It is a slow motion corporate suicide
When I was a kid, I always liked McDonald's. But I stopped patronizing them when the bad experiences became the rule, rather than the exception. In the last, say, twenty-five years, I have only eaten at McDonald's in a pinch. Here in the Philippines, my wife and I have been to McDonald's exactly three times. Each time for breakfast, when it was the only available option. Our orders were wrong every time. It is no big deal to me. Bad service; I just quit giving them money.
But for many years it has been obvious to me that there is something very wrong with McDonald's. It is a management problem. Without caring enough to do some research, that's about all I knew about it. But their bad behavior stretches back to the early 1970's when they ripped-off their whole McDonaldland ad campaign. More recently, McDonald's managers failed to warn franchisees about abusive hoax phone calls. Courts ruled against McDonald's in both of these cases. But for McDonald's, the judgments were peanuts. What kind of people act this way?
Well, people who figure it will be cheaper to pay a judgment rather than act in a responsible manner. Nevertheless, over the years, I have known many people who have bought McDonald's stock, and swear by it. I never joined them.
The video above is almost two years old, but it only popped up on my YouTube home page today. Now "broken" ice cream machines are a well-known and longstanding problem with McDonald's. And like many people, I always assumed that the problem was that McDonald's employees just did not want the hassle of cleaning the machines. So they would tell everyone that the machine is out-of-order. But it turns out, the problem is much more systemic. This is yet another corporate management problem. And I suspect, at its core, this is another ethical problem.
The video confirms what I have long suspected about McDonald's management and management attitude. While I am rather leery of franchising in general, it is worth noting that McDonald's corporate managers do not work for the franchisees. No franchisor does. To my mind, it's just a bad business model for the franchisees. But I am not even convinced that McDonald's managers know they work for the shareholders. And they sure-as-hell don't work for the customers.
After World War Two, it took forty years for Montgomery Ward to go out-of-business. Sear's utterly incompetent management followed, but somewhat faster. I do wonder if McDonald's is going down the same path. These corporate fat cats become complacent. And entrenched. And deaf.
That is what this story is really about. Broken ice cream machines are not the problem; they are a symptom. The root problem is bad, unresponsive management. They are, at best, incompetent. At worst, they're still the unethical management organization that they were fifty years ago. Judge for yourself.
You see, after a management team goes bad, they tend to perpetuate their problems, however they manifest. At upper levels of an organization, it is almost impossible for a bad manager to hire and/or retain a good manager. It just doesn't happen. Gresham's Law kicks in: The bad drive out the good. There is just no way a bad manager, incompetent or dishonest, can keep a competent, honest manager around. So what do they do? They hire people as bad or worse than themselves. This can go on for years.
I mean what are the odds that the CEO of McDonald's is unaware of their ice cream problem? One can only speculate why he has not fixed it. And make no mistake, this is a fixable problem. Just ask Wendys, or Chick-fil-A, or even Burger King. Ask Dairy Queen. The current CEO has been with the company since 2015. He was appointed CEO in 2019 after the board fired the previous CEO. No surprise there. It is also worth noting that the company has had three CEOs in the last ten years.
This whole thing is an unmitigated disaster for McDonald's. That video has over eleven million views. And just think about it. To watch a half hour video on something as esoteric as McDonald's ice cream machine problem. Who would do that? Well, perhaps the millions of frustrated customers. Perhaps all of their competitors.
At this very hour, two years later, twelve percent of McDonald's machines are down. Note, that is two years since the video came out; the problem was around for years before that. So where is the CEO? My guess? He's out playing golf with the Taylor (ice cream machine) CEO. Also, I would not be surprised if he hasn't spent a good part of the last two years bullying Google to take down that video: Take that video down or McDonald's will pull all advertising off YouTube. Though, I am surprised he has failed (so far). I'd be willing to bet that he has spent more time on the PR aspects of this problem than on the actual, fixable, problem itself. Actually, we know this is true because otherwise, the problem would be fixed.
In any case, at some point it becomes impossible to turn around an organization without outside intervention. And I don't mean bankruptcy; I mean a Carl Icahn type intervention. Someone who will come in and fire everyone.
The franchisees can only hope. They're pretty much stuck with the bad McDonald's management. Though yes, they did volunteer.
The customers can only hope. But they might just eventually decamp to Wendy's and Dairy Queen.
And, the shareholder's? Well so far the management problem has not had a major impact on the company's performance. But how long will that last?
And Taylor? I cannot end without some comment on their role in all this. Evidently Taylor does make ice cream machines that work. So they make a number of machines that work, plus they make the McDonald's machine which does not work. So clearly they are intentionally selling McDonald's franchisees defective machines in order to juice their repair business. And that is bad and also unethical. But here's the thing. McDonald's knows about this problem and yet they have forced their franchisees to buy the machines anyway. Taylor is not forcing them to buy the defective product; McDonald's is. As bad as Taylor's role in this fiasco may be, McDonald's is so much worse.
Again, no surprise.
Now almost six years ago, there was a report (behind paywall) in the The Wall Street Journal that McDonald's would allow franchisees to purchase a machine from a Taylor competitor. I have no idea what happened with this. You would think that would have been the end of it. But clearly not – when twelve percent of their machines are still down. Could the franchisees not also buy other model Taylor machines? You know, the ones that work? If an alternative has been available for so long, why is there still a problem? One suspects the answer to that question points back to McDonald's management.
In any case, what would be the "worst case fix" for this problem? Well, McDonald's could pull out all the defective Taylor machines. Sure, sue Taylor if you like. But first get rid of the machines. One wonders why they don't do this? Cost? In a cost versus reputation contest, what wins? But my guess is that it is not cost or reputation that really matters.
No something stinks. There's an ethical problem here somewhere.