Tuesday, December 09, 2008

McDonald's vs. G. M.

There is a very simple marketing lesson that everyone can learn from. Forget about how General Motors got into this mess for a couple of hours.

Instead, look at the marketing of G.M. and the results versus the McDonald's folks.

McDonald's was positioned to win before the economy tanked. They made a few adjustments, and are still strong.

At 3pm today, I'll have a story on what went wrong with General Motors marketing.

In the meantime, here's the Wall Street Journal report on what McDonald's did right:

McDonald's Corp.'s strong November sales reported Monday show how the world's largest restaurant chain has managed to hold up better than many other large companies amid the economic downturn.

Of the 30 companies that make up the Dow Jones Industrial Average, only McDonald's and Wal-Mart Stores Inc. have a higher stock price today than they did a year ago. In September, as the global financial crisis was unfolding, McDonald's increased its quarterly dividend to shareholders by 33%.


And while other restaurant companies were struggling to grow their sales last month, McDonald's saw sales at outlets open at least a year increase 7.7%, the company said. In the U.S., those sales rose 4.5% in November, boosted by breakfast foods, chicken items and the appeal of the chain's value-oriented menu to customers looking for a good deal in the down economy.

The results beat some analysts' expectations, though they were in line with the strong sales McDonald's has been posting all year. However, some analysts said the negative impact of currency translations could hurt the company's earnings.

McDonald's shares fell 2.9% to $60.92 in 4 p.m. New York Stock Exchange composite trading.

As with Wal-Mart, low prices have helped McDonald's at a time when consumers are trading down to cheaper meals from mid-priced sit-down restaurants like Applebee's and Chili's. But many other fast-food chains with low prices comparable to those at McDonald's, including Yum Brands Inc.'s KFC and Wendy's International Inc., haven't managed to weather the spending downturn nearly as well.

At McDonald's, the key to success has been its six-year-old "Plan to Win" strategy crafted around improving results at existing locations, after the chain pulled back sharply on opening new stores.

The global scope of its more than 31,000 locations has helped offset pockets of weakness in particular countries. McDonald's also has figured out how to get more revenue out of its store base by extending its hours.

McDonald's has sold restaurants to franchisees and other affiliates, putting more than 75% of its locations in the hands of other operators. That has guaranteed a steady revenue stream from these franchisees, while freeing the company from some operating burdens and expenses.

Competitors have been trying to emulate the Oak Brook, Ill., restaurant giant with limited success. In breakfast, for instance, McDonald's has a deep advantage over rivals who have just started serving it because the company has for years located its restaurants where they are most likely to capture customers on their morning commutes.

More recently, McDonald's has been monitoring pricing in order to make sure the menu stays affordable without hurting its profit margins. Last week, McDonald's pulled its popular double cheeseburger off its Dollar Menu and replaced it with a McDouble burger, which has one slice of cheese instead of two. It kept the double cheeseburger on its regular menu and raised the suggested price to $1.19.

Write to Janet Adamy at janet.adamy@wsj.com

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