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03/05/03 . by Anthony Hilton . Evening Standard . UK
Is Big Mac's slump a sign of the times?
To have anti-capitalist May Day demonstrations and financial results from McDonald's both in the same week is too much of a coincidence to resist.
Yesterday's street protests in London were thankfully much more muted and orderly affairs than the notorious near-riots of a couple of years ago had led us to fear and seem to have passed off without the ritual trashing of any fast-food restaurants. But if the demonstrators have been doing their homework by logging on to financial websites they would already understand that there was no need actively to attack the businesses - McDonald's is in quite enough trouble as it is.
We learned on Tuesday that after savage cost-cutting, management changes, investment cutbacks and restructuring, the group has managed to squeeze back into the black. But that cannot disguise the fact that the seemingly-unstoppable profits machine has come badly unstuck.
Sales are still in decline everywhere in the world except Latin America and the intriguing question this raises is whether the group's problems are a result of management failing to see a shift in consumer preferences coupled with saturation of the American market and concerns about obesity - changes, if you will, in the dynamics of the fast-food market - or whether, much more significantly, the McDonald's malaise is the result of a backlash against globalisation. In the United States the evidence suggests the former. There are a lot of restaurants there and, as Diageo concluded when it decided to sell Burger King, it is a commodity market. People may say they prefer one burger to another, but the reality is that they go to the restaurant that is most convenient. The health scares have not helped either. Lawsuits seeking damages against McDonald's, alleging that its products promote obesity and consequent ill-health may not have got very far in the courts but they generated the kind of publicity the group would happily have done without. And given the litigious nature of that country, we may not have seen the last of them. But if those are the dynamics of the American market, the story outside the US is rather different. Internationally the restaurants are much thinner on the ground, although it does not always seem so in this country, but their relatively fewer numbers are not really the point. Intentionally or otherwise, with its aggressive branding, garish signage, standardised formats and ruthless pursuit of sites, at its most positive, McDonald's is the embodiment of American style consumerism, and its presence the most visible result for many of pax Americana. But viewed as a negative, the golden arches have come to symbolise American economic and cultural domination. Some negatives the company has brought upon itself. It has been far more successful in penetrating overseas markets than in understanding or appreciating the cultural impact it has in many of them and the resentment it engenders even among those who buy its products.
This left it highly vulnerable when the political mood changed with the
collapse of the dotcom boom, the global economic slowdown, the perception
that globalisation is in fact Americanisation and the unease felt by many
towards the policies and pronouncements of the current American leadership.
If indeed there has been a backlash, the further question is how far it
will go. Is McDonald's a target because of its visibility or is it just the
first stage of a reaction against other global brands? I am not aware of
similar problems at Coca-Cola or Pepsi but it is nevertheless arguable that
having spent the last decade accepting the idea of the global brand, the
world has decided it is not so keen on the idea after all.
It may be that this is a first step towards a reassertion of regionalism -
a trend that might even be enhanced, albeit perilously, by the troubled
state of world trade and the growing signs of disharmony in such matters
between the US, the European Union and Asia.
There is a danger that we may read too much into what may prove in the end
to be no more than a change in consumer tastes. But equally the
geopolitical, social and economic forces that drive the world are so
intertwined that we cannot ignore the possibility that McDonald's problems
are a forerunner of similar difficulties in other industries - something
that will pose interesting challenges for the likes of Unilever, with its
strategy of focusing on fewer and fewer brands, and the likes of WPP, the
advertising business dedicated to servicing them.
At the very least it gives all of us, not just the demonstrators, something
to ponder between now and next May Day.