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McDonalds: The Price of Falling Asleep

By Shlomo  Maital

 McDonalds

McDonalds, the $87 b. global fast food chain, is in trouble.  The world has changed and its senior management team missed the bus.  The price for this is heavy.  The newly appointed CEO Steve Easterbrook, an accountant, will have to deal with slumping sales and falling stock price.    For years consumers have been opting for healthier food.  McDonalds simply failed to meet or recognize the trend.

   Here is how Bloomberg Businessweek describes McDonalds’ decline under its previous CEO:     “The rocky two-and-a-half-year tenure of Don Thompson, Mr Easterbrook’s predecessor, was marked by flagging sales as the company’s key low-income customers continued to struggle in the wake of the financial crisis. It also coincided with the rise of upmarket burger chains such as Five Guys and Smashburger, and the explosive growth of fast-casual restaurants such as Chipotle.      …. Last year, McDonald’s recorded its first annual decline in global same-store sales in a dozen years.   The US, where McDonald’s is the target of criticism for its contribution to the obesity epidemic and wage inequality, is not its only tough market. Operations in Germany, Japan, Russia and China are also struggling.   Consumers are no longer interested in food that is simply fast — they need to be convinced that it is, among other things, healthy, fresh and natural.”

    McDonalds is an exceptionally arrogant organization, I am told.  The global economic downturn began early in 2008; McDonalds could have seen that its customers would be pinched and less able to dine out.  The trend toward healthy fresh fast food has been ongoing for years;  Wendy’s and Subway have leveraged it with great success.   People simply get tired of the same Big Mac. 

   To me, McDonalds proves a core dilemma in management.  McDonalds has great operational discipline in its franchises; it has to, to survive.  But the same discipline destroys creativity, flexibility and innovation.  Somehow, McDonalds has to revive its agility, its ideation,  without ruining its fabled discipline and cost management. 

     Let’s see if Steve Easterbrook, who played cricket in a British private school, will adopt a strategy that isn’t precisely “cricket”.     


 

 

 

Raise the U.S. Minimum Wage – Now!

By Shlomo   Maital

fastfood strike

    Have you wondered, why low-paid American workers, who lost well-paying jobs in manufacturing to Asia and instead got low-paying jobs in services, like fast foods,    have been so passive under exploitation and poverty?

    No longer.    A spontaneous group of fast food workers has  organized, using social networks, and have mounted demonstrations in major cities.  Many earn minimum wage, which in some places is $7.50 an hour.  That means you get $30 a week for a 40 hour work week, or $120 a month — $14,400 a year.   Nobody can survive on that. 

    Is that what they are worth?  Is that commensurate, as economists say, with the value of the marginal product of their labor?    I doubt it, given Macdonald’s fat profits. 

    But wait!   If you raise the minimum wage, you will cause more unemployment and hardship, because the higher the price of something, the less is the demand.  Right?

     Here is what Zeynep Ton writes in Fortune (he’s an adjunct associate professor of operations management at the MIT Sloan School of Management and the author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits).

   I studied four retail chains that manage (to pay workers more than minimum wages);   Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations), and Mercadona (Spain’s largest supermarket chain). They offer their employees much better jobs than their competitors, all the while keeping their prices low and performing well in all the ways that matter to any business. They have high productivity, great customer service, healthy growth, and excellent returns to their investors. They compete head-on with companies that spend far less on their employees, and they win.

  Zeynet Ton notes:    “Nearly one fifth of American workers work in retail and fast food, and they have bad jobs. They earn poverty-level wages, have unpredictable schedules that make it hard to hold on to a second job, and have few opportunities for success and growth. These are not just people who are uneducated or unskilled. In 2010 more than a third of all working adults with jobs that did not pay a living wage had at least some college education or a degree.”

    It’s simple.  To boost a flagging economy, put more income into the hands of those who need it; they spend it, creating demand, more jobs, and by Keynes’ multiplier effect, economic growth.

    Does this sound more logical than the European no-brain austerity program?  And, if nothing else, more fair?

Blog entries written by Prof. Shlomo Maital

Shlomo Maital

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