Healthy Competitors Grab Market Share from McDonald’s

For more than two decades, activists have called on McDonald’s to roll out a veggie burger. But the chain has steadfastly refused, sticking to its core offerings of burgers, processed fried chicken, and the world’s most dreadful salads.

Ten years ago, you could reasonably argue that a big switch was the right thing to do, but that it didn’t make good business sense. Eric Schlosser’s Fast Food Nation had stirred things up but McDonald’s weathered the storm. Michael Pollan’s The Omnivore’s Dilemma had not yet been published, and chains like Chipotle Mexican Grill were tiny and unproven upstarts. Staying the course is never exciting, but McDonald’s wasn’t about to risk its market leadership for healthier food that could potentially flop. So in the past decade, the most ambitious thing McDonald’s has done to please the growing foodie movement was to improve its coffee.

McDonald’s refusal to bet on healthier food has opened up this segment to smaller, nimbler competitors who are not afraid to innovate. That includes all-vegan chains like Veggie Grill and Native Foods, as well as vegan-friendly chains like Chipotle Mexican Grill and Lyfe Kitchen. All of these chains have ambitious expansion plans, and they’re collectively riding a wave of profit generated by the surging numbers of vegans and conscientious omnivores.

From a business perspective, it undoubtedly once made sense for McDonald’s to err on the side of staying conservative and resisting radical menu change. But now, as an excellent Los Angeles Times article makes clear, it’s now undeniable that McDonald’s has dragged its feet for too long and that a growing army of healthier chains is eating the Golden Arches’ lunch.

Given that the situation is starting to turn dire, it’s a wonder that investors have yet to punish McDonald’s. But neither are they impressed. Exactly three years ago the stock was trading at $93 a share. And today? It’s at $93 a share. Meanwhile, over the same three year period, shares of Chipotle Mexican Grill have risen by 89 percent.

When once McDonald’s could have kept upstarts at bay by innovating on healthy food, now the company is stuck playing catch-up. Their offerings appeal primarily to an aging, shrinking demographic—while their competitors are gaining strength by selling higher priced, better quality food that’s either vegan or at least largely plant-based.

Make no mistake: McDonald’s has the talent and resources to radically design its menu, and to win over a new generation of eaters. But to accomplish this, they’ve got to think beyond burgers and chicken. For possibly the first time in the company’s history, McDonald’s future hinges on taking risks and catering to informed consumers.

And this time around, better coffee isn’t going to cut it.

 

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