How McDonald's Arches Can Be Golden Again

The vaunted fast-food empire's emphasis on innovation came at the expense of its trademark consistency.

Long before Ray Kroc established the empire that currently employs more people than the entire United States military, the McDonald’s pioneer lied about his age and enlisted as an ambulance driver during the First World War.
One of Kroc's comrades in the Red Cross was fellow future visionary Walt Disney, who went on to establish a pretty expansive kingdom of his own. Like Disney, Kroc was both a perfectionist and a tinkerer. He sold paper cups and even made ends meet playing jazz—a genre reliant on quick thought and improvisation.
During his tenure as a milkshake-machine salesman, Kroc first encountered the McDonald brothers at their hamburger stand in San Bernardino, California:

There he found a small but successful restaurant run by brothers Dick and Mac McDonald, and was stunned by the effectiveness of their operation.  They produced a limited menu, concentrating on just a few items—burgers, fries and beverages—which allowed them to focus on quality at every step.

In it, he saw a model of innovation that he aspired to replicate many times over. These would be the pillars of the McDonald's experience—efficiency and the comfort of familiarity. One year later, Kroc opened his first McDonald’s outpost in Des Plaines, Illinois, just miles from his childhood home.
Even as the Golden Arches became a more recognizable symbol than the Christian cross, Kroc's storied focus never abated; according to legend, Kroc continued to call the Des Plaines manager to harangue him about the store’s cleanliness until the end of his life. Today, there are more than 35,000 McDonald's franchises in the world in more than 100 countries, in cities from Casablanca to Chisinau.
On Wednesday, 59 years and nine months after Kroc opened his first franchise, embattled McDonald's CEO Don Thompson resigned after a particularly bad year. The company's net income fell nearly 15 percent, hurt by both a tainted meat scandal in China and its striking employees becoming the face of a national effort to raise the minimum wage.
But the leading culprit named in the Big Muck has been the fast-casual empire. Places like Chipotle, Panera, and Five Guys do what McDonald's does not: They offer a simple menu, allow customization, ostensibly treat their employees better, and serve food that is (or is perceived as) healthier, fresher, or more ethically raised. Most importantly, this has allowed fast-casual to get its hooks into Millennials.
As the elegies and requiems pour in for Thompson, highlighting all these woes, there was one biographical note that particularly struck. As Peter Frost at Crain's relayed, Thompson was an engineer at defense behemoth Northrop when "an executive recruiter called in 1990 and mentioned McDonald's potential interest in hiring him. Thompson naturally assumed the would-be employer was [the aerospace company] McDonnell Douglas."
For McDonald's, a company whose business model relies on delivering familiar experiences, there is something poignant about the fact that its future CEO didn't recognize that he was being headhunted to design the McGriddle rather than the F-15 Eagle.
Even as it banks on its consistency, McDonald's, in the spirit of Kroc, has always used innovation to maintain its relevance. Think, if you dare, about the McNugget and the McRib. Or the Happy Meal, the fashioning of which turned the company into the world's largest distributor of toys. Items like the Egg McMuffin, the first national breakfast sandwich, was actually developed by franchisees, along with the McFlurry and the Filet-O-Fish.
But in recent years, the company's innovation began to obscure its hallmark speed and familiarity. To his credit, Thompson had begun to right the McShip even before his abrupt retirement, announcing test kitchens that would allow customers to customize their burgers on iPads. Last month, McDonald's killed off some of its more inscrutable menu items (adieu, Snack Wrap!) and reduced its number of value meals. The company also ditched its takeout bag, which like its menu, had become a blitzkrieg of color and clutter.
All of these moves should help stifle the grease fire in the short term, as the chain tries to win younger fans and rekindle relationships with its older ones. (On Thursday, McDonald's stock rallied on the news of Thompson's retirement.) If the company really has its eye on its long-term future, it will incorporate more components from the fast-casual playbook, from pay policy to food quality.
For an empire that started as a roadside hamburger joint and has proven itself to be both innovative and resilient, these things seem like a given. But part of what hinders McDonald's is that it's a shareholder company with 35,000 stores. It can't be nimble like, say, Shake Shack, which only has 63 locations. Steve Easterbrook, Thompson's replacement and a man largely credited with turning around McDonald's flagging British operation when it faced similar problems in the mid-oughts, is already striking the right tone—a very blunt one.
“We are a risk-averse company, very methodic and thoughtful and thorough in what we do, but time doesn’t allow you to do that when you’re in a turnaround," he told an industry consultant last month. "You can’t incrementalize your way out of it.”