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McDonald’s Corp. announced last Friday that it will close about 175 restaurants in 10 countries, completely shut down operations in three as-yet unidentified Middle eastern and Latin American nations, and will divest all its real estate holdings in four additional countries.

These moves are in addition to previously announced plans to cut restaurant openings in half during 2003, revamp many of its existing facilities, and cut costs through layoffs.

The consensus, according to press reports, is the company believes that it has over-expanded and that the current fleet of McDonald’s and franchisees is simply too big to manage.

While McDonald’s earnings have been stagnant as best, management at rival Burger King blamed the company for having started a “senseless price war” that may kill the sale of the company because of declining sales.

McDonald's currently operates more than 30,000 restaurants in 121 countries, and earned $1.64 billion on revenue of $14.9 billion last year.
KC's View:
Closing unprofitable units and rehabilitating franchises that are on the bubble are just the first steps for Mickey D’s…it has to continue upgrading the quality of its burgers, improve customer service (in our opinion, a major strategic initiative here should be mandatory English lessons for employees), and persist in its strategy of investing in other banners such as Chipotle and Pret a Manger.

The hard thing to grapple with is the notion that the customer upon which McDonald’s traditionally depended may no longer be available in sufficient quantities to keep the business alive at previous levels. The customer wants tastier food, wants better service, wants a healthier, more satisfying experience. Failure to deliver on these desires will simply send the company into a prolonged and unpleasant tailspin.

Food retailers of other stripes should take note. These shifts in consumer behavior don’t just affect McDonald’s. They affect everyone…and there are more than enough tailspins to go around for companies that don’t adapt.