'Supersize' chain is shrinking: The beginning of the end for McDonald's?

For the first time possibly ever, the burger giant is shrinking. What does this mean for the future of fast food? 

Richard Drew/AP/File
Signs outside a McDonald's restaurant in New York.

For the first time in 45 years – and possibly ever – McDonald's is shrinking. This year, the fast food chain will close more restaurants than it opens.

Approximately 700 underperforming locations worldwide will be closed, CEO Steve Easterbrook announced in April, and McDonald's revealed Thursday that only 300 new stores will be opened this year.

John Gordon, a restaurant industry analyst, told The Associated Press that the chain's great success in the past has led to “a natural overconfidence." 

“McDonald’s is such an internally focused organization, it’s a situation where you don’t have a fresh perspective coming in,” said Mr. Gordon.

"Fresh" is key in the rapidly changing fast food industry, which in recent years has seen the growth of "healthy" fast food chains. These restaurants offer the same quick service as McDonald's or Taco Bell, but with healthier ingredients and sometimes more ethical production methods. They range from burrito chain Chipotle, whose website advertises "pork from pigs allowed to freely root and roam outdoors or in deeply bedded barns," to Tender Greens, which offers salads filled with locally grown vegetables. 

The growth of the healthy fast food industry has mostly been driven by socially conscious Millennials and aging baby boomers who "want to preserve their vitality," says Kelly Weikel, a food industry consultant, in an interview with the Los Angeles Times

"What you saw in the past with fast food was all convenience," Cameron Lewis, co-founder of fast food chain Simply Salad, told the LA Times. "Now we can make healthy, good-quality food in the same time as your typical fast-food experience." 

These "good-quality" fast food restaurants serve more than salads. Chains like In-n-Out Burger and Five Guys Burger and Fries, which have grown in popularity in recent years, have burger-dominated menus similar to that of McDonald's, but with allegedly higher quality food – reflected in their higher prices.

In a recent survey by Nation's Restaurant News that rated 111 limited-service chains on 10 factors including food quality, McDonald’s was ranked 110th. In-N-Out Burger was number one.

Despite the growing competition, McDonald's remains by far the biggest burger chain the US, with about 14,300 locations – more than twice as many restaurants as the second-largest, Burger King. And the "Golden Arches" are still expanding globally, as McDonald's plans to add about 300 restaurants to its total of over 36,000 worldwide.

“I often describe McDonald’s as possibly the most democratic — with a small ‘d’ — brand in the world,” CEO Easterbrook said in April. “And what customers love the world over, and none more so than here in the US, is how they can buy into aspirational quality products, but at a McDonald’s price.”

This year's numbers don't necessarily signify the beginning of the end for McDonald's. In 2008, Starbucks CEO Howard Schultz closed hundreds of US cafes and the company has experienced sales growth in the years since.

People have been predicting the demise of McDonald's for decades, said Mike Donahue, who served as McDonald's chief communications officer before leaving in 2006 to found Lyfe Kitchen. He said that this year's closings are most likely a way to strengthen the core base of stores. 

"The only thing that stops growth is relevancy to the customer," said Mr. Donahue. "What they're doing is pruning the tree." 

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