1 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

In 2015, McDonald’s reached a reputation low-point, ranking last in a study that measured the reputations of 32 US restaurant chains. The fast-food giant has been the target of strikes, protests and social media campaigns criticizing its labor policies and product offerings. McDonald’s must earn back consumer trust in order to reverse its deteriorating public image.

2015 RepTrak® Pulse Score: McDonald’s

he RepTrak® Pulse score is a measure of the

emotional bond between a company and its

stakeholders. Figure 1 depicts the 2015 US

RepTrak® Pulse Score for McDonald’s:

Figure 1: McDonald’s reputation dips in 2015

McDonald’s has a Weak reputation score for the first time

since 2008. Figure 2 depicts McDonald’s score relative to

the industry’s most reputable companies in 2015:

Figure 2: Panera Bread claims industry lead in 2015

In the aftermath of the 2008 financial crisis, reputation

scores have trended up in the last three years,

particularly in the consumer and hospitality industries.

Given the brightened landscape, McDonald’s sharp

reputation decline in 2015 is alarming. Figure 3 depicts

McDonald’s US reputation scores from 2012-2015:

Figure 3: McDonald’s hits reputation low-point

55.34

73.92

74.15

75.60

75.76

76.62

77.06

77.21

77.38

78.44

80.00

40 50 60 70 80 90

McDonald's

Mrs. Fields

Chipotle Mexican Grill

Wendy's

Texas Roadhouse

Pizza Hut

Baskin-Robbins

Krispy Kreme

Subway

Dunkin' Brands, Inc.

Panera Bread

2015 REPUTATION REPORT McDonald’s at a Reputation Crossroads

August 2015

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55.34 Weak

65.50

61.2963.96

55.34

50

55

60

65

70

75

80

2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5

M C D O N A L D ' S R E P U T A T I O N S C O R E S : 2 0 1 2 - 2 0 1 5

McDonald's RepTrak® Score

Significant Difference: > 3.1

After six straight years with an Average reputation,

McDonald’s received a Weak reputation score in

2015. McDonald’s RepTrak® Pulse Score fell 8.62

points in 2015, the largest decline of any US

restaurant chain. Companies with strong or

excellent reputation scores are the most effective

at communicating their activities and core values

with stakeholders in ways that resonate and leave a

lasting positive emotional bond. McDonald’s has

lacked the transparency necessary to build this

emotional bond with consumers. In the next section

we will explore the biggest drivers of reputation in

the US hospitality industry and the areas in which

McDonald’s stands to improve the most.

2 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

What Drives Reputation for US Restaurants?

Reputation Institute tracks seven dimensions that contribute to

corporate reputation. The importance of a particular dimension in

determining a company’s reputation, or the dimension weight, varies

by market and by industry. Figure 4 depicts the 2015 dimension

weights in the US hospitality industry:

Figure 4: “Governance” and “Innovation” are key reputation drivers

In the US hospitality industry, a

company’s reputation is impacted

most by its product and service

offerings, its governance and its

innovation. Citizenship is also a

critical driver of reputation. The

governance dimension assesses

stakeholder perceptions of a

company as ethical and transparent.

Figure 5 depicts the 2015 US

dimension scores for McDonald’s:

Figure 5: McDonald’s suffers from negative workplace perceptions

2015 Dimension Weights: US Hospitality

19.5%

13.2%

13.1%

13.7%

14.3%

12.1%

14.1%

Key Dimension: Governance

Struggling to Shed Perceptions

Long-held skepticism around

the freshness and quality of

ingredients (i.e. “pink slime” in

meat, “yoga mats” in chicken

McNuggets, “vegetarian”

French fries scandal)

In July, a McDonald’s supplier

in Shanghai was found pumping

chicken with excessive

antibiotics. TV report showed

workers reusing meat that had

fallen to the floor, as well as

mixing fresh & expired meat

Transparency & Engagement

In October, launched YouTube

campaign called “Our Food.

Your Questions.”

Video campaign features

behind-the-scenes web vignettes

and infographics illustrating the

production process

Enables customers to ask

questions on website and

receive answers in real time

“We know some people continue to have

questions about our food from the

standpoint of the ingredients or how food

is prepared at the restaurant. This is our

move to ensure we engage people in a

two-way dialogue about our food and

address their questions and comments.”

Kevin Newell

EVP-chief brand and strategy officer,

McDonald’s USA

56.5

48.2

48.6 67.7

64.1

63.9

55.34 58.6

McDonald’s has long suffered from

negative perceptions surrounding

the health and quality of its food.

More recently, the McDonald’s

brand has been associated with

poor working conditions and harsh

labor policies. This is reflected in its

weak scores in the Workplace and

Products/Services dimensions.

McDonald’s also has weak scores in

Governance and Innovation, two of

the industry’s key reputation

drivers.

3 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

Market Impact

There is a high correlation between a company’s

reputation score and the willingness of consumers to

support the company. Figure 6 illustrates the decline in

support for McDonald’s in 2015:

Figure 6: As reputation falls, so does support

While “Work For” was the one supportive behavior in

which McDonald’s did not see a decline in 2015, its

score in this supportive behavior remains last among all

US restaurant chains. Figure 7 depicts the level of trust

for McDonald’s compared to the rest of the industry:

Figure 7: McDonald’s needs to regain consumer trust

Our data consistently illustrates a strong, positive

correlation between a company’s RepTrak® Pulse

score and its supportive behavior scores. In fact,

last year a five point increase in reputation score

amongst US companies translated to an 8.6%

improvement in willingness of the general public

to recommend that company. Figure 8 depicts the

2015 RepTrak® Pulse scores for select US

restaurants, along with the percent of

respondents who are willing to buy its products:

Figure 8: Pulse Score is a good indicator of support

In the hospitality industry, there is a particularly

strong correlation between a company’s

RepTrak® Pulse Score and the percent of

respondents willing to buy its products. Panera

has the highest RepTrak® Pulse score in the

industry, and also received the highest percent of

support in “Willingness to Buy”. McDonald’s has

the lowest RepTrak® Pulse Score in the industry,

and also has the lowest percent of support in

“Willingness to Buy”.

R² = 0.9471

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40%

50%

60%

70%

80%

50 55 60 65 70 75 80 85% o

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RepTrak® Pulse Score

"Willingness to Buy"

39% 47%

47% 39%

23% 19%

“Trust”

“Recommend”

53% 39%

2014

“Buy”

“Work For”

40% 30% “Invest”

% of US general public that strongly agrees they would perform supportive behavior

2015

47%

39%

49% 49%

30%

35%

40%

45%

50%

55%

60%

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McDonald's US Restaurant Average

+0.4%

-7.9%

“I Would Trust”

4 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

McDonald’s in Crisis Mode

Americans’ love affair with McDonald’s is fading. Ex-CEO Don

Thompson resigned in March amidst six straight quarters of declining

sales. In January, McDonald’s posted its steepest monthly decline in

U.S. same-store sales in more than 14 years.

McDonald’s reputation overseas also took a hit in 2014. In August, a

supplier scare decimated store traffic in China, while Russian

regulators shut down several locations on food safety concerns. In all,

McDonald’s reported a 30% drop in worldwide sales in 2014.

Figure 9 illustrates the change in McDonald’s stock price and U.S.

RepTrak® Pulse Score since 2012:

Figure 9: McDonald’s struggles led to ouster of ex-CEO Thompson

The red line depicts McDonald’s RepTrak scores in Q1 of each

respective year. The blue line depicts McDonald’s stock price on

January 1st of each respective year. McDonald’s stock fell nearly 15%

from January 2012 to January 2015. A company’s stock is a reflection

of its reputation. Companies with better reputations are not as

negatively affected during a crisis, recover faster, and continue to

outperform peers in the stock market.

McDonald’s in Crisis Mode

1.) Younger customers are fleeing

McDonald’s is struggling to stay

relevant with millennials

Fast-casual restaurants like

Chipotle and Panera are

growing rapidly… offer fresher

ingredients and custom ordering

with convenience of fast-food

2.) Public criticism

McDonald’s was focal point of

the “Fight for 15” protests, a

campaign to get fast-food chains

to boost minimum wage to $15

In 2014 the NLRB made history

by holding McDonald’s Co.

responsible for violations

occurring at individual franchises

In January, a group of former

employees of a Virginia

McDonald’s sued the franchise

for racial and sexual

discrimination

In March, McDonald’s workers

in 19 US cities filed 28

complaints to OSHA about

workplace safety

3.) Product quality

McDonald’s has been trying to

upgrade the quality of its food

Menu complexity is causing

delays and prep mistakes

Very few “Big Hits” recently,

either due to marketing failure

or too many products on menu

65.5

61.3

64.0

55.3

101.799.7

96.9

89.6

80

85

90

95

100

105

50

52

54

56

58

60

62

64

66

68

Jan. '12 Jan. '13 Jan. '14 Jan. '15

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McDonald's: RepTrak® Pulse vs. Stock Price

RepTrak® Pulse Score NYSE Stock Price

5 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

Rebounding from a Reputation Crisis

As the economy has improved, consumers increasingly prioritize

value for their dollar, rather than price value. McDonald’s can no

longer lure customers with new offers and inexpensive menu items

off the Dollar Menu, a concept that has grown redundant. Rather, the

fast-food giant must demonstrate a willingness to change. It must

push for simpler, healthier ingredients and customizable product

offerings to compete with emerging competition from Wendy’s and

more upscale burger chains like Five Guys and Shake Shack. And

McDonald’s must take action that shows they are serious about

improving conditions for its workers.

Newly appointed CEO Steve Easterbrook is taking steps to

accomplish these goals. In a 23-minute video released in May,

Easterbook detailed McDonald’s “Corporate Turnaround Plan”,

highlighting the desire to be branded as a progressive, modern burger

company. As part of this re-branding, McDonald’s will upgrade its

menus and stores, improve service and add modernized payment

systems and digital ordering capabilities. Easterbrook also announced

the company’s plans to give 90,000 workers a raise.

Overview

Times change and so do consumption habits. McDonald’s once-reliable

base of younger customers have defected to fast-casual chains like

Chipotle, Shake Shack and Panera, which are deemed as tastier and

healthier options offering customizable meals with more trustworthy

ingredients. In order to maintain a reputation advantage, you have to

adapt to market trends and be willing to innovate. McDonald’s was late

to the party, but looks to be moving in the right direction under new

leadership. In Easterbrook’s short time at the helm, McDonald’s has

simplified its menu, opted to serve only chicken free of antibiotics used

on humans, transitioned to all-day breakfast in most restaurants, and

agreed to bump up its wages at company-owned U.S. locations. These

are good first steps, but only time will tell if the once iconic Golden

Arches will reign supreme again.

McDonald’s Action Items

1.) New Philosophy

Get out of the past; re-brand as

modern burger company under

new leadership

Don’t rely on inexpensive menu

items and incentives to lure

customers; earn customer’s trust

and goodwill

2.) Simplify product offerings

Simplify menu, which has

become too broad and complex

for consumers to understand and

workers to execute; smaller

menu will translate to speedier

transactions and enables more

ingredient transparency

Eliminate wraps and other menu

items, introduce custom burgers

with better add-ons

Prioritize transparency, continue

and build on “Our Food, Your

Questions” campaign…

leverage social media to

promote awareness of such

initiatives

3.) Address workplace perceptions

Be proactive, not reactive in

improving workplace conditions

Build on April’s announcement

to raise minimum wage…

expand to more workers, find

new ways to engage employees,

turn employees into

McDonald’s brand ambassadors

6 | 2015 Reputation Report: McDonald’s at a Reputation Crossroads

2015 Reputation Ranking: US Restaurants

Rank Company 2015 RepTrak®

Pulse Score 1 Panera Bread 80.00 2 Dunkin’ Brands, Inc. 78.44 3 Subway 77.38 4 Krispy Kreme 77.21 5 Baskin-Robbins 77.06 6 Pizza Hut 76.62 7 Texas Roadhouse 75.76 8 Wendy’s 75.60 9 Chipotle Mexican Grill 74.15

10 Mrs. Fields 73.92 11 Papa John’s Pizza 73.65 12 Cheesecake Factory,

Inc. 72.99

13 Red Robin 72.69 14 Buffalo Wild Wings 72.05 15 Cracker Barrel Old

Country Store 71.58

16 Starbucks Coffee Company

71.11 17 Chick-fil-A 70.44 18 Applebee’s 70.12 19 Outback Steakhouse 69.83 20 Chili’s 69.29 21 Ruby Tuesday 69.29 22 Olive Garden 68.31 23 Domino’s pizza 68.10 24 Little Caesars 67.90 25 T.G.I. Friday’s 66.95 26 Red Lobster 66.25 27 Quiznos 66.06 28 Burger King 64.24 29 KFC 63.99 30 Long John Silver’s 62.60 31 Taco Bell 62.20 32 McDonald’s 55.34

About Reputation Institute

Reputation Institute (RI) is the world’s leading consulting

and advisory firm for reputation. RI enables many of the

world’s leading companies to make more confident

business decisions that build and protect reputation

capital, analyze risk and sustainability topics, and drive

competitive advantage.

RI’s most prominent management tool is the RepTrak®

model for analyzing the reputations of companies and

institutions — best known via the Global RepTrak® 100,

the world’s largest and most comprehensive study of

corporate reputations.

Learn more at: http://www.reputationinstitute.com/