How McDonald's Lost Its Most Important Customer

By Markets Fool.com

McDonald's just reported its first full-year sales decline in 30 years, and analysts have offered up a million reasons why: The food is not healthy; they have failed to embrace technology; the menu is too big; speed of service is too slow; and the brand has lost its meaning.

Continue Reading Below

The list goes on and on, but critics may be ignoring the biggest factor in the decline of the Golden Arches. McDonald's has lost its grip on the most important customer base -- kids.

Known for its iconic Happy Meal, McDonald's has been a favorite treat for kids since its early history. Ray Kroc, the man who built the McDonald's empire, understood the power of marketing to children, saying, "If you have one dollar to spend on marketing, spend it on kids."Not only are kids easy targets for tasty fast food chains like McDonald's, but they bring their parents to the restaurant with them and often go on to become lifelong customers.

Kroc was innovative with marketing to children, creating a cast of well-known characters, including Ronald McDonald and adding "playlands" to restaurants to make McDonald's even more of a kids destination. Like Disney, with its movies and theme parks, McDonald's was a brand children could easily fall in love with.

A good reason to grimace
A lot has changed since the days when Kroc ruled the fast food chain. Selling to children, which was once one of McDonald's biggest strengths, has become a vulnerability as concern has grown among parents and governments about obesity and food quality.

In 2006, Disney refused to renew its Happy Meal partnership with McDonald's, ending a 10-year co-branding deal that was said to be worth $1 billion to the media giant.Like many others, Disney backed away from Mickey D's in order to maintain its family friendly image and avoid being associated with a company many see as a leading cause of childhood obesity.

Continue Reading Below

Fast-food children's meals have declined across the industry since 2007,but McDonald's seems to have been bested by the competition. Last year, for the first time in 25 years, the company lost its #1 ranking as the fast-food chain with the most "kid appeal," according to research by Sandelman & Associates, falling to Chick-Fil-A.

Visits from families also continue to decline. Last year, families with a child under the age of 12 made up just 14.6% of customers, down from 18.6% in 2011.Food options have improved for all Americans, including children, and kids are more sophisticated and adventurous eaters than their parents were.

McDonald's has moved to address those health concerns by offering fruits and vegetables, but it hasn't won over parents who often consider the food to be "junk." The company's recent marketing also aims to reinvigorate the brand's place in family and community. Its "Signs" ad shows McDonald's marquees with messages supporting the local community, and a current "Pay with Lovin'" promotion offers free meals to random customers in exchange for spontaneous acts of kindness such as calling mom to say "I Love You" or dancing in front of the register.

That gut feeling
It is clear what McDonald's wants from its recent campaign. It wants to give customers that warm and fuzzy feeling that familiar and beloved brands can provide. It wants to bring back the childlike sense of magic and excitement that used to be its hallmark.

But the brand has become tarnished. Whether fair or not, McDonald's has become a scapegoat for obesity and other food-related health problems, and its declining popularity with kids over the past decade likely cost the chain countless lifelong customers, which has led to declining sales.

As new CEO Steve Easterbrook steps up to the plate, restoring McDonald's brand and making it the family friendly destination it once was should be a top priority. If McDonald's can win over moms and children once again, sales should begin moving in the right direction.

The article How McDonald's Lost Its Most Important Customer originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.