Like Rome in decline, McDonald’s conquests abroad have left it heading for a fall on the home front. Ed Vulliamy in New York and Cal McCrystal report
OVER an Oklahoma ridge they rumble in perpetual motion, tens of millions of churning feet destined to sustain an empire and satisfy a growing imperial hunger. Below the ridge, Guymon town offers an unforgettable view of the mighty American hamburger on the hoof. The horizon is brown and thick and endless with beef cattle hurrying to the knife, the hook and the heated bun.
For more than 30 years, the name of the empire has been McDonald’s. Nearly 20 000 outlets have been established throughout the world with a measured tread and precision of serried rank that would have been the envy of Caesar’s centurions.
It is the world’s largest restaurant chain and the United States’ biggest buyer of beef. Annual worldwide sales are $24- billion and rising. One in 15 Americans has worked for the company, which has replaced the US Army as the country’s premier job- training organisation.
But beneath the steaming clouds billowing from the herds crossing Guymon ridge – and everywhere else where burger beef is processed – trouble lurks. Civil war helped bring down Rome, even as its foreign possessions continued to expand. Last week’s news from McDonald’s headquarters in Oak Brook, Illinois, suggests certain echoes of that decline.
Undaunted in its aim to overrun the modern world, Big Mac nevertheless is locked into civil war in the US as rival burger firms – among them Burger King and Wendy’s – take on a hitherto unbeaten emperor.
McDonald’s has launched a domestic price war with these rivals, in an effort to arrest a chronic decline in sales at home. The course of the conflict will be closely monitored, not only in the US but also in Britain, where there are 750 McDonald’s outlets trying – successfully so far – to beat off challenges from Indian and Thai takeaways.
Rosemary Morrison, of the Hotel and Catering International Management Association, says Oriental food has come to be seen as healthier and suggests: “Perhaps burgers and chips have had their day.”
Yet McDonald’s is far from ready to retreat. The company expects to open 100 new outlets annually until 2000. Having penetrated France and Germany and the rest of the European Union, it is now thriving in Russia and Eastern Europe. It is even operating in China and in India, where it has substituted mutton for beef. But its difficulties at home have prompted some to question its invulnerability abroad.
Fast food’s Golden Arches, devised by Ray Kroc and his bosses, the McDonald brothers, in 1955, are an instantly and universally recognised trademark, on the mere promotion of which $1-billion is spent each year. There are more than half a million Americans on the McDonald’s payroll. But like all history’s great empires, McDonald’s is now overstretched, a fact that has encouraged the “barbarians” to move in.
Latter-day Goths, in the forms of Wendy’s and Burger King – a unit of Britain’s Grand Metropolitan – are eroding the centre of empire, while the new Huns – the sushi merchants from Asia – nibble at the edges. McDonald’s share of the US fast food and hamburger market is now expanding less than that of its main “same store” rivals. Internal McDonald’s memoranda speak of “an overt competitive attack” by Burger King.
An attempt to lure back customers with a burger called an Arch Deluxe, aimed at adult customers, flopped. Other tastes are cutting in to tempt the public palate – pre-made meals, “microwaveables” and an ever-increasing variety of Mexican, Thai, “pan-Asian” and other quick food.
McDonald’s has begun what investors fear will be all-out war – “Campaign 55”. The idea is that certain items from the McMenu will sell for 55 cents, if bought in conjunction with a drink and fries. It is, says food industry analyst Mitchell Speiser of Lehman Brothers, an attempt “to jump- start the business. The goal of this initiative is to drive customer counts. The key is to get them into the store.”
The immediate effect so far, however, has been to punch the whole fast food industry in the stomach. Investors shiver at the notion of a prolonged price war. US depository receipts of GrandMet (which owns Burger King) fell by $1 (3,2%), and Wendy’s international by $1,50 (6,7%).
“The market is reacting badly,” says Terry Bivens, an analyst with Donald & Co, “because everyone expects the competition will have to match the price cut, and that profits will decline.”
There is more at stake than the approval of 12 000 McDonald’s franchises for Campaign 55 (unlikely to be unanimous). US food was slow to hit European tables. Until after World War II, no US viands, other than grapefruit, hot lobsters and shellfish, were welcomed in Europe. The soda fountain never took off. Mass production and universality were suspect, particularly when Henry Ford, looking at a Rembrandt, exclaimed: “What’s the good of it? There ain’t but one of it. Multiply it by a million and I’ll help you circulate it.”
In time the US established dominion in Europe with Coca-Cola, skyscrapers, gum, plucked eyebrows and hamburgers – and, along with them, speed, hurry and restlessness. Fast food represented American rootlessness too, a condition afflicting us all today. But Rome’s internal troubles began with the establishment of external supremacy.
Domestic US sales of McDonald’s have been increasing only because of the proliferation of restaurants, and franchisees are bearing the brunt of the overstretch. One, Gerado Perez of Sacramento, California, is even suing the company for opening restaurants so close to his own that his sales and franchise value have plummeted.
There has also been a decline of the beef industry, coinciding with a rising poultry sector which has prompted McDonald’s to feature its Chicken McNuggat line.
Managers of Wendy’s and Burger King in Manhattan have formed a phalanx against Caesar. One, Pedro “Pee Wee” Maldondo, who leases the Burger King branch on 23rd Street at Park Avenue, declared: “They’re losing to us now – our specials are kicking their butt.”