"Top 15: McDonald's": Its China CMO Says McDonald's Is Cool in China. Its Results Say Otherwise

Something must have gone wrong

Last week McDonald's released its results for the first quarter of fiscal 2015. And yes, it has not climbed out of its slump.

In the past the company liked to highlight the fast growth of its China business. This time it said nothing about it. Comparable-store sales fell in every region of the world, and Asia-Pacific fell furthest, by 8.3%. It is fair to infer that its two most important markets there, China and Japan, are in poor shape. McDonald's ran into trouble in China last year, and the trouble spread straight to Japan.

You may remember the Husi food safety scandal last July. Because the same supplier also served McDonald's Japan, the Japanese business took a heavy blow too. In the results McDonald's published that August, revenue across Asia-Pacific had fallen 55%. The company also faced trouble that had nothing to do with running its business, such as the knife attack in a McDonald's restaurant in Zhaoyuan, Shandong.

All of this may help explain McDonald's weak showing in China. But the main cause is a problem it faces everywhere: it has lost its appeal to young consumers, or, to put it another way, the pull of its brand.

Xu Cong, the CMO of McDonald's China, disagrees. "We are an international brand, and young people think we are very 'trendy,'" she told QDaily at the end of March. We spoke on the day McDonald's held the Guangzhou leg of "imlovinit 24," a flash marketing event staged in 24 cities around the world.

The numbers suggest young consumers may not be buying it. McDonald's global revenue fell 11% in the first quarter, to US$5.96 billion. Profit fell 31%, from US$1.2 billion a year earlier to US$800 million. Global comparable-store sales fell 2.3%. Besides Asia-Pacific, the worst performer, sales fell 2.6% in the US and 0.6% in Europe.

McDonald's revenue and profit, Q1 2014 to Q1 2015

McDonald's global comparable-store sales, Q1 2014 to Q1 2015

Faced with these results, McDonald's replaced CEO Don Thompson with its chief brand officer, Steve Easterbrook, before the end of 2014. The new quarterly report is Easterbrook's first report card in the job.

A bad set of results may reflect years in which a company dodged competition and its own problems. To get out of its present hole, McDonald's needs to change, and it needs time.

Yet, somewhat surprisingly, McDonald's shares opened higher on April 22, after it published these unimpressive figures. Stuck as it is, McDonald's still has not produced good results, but it has managed one thing: within a short time it has won investors' trust. They seem to be pinning high hopes on Easterbrook, who made his name in brand marketing.

And McDonald's has indeed been busy with marketing lately.

In January it brought back its classic slogan "I'm lovin' it" and built a run of marketing around it, from TV and outdoor ads to product packaging.

It put emotional messages on its golden-arches billboards. Around Valentine's Day it let customers pay with acts of love. And in the Super Bowl ad battle it ran a "lovin'"-themed spot that Time magazine graded A-.

It also went to the South by Southwest conference in the US for the first time, where Atif Rafiq, its first chief digital officer, spoke about how McDonald's restaurants will become smarter by 2020. Then it teamed up with Colette, the French concept store, to launch a line of McDonald's merchandise, including T-shirts, notebooks and handbags.

On March 24 it staged a global flash event, "imlovinit24," across 24 cities including Sydney, Auckland, Hong Kong, London and Guangzhou, and for the first time made Twitter's global Top 10 for buzz.

In step with this global push, McDonald's has also made a point of raising its profile in China. On CCTV's 2015 Spring Festival Gala it ran its own Gala ad for the first time, with its own employees on camera, in an attempt to feel closer to viewers.

On social media, now a battleground no company can skip, McDonald's China has been active and playful. A Sakura cone parkour campaign with Baidu Maps, a 3.14 "Pi" Day campaign, the Mamahei (black sesame) cone and an emoji tie-up with the web cartoonist Xiaozaizi: these younger, fresher campaigns have won it attention and goodwill. On live rankings of brand social media accounts, McDonald's sits around the top 10.

Beyond marketing, McDonald's has adjusted its global product and corporate strategy. It is simplifying the menu and speeding up service. It is testing all-day breakfast in parts of the US and promoting build-your-own burgers in the US, Germany, Japan and other markets. And around the world it is moving, where it can, to chicken raised without antibiotics important to human medicine and to milk free of artificial hormones.

We do not know when these steps will pay off, or by how much, but McDonald's is clearly trying to turn things around. Like many multinationals, it counts on China as a major engine of growth. Since 2010 it has been opening stores there faster: of its more than 2,000 restaurants in China, 1,000 opened in the past three years. But in China it now faces the problems that surfaced earlier in the mature markets of Europe and the US. Diners have more casual-dining brands to choose from, and they care more about living healthily. Both work against it.

One thing should not be forgotten, though. Young people never chose McDonald's because it was healthy. They chose it because it stood for fashion and the latest trends. Young people everywhere are going through a generational handover: in the US, from baby boomers to millennials; in China, from people born in the 1970s to those born in the 1990s. McDonald's needs a new way of looking at today's young.

McDonald's is certainly not the company investors favor most right now, but it is surely one of the companies most eager to change. Since it cannot overhaul its product line in the short term, its marketing may decide whether it can win young consumers back.

We talked with Xu Cong, CMO of McDonald's China, about the brand's positioning and marketing in China

Q: I'm interested in two questions. First, what brand image and message do you want to convey to your target audience? Second, who is that audience? Could you describe how McDonald's defines its target consumers, especially in China?

A: You asked what message we want to convey. Our slogan, "I'm Lovin' It," already reflects our brand philosophy, which is "simple, easy enjoyment." We believe this brand comes to life in people's everyday lives, so we want every moment where people's lives cross our brand to bring them something of value. Above all, we want to deliver a happy experience.

As for "target consumers," to use the marketing term, we have different target segments for different occasions. In China we serve 2 million customers a day, across a very wide range of ages, and all of them can be called our target audience. But in different settings we use different ways to attract them. In China, for example, people see McDonald's not just as a place to eat but as a place to get together; people socialize and hold get-togethers in our restaurants. We leave a distinctive mark in the minds of different consumers.

In particular, because we are an international brand, young people think we are very "trendy."

Their parents see us as warm and familiar. Overall, our customer base is very broad.

Q: You said something interesting just now: that young consumers see McDonald's as very "trendy." How did you reach that conclusion, and how do you define "trendy"?

A: It's not a conclusion I reached myself. It's what we hear consumers say about us. One thing young people have in common is that they are a group on the rise, very curious about new things, because of the stage of life they are at.

In China today, they like innovation and things that open their eyes. As a restaurant business, I think we can win them over in several ways. One is the core product, where we innovate a lot. The latest Mamahei cone is a typical example. What we sell are small things. They are not products costing thousands or tens of thousands of yuan that you need to research carefully. But even into a product this small we put our idea of innovation, and it can give consumers a pleasant surprise.

Beyond that, a restaurant business provides not just products but service and the whole experience of eating in the restaurant, which is a big part too. We have put a lot of effort into studying our restaurants. Over the past two or three years, you can see that the great majority of our restaurants in China have been upgraded and given a new look. Last year in Guangzhou we launched a new "China concept" interior design. We have also pushed hard on digital. In Shanghai, for example, restaurants now widely use "dual-point" ordering, which shapes the experience from ordering to eating.

Our marketing has always tried to capture the spirit of the times and offer some digital experiences. Last year's Sakura cone parkour campaign with Baidu brought in new ideas like LBS (location-based services). There are many examples like this every year. McDonald's also has lots of fun things of its own, such as our Olympics and World Cup sponsorships, and every year we have some smaller tie-ins: this year the Minions, next year something new. All of these feel very trendy and very cool.

Q: I imagine McDonald's collects consumer feedback on its brand through many channels, online and offline. If you had to sum up McDonald's position in China in three words, what would they be, both from the consumer's point of view and from yours?

A: Put simply, I'd use a line we have been promoting since last year: "Let's be good together." Whether I look at it as marketing director or from the consumer feedback I hear, the bond consumers feel with the brand is the strongest response they give us. We have run many campaigns and marketing surveys. When people are asked, "What kind of brand is McDonald's to you, and what experiences and memories do you have of it?", they mention the products every time, but the stories they tell are not about the products. They are about their own feelings.

Q: McDonald's has been in China a very long time. In Hong Kong, people say "McDonald's taught people how to queue." So its cultural significance in China goes far beyond that of a fast-food chain. Over all these years, what do you think has been the biggest change in consumers on the mainland?

A: That's an interesting observation, and quite right. Since our founding in the US we have been bringing this way of doing things to consumers. As it evolved and people's lifestyles changed, we kept changing too. Part of that is changing how people eat in response to their needs and lifestyles, so that people feel we are always a step ahead, which is exactly what we aim for. If you ask what has changed among Chinese consumers, I think the word everyone uses is "experience." Modern life moves faster, and China's economic development has brought several trends, such as urbanization and the spread of digital technology, into everyone's life. They have made life more convenient and also raised people's expectations of convenience. These trends matter to our business. What they demand of us is to sense them early and to change as we grow,

so that consumers always feel a fast-food business can offer them advanced, fashionable experiences.

Q: What you just mentioned, "thinking one step ahead of the consumer," is what every marketer wants. Across everyone you manage, in marketing or in how the company works together, how do you manage to think one step ahead of the consumer? Is there anything about company structure or team management you can share?

A: The principle is always the same: how to lead trends, which means knowing what the big trends are. Every marketer learns this as part of basic training. One part is that you have to see the overall macro trend and pick out what matters to your own industry, so you can see where consumers are heading and get there a step before them. That's very important. The other part is finding, within those trends, extra value you can give consumers. That is the longer-term view.

In the short term there are many immediate things to watch. Between what I can offer consumers now and what they need, where can I do better? More practically, in how you market, how can you follow consumers' buying habits and media habits and widen your view beyond the moments when they use your products and services? Take how marketing works now. When you put the consumer at the center of your thinking, you consider not only the point where they touch your product but, beyond that point, the context of their life, where I can create more content that ties me to them in more ways. Then, when they buy, there is deeper feeling behind it. That is where marketing now goes further than traditional marketing.

Q: I can sense that in Mamahei and imlovinit24. As you said, efficiency and convenience are an important consumer trend. Beyond that, which of the many trends do you pay most attention to? For example, consumer habits, market competition, Chinese government policy or market conditions, and demands for food safety.

A: Let me talk about some relevant trends from the point of view of marketing in the restaurant industry.

First, China's economic growth, the rise of the middle class, and people's demands for quality of life and convenience. This reaches into many areas. For example, as more people earn more, it affects where we put stores, our strategy for opening them, and how we develop franchising, as well as the mix of formats. It also, of course, affects how we reach consumers and win them over.

Second, digital technology is changing people's lives. At root, it changes how people get information and breaks their time into fragments; people live very differently from before. The ways of getting messages across and connecting with consumers will change.

Third, eating matters a great deal to people, and people want a better life. Among white-collar workers, for example, running marathons has become very fashionable, which reflects people's desire for a certain way of living, a happy life. In turn, people pay more attention to what they eat. All of this affects our industry: the products and services we offer, how we offer them, and how we communicate and build relationships with consumers all have to keep up with the times.

Q: As a consumer rather than a manager, what do you like most and least about this company?

A: Looking from the outside, I think it is not only warm and familiar but can also give me a little surprise. That is what I find rather special about this brand.

Q: Is the little surprise in the product, the marketing, or something else?

A: Consumers don't sort things into such professional categories. They get it from their contact with the brand. The little surprise lies in every point of contact with the brand. Take the "24 cities" event: consumers never imagined McDonald's would do something like that, and that is a little surprise.

About Top 15

In every era, a few companies gather the most capital and the best talent and shape how society as a whole develops. QDaily believes that the companies shaping how we live are at the core of today's business world.

So we have picked the 15 most important lifestyle companies in the world and in China: Apple, Google, Baidu, Alibaba, Tencent, Amazon, Disney, McDonald's, Starbucks, Nike, Xiaomi, IKEA, Uniqlo, Wanda and Vanke. The list will change as the companies, their markets and the trends change. We will follow them, and their competitors and partners too.

Over the next month we will publish a series of reports on how these companies are doing.

Cover image from businessinsider