Mcdonald's "Plan to Win" Faces New Challenges During Recession

According to Crain’s Business Chicago, sales growth at McDonald’s Corporation is dropping sharply. The company has been incredibly resilient during the recession and up to now had been riding a wave of unprecedented corporate growth. McDonald’s had used a strategy that focused their efforts on upgrading existing stores and focusing on their core business. They cleaned up their stores, expanded hours, improved their menu, and made it easier for customers to order and pay for their food. The effort paid off and McDonald’s improved its public image and became a Wall Street favorite.

During this period of unprecedented growth McDonald’s sales in US stores open at least one year climbed to 10% between 2003 and 2008 and operating margins doubled to close to 30% during the same period. McDonald’s "Plan to Win" had delivered and the company was indeed firing on all cylinders. Investors on Wall Street rewarded McDonald’s turnaround effort and shares rose over 300% from its decade low of $12.38 in March of 2003.

However, the current economic conditions may be bringing the ride to an end. As McDonald’s improved its stores and menu it had begun increasing prices. The increased pricing had driven sales and fueled its success. This formula was a successful tactic to improve margins and squeeze profit but the recession is now changing the game. In a time when unemployment is quite high and consumers are price sensitive, companies focused on increasing prices and pushing margins higher are going to see stiff resistance and experience sales disruptions.

With its latest results, McDonald's will now be tested to see how they will adapt their "Plan to Win" to face the current economic realities. With economic recovery moving slowly and competitors focusing on lowering prices, the environment has changed substantially. How McDonald's reacts to the changing market forces will either correct the current drop it is experiencing or will set in motion a longer trend.