Faltering McDonald’s a Sign of Struggling Lower Classes

McDonald’s is struggling. According to CEO Don Thompson, they have “lost some of their customer relevance.” By the numbers, McDonald’s had a two percent global reduction in traffic for 2013, and, for a company that does the kind of business it does, that’s a huge amount.

So what’s the problem? Thompson offered two main explanations:

First, customers willing to spend a little extra are gravitating toward what they feel are healthier or fresher alternatives. McDonald’s has attempted to spruce up its image with “premium” McCafé offerings, wraps, egg white breakfasts, etc. But this has not resulted in capturing the younger, more skeptical crowd.

For better or worse, most of the members of the rising generation’s customer base view McDonald’s as a cheap, unhealthful last-ditch option (like if they’re mostly drunk at 3 am and the nearest Waffle House is ten miles farther away than the nearest McDonald’s…). McCafé won’t change that. This is a deeply entrenched perception issue. It will be nearly impossible for McDonald’s to shake their current reputation.

McDonald’s would never change their name, and even investing in more “hip” restaurants has not gone so well. A hint of their involvement is absolutely hipster-repellent. Consider Chipotle, a restaurant that has done an excellent job crafting a future with the rising customer base. There was a rumor going around that McDonald’s actually owned Chipotle. This could have ruined Chipotle’s squeaky clean image, so they confronted the rumor directly on their website:

There is a popular misconception that Chipotle restaurants are owned by McDonald’s. While they were once an investor in our company, they divested in 2006 and our company went public on the New York Stock Exchange that year.

It’s a bad sign when other restaurants want to make sure everyone knows they have absolutely nothing to do with you. Anyway…

Second, Thompson mentioned that McDonald’s real customer base just doesn’t have as much disposable income. In his words, they aren’t “faring quite as well in the current economy.” This understatement is the real story here.

No matter what the pundits say about the upturn in the economy or the success of the “war on poverty,” the challenges that McDonald’s is facing indicate that all of this administration’s attempts to redistribute wealth has done nothing to make things easier for the poor. It has made things worse.

Inflation and unemployment have hurt the poor more than anyone else. And poor and middle class people are the main customer base for McDonald’s. The current economy favors the already rich. Not because it necessarily makes them richer, by the way. It’s just that rich people with lots of liquid assets aren’t harmed by inflation and unemployment to the same degree. They have a buffer.

If you’ve noticed the statistics on income inequality, everyone’s wealth is shrinking. It’s just that the poor and middle class wealth is shrinking at a much faster rate. McDonald’s sales acts as a barometer for the disposable income of the poor. In many ways, their struggle is hard evidence that Obama’s redistribution campaign has completely backfired.

Bottom line: you can’t benefit the poor by stealing from the rich (graduated taxes) or stealing from the future (debt). A real aggregate growth in wealth, which would benefit everyone, is possible—if the government would mind their business and let us mind ours.