 2002 to about $88 a share today, dramatically outperforming the broader market. And McDonald’s has grown for all the right reasons; the company has invested in its facilities and brand, improved product quality, added new items to address new meal occasions and focused on delivering outstanding service.
But how much further can the McDonald’s brand grow?
The problem with having just one brand is that growth will slow at some point; you can only expand a brand so far without diluting it. Eventually McDonald’s will start to stabilize in terms of revenue and profit.
That point might be here sooner than the team at McDonald’s would hope; the company this week delivered some disappointing quarterly results, with slowing same-store sales growth and second quarter profit down -4.5%.
Adding a second brand is a fairly obvious move because it would open up a new growth platform.
But a second brand might distract the organization and there is no guarantee a new brand would succeed. Worst case, a new brand struggles and the core McDonald’s brand stumbles at the same time. An unwieldy brand portfolio caused problems at McDonald’s not all too long ago as the company tried to manage McDonald’s, Boston Market, Chipotle, Pret a Manger and other brands. Refocusing on the McDonald’s brand contributed to the recent run of strong results.
McDonald’s has delivered great results over the past decade but there are some tough branding decisions ahead.
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It’s interesting to note that some of the brands McDonald’s has let go of have succeeded wildly afterwards. Chipotle is a good example, but so is Redbox, which was initially funded and probably also majority owned by McDonald’s until Coinstar purchased 47% of the company in 2005 for $32M (what a deal, right?).
I think McDonald’s can keep growing without expanding into other concepts/brands. I see growth in McDonald’s coming from doing what they’ve been doing: increasing the variety of menu items to draw a wider base of customers, increasing margins, adding even more efficiency/automation, acquiring better locations, and expanding globally.
That being said, McDonald’s would do well by buying out up and coming restaurant chains. Any new and promising chain would benefit greatly by McDonald’s scale, cash, marketing prowess, and knowledge of the fast food business. Maybe one of the new burger chains (Five Guys, In & Out) or, better yet, a healthy food chain, something akin to a Panera.