#173 A not so Happy Meal for McDonald’s
In 2009, Hjörtur Smárason walked into a McDonald’s restaurant in Iceland and ordered what turned out to be the last hamburger and fries ever served in the country. The global fast food giant that maintains almost 40,000 restaurants in more than 100 countries had failed and decided to leave the island state in the middle of the North Atlantic, making Iceland join ranks with the likes of North Korea, Iran, Afghanistan, or most of Africa.
Often, failure in international markets is associated with global corporations not understanding local consumer preferences or not respecting business practices. None of these applied to McDonald’s challenges in Iceland. While Iceland’s market potential was always limited because of its small size of roughly 300,000 population, income in Iceland as always high, people ate out frequently and definitely had an affinity for Western, particularly American culture. McDonald’s decision to enter the market as early as 1993, therefore seemed to make perfect sense. Early on, the first challenge presented itself in the form of local competition. Dating back to 1937, the hot dog stand Bæjarins Beztu Pylsur is somewhat of a national icon and a local burger chain, Hambórgarabúllan, was so popular that the appeal of the Golden Arches wasn’t quite as pronounced as one would have expected. Then, there were also logistical challenges. For a company that is built – among many factors – around an efficient supply chain, cheap ingredients and consistent quality, the distances of almost 3,000 miles from New York and about 1,200 miles from London were difficult to overcome. For instance, McDonald’s meat was originally sourced from local Icelandic farms, but a meat shortage made it necessary to start sourcing most ingredients from Germany. The final blow came in the form of the financial crisis of 2008/2009, when the Icelandic Krona lost more than half of its value. With the value of the Krona being so low, and customs tariffs being so high, McDonald’s had to substantially raise prices for its menu items. At one point, Iceland actually had the highest-priced Big Mac in the whole world at $6.36. Ultimately, operating in Iceland no longer made business sense, and so McDonald’s left Iceland in 2009.
Until 2012, the last-ever Icelandic McDonald’s burger and fries was on display at a hostel in Reykjavik’s major bus terminal. They were then donated to the National Museum of Iceland where, to this day, visitors can pay their respects in person or via a live cam. You may be amazed (or not) to hear that to this day, the meal still looks happy – with very few signs of decay. Except for the fries that people have been stealing to get a taste of the past…
March 4, 2023 @ 8:52 am
It is quite an interesting story about another failure of an international company to enter a new market/region. Although the corporate had thought on different topics, such as the income situation, they missed the opportunity to do market research and analyze the country and its characteristics.
Due to this missing knowledge, some significant issues occurred, which caused the end of the business in Iceland.
Besides the competition problem, they also had the issue with the scared resources. It would be very interesting to see how their local competitor Bæjarins Beztu Pylsur solved this issue. With the general dependency on importing most of their products from outside, the rising price was another problem for the company.
In sum, it could be said that Mcdonald’s and its products were not ready to enter the market in Iceland. For example, they could have tried a more premium style of their restaurants with better service or more premium and healthy products. This might have helped justify the higher prices or motivate people to go to the restaurants.
But as always, it is always easier to find arguments and better ways in hindsight. Besides Mcdonald, many other international companies had troubles during the recession in Iceland.
March 11, 2023 @ 3:46 pm
The example of McDonald’s market entry in Iceland was very exciting to read and shows which (unexpected) problems can occur when a market entry is carried out in another country. McDonald’s did some research to get an overview of the market potential, but other factors (e.g. long delivery routes, numerous imports, currency fluctuations) were not sufficiently taken into account. In my opinion, it is fatal for an international company that these factors was not taken into account.
Furthermore, McDonald’s should have paid more attention to general points. On the one hand, McDonald’s should have been aware that there are only 300,000 people living in Iceland, so the audience is limited. On the other hand, McDonald’s competitor had a strong market position. A detailed analysis of this competitor and the competitive environment would have provided insight to avoid any pitfalls.
The case is similar with other companies in the fast food industry. Burger King had similar problems in Iceland as McDonald’s.
To sum up, McDonald’s should have checked whether there was indeed corporate and product readiness, because an island country like Iceland comes with certain limitations.
November 17, 2023 @ 5:49 am
The impact of this blog’s positive messages is truly commendable.
March 11, 2024 @ 9:32 pm
While many failures in international markets can be associated with global corporations not understanding local consumer preferences or not respecting business practices this was not the case for McDonalds in Iceland. Indeed they were aware about the small market size, when looking at the local population. Tourism in Iceland has grown extremely, therefore also a potential success factor for the world-famous fast food chain. While competition might be a topic, I personally think this was not the main reason for them to leave Iceland. What surprised me the most is that they apparently did not do their full homework. Not investigating the local business conditions, in particular the supplier side seemed a showstopper. In my opinion they have been very unlucky in terms of timing when referring to the 2008/2009 financial crisis – The financial crisis besides the company’s setbacks (eg customs), they were indirectly affected by the currency loss.