Think big, but don’t act like it

A Paris McDonald's: The chain will shrink in the United States this year, but grow in Europe.

By J.L. KOMINICKI

Those of us trying to scale a business got a free lesson from McDonald’s this week on the dangers of getting too big to pivot.

I know, I know, we should all have such problems. But the tighter your niche, the quicker the potential of getting to a size at which market changes become a very big deal. Which is where Mickey D’s has found itself.

McDonald’s, as you know, was built on the promise of sameness. That the Big Mac you bought in Des Moines would taste exactly like the one you ordered up in Fresno. Ditto the crispness of the fries, the viscosity of the vanilla shake and the price point for all of them.

The formula worked for more than 60 years, with steady expansion and ever-growing same store sales. Until 2012, when unit sales posted their first big decline, a trend that has continued, with the current string at five straight quarters. This week’s announcement, that the company would, for the first time ever, close more U.S. stores than it opens in 2015, was something of a foregone conclusion.

mcdonalds-drippyThe problem, as you’ve probably already guessed, is that Millennials don’t care much for sameness. They want variety and the opportunity to custom-order their burgers, preferably with local ingredients. And they want to eat them in a contemporary, comfortable setting – think Panera Bread and Chipotle Grill – not from plastic seats under garish lighting.

McDonald’s has tried to react, but 14,000 U.S. stores is a big ship to turn, and related service delays and higher costs have hurt both sales and profits. Competition from upstart chains like Five Guys and Smashburger hasn’t helped.

No surprise that McDonald’s has increased attention on its foreign markets, where lower penetration allows it to be faster on its feet. In France, for example, where there are just 1,200 stores, the chain offers high-end coffees and a burger topped with fromage du bleu. There’s a freshly made McBaguette hero sandwich and a whole counter devoted to macaroons.

McDonald plans aggressive expansion in France, including a recently announced investment of $250 million in additional outlets. But whether the company can modernize its U.S. menu and supply chain for European-styled diversity is the giant question mark.

Again, there aren’t many tears to shed for a company that took its eye off the customer and, nonetheless, just posted quarterly sales of $6.5 billion. Any of us would happily take those sorts of declines. But startups should remember the lesson: Big is good, but only if you remain nimble enough to jump when the sales numbers no longer do.

That’s a McNugget of truth worth remembering.