Will the real McDonald's please stand up?
After an endless stream of promotional offers, the company is going back to its roots. It's trying to find a strategy that works.
McDonald's (MCD) is having a bit of an identity crisis.
The burger behemoth announced a 5.2 percent drop in profits for the first three months of 2014 and a 1.7 percent decrease in same-store sales in the U.S. on Tuesday. President and CEO Don Thompson emphasized that McDonald's would be focusing on its core products, like its Big Mac, Egg McMuffin, and its famous french fries.
Thompson's back-to-basics vow comes in response to the sort of menu creep the chain experienced in 2013, when it rolled out a seemingly endless stream of limited-time offers, like its Mighty Wings, a steak and egg burrito, a steak breakfast sandwich, a new Quarter pounder, a grilled onion cheddar burger, the Hot n' Spicy McChicken, and a product that the restaurant must have questioned from the start: Fish McBites.
That was all on top of the Snack Wrap it added to its menu in 2006, the McCafe coffee beverages it introduced in 2009, and the fruit smoothies and McCafé Frappés it started to sell in 2010.
After all, those special promotions and innovations didn't do much good. Same-store sales slipped by 0.2 percent in the U.S. last year, and chief operating officer Tim Fenton admitted in January that the fast-food chain "stumbled a bit [in 2013] with too many new products, too fast and we created a lot of complexity."
On Tuesday, Thompson said that McDonald's "core products are familiar favorites for our customers. They truly represent McDonald's to all of our customers, and at about 40% of total sales, they are an incredible business asset for us that requires a constant drumbeat of communication."
But there's another side to McDonald's, the one that in September announced in conjunction with the Clinton Foundation that it would feature food choices that are lower in fat, salt, or sugar content. Kiwi on a stick, anyone?
The initiative aimed to appeal to health-conscious millennials, who are drawn to the fresh offerings of Panera Bread (PNRA) and Chipotle Mexican Grill (CMG). At the time, Thompson said that McDonald's wanted to optimize its menu with more fruit and vegetables, "giving customers additional choices when they come to McDonald's." Thompson made no mention of this initiative in the earnings call on Tuesday.
When asked specifically how the renewed focus on basic burgers and fries would mesh with the more healthful "additional choices" initiative from September, a McDonald's spokesperson simply said that the fast food chain's menu "features a variety of balanced choices to fit our customers' individual diet and lifestyle needs." She added, "We have adjusted our U.S. marketing calendar so that we're introducing the appropriate number of new and promotional menu items."
It's vital that McDonald's craft a consistent message, so customers' expectations are met when they choose to eat beneath the Golden Arches. When McDonald's first got off the ground in the 1940s, it had a nine-item menu made up of hamburger, cheeseburger, soft drinks, milk, coffee, potato chips, and a slice of pie. It built its iconic reputation on guaranteeing that these food and beverage items would have the same great taste no matter the McDonald's location at which they were served.
Just as crucial, too much menu diversification, which McDonald's has suffered from of late, leads to longer customer wait times in an industry built on speed. QSR Magazine, which covers the quick service restaurant industry, reported in October 2013 that McDonald's experienced the slowest drive-thru time in 15 years, which the publication attributed to its complicated menu.
"What [McDonald's] workers do inside those four walls is really impressive. Everyone has their time and place, and their entire job is done in two or three steps," says Howard Penney, managing director at Hedgeye Risk Management. Adding more processes that come with a bigger menu, specifically the smoothie and espresso machines, has disrupted McDonald's restaurants' time and motion, he says. It takes a lot longer to make a smoothie than it does to pour a fountain Coke.
"Everything they've done to become all things to all people has slowed service," Penney says.
Going back to its roots could be just what McDonald's needs. After all, it seems like a long shot for the fast food giant to morph into the next Chipotle or Panera since, as Penney puts it, "the core McDonald's customer is not looking for a wrap with a cucumber in it."
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When one thinks, ''gee, I'll have something heathy for lunch today'' that sure the hell does NOT include McD on the list.
Stop trying damit and just stay McD
McDonald's has gone crazy with $5 and $6 burgers and an overwhelming menu. It is not the cheap stop anymore.
We quit eating there years ago as the burgers were just room temp at best. Since they no longer cook anything on site. I would rather spend $6 on a burger at a sit down restaurant and have it cooked and fresh.
I'll agree that maybe the smoothies and frappuccinos have slowed down service; but to me, the more glaring problem is employees, including managers, who just don't give a damn. I actually do like the new quarter pounder w/ bacon, but I check every time I order it, and I'd say they get wrong more than half the time (sometimes no onions, sometimes no cheese, etc.).
I know it's kind of comparing apples to oranges, but try ordering something at a McDs in Tokyo - the service there is like how it used to be here years ago; fast and correct. I was actually confused the first time I went, as no one was standing on the side waiting for their order, as we do here and wait 5 to 10 minutes. Lo and behold, the order was ready in about 30 seconds. One time, it really was busy, and the counter person asked an older man to wait on the side, like we do here - man he looked pi$$ed, just to wait 1 minute. Hope he never visits a McDs here - he'll probably get arrested for the tantrum he'd throw. Ahhhh... only at McDs, yeah?
it always seemed to me that what worked for McDonalds was to offer enticements for the kids. the kids would hound their parents to go to mcDonalds. and the kids grew up then taking THEIR kids to McDonalds.
somewhere this approach seemed to end a decade ago? now they loose out on the next generation.
Mcdonalds is missing the boat people want a quality burger now very simple
Some businesses will need to lose money for Americans to get healthy again and earn lower health care premiums. Imagine a headline in 10 years that reads, "New Cases of Obesity, Heart Disease and Diabetes Drop by 25%". That headline will have to be sitting next to another headline that reads, "Fast Food Chains Report 25% Drop in Profits". There is a pretty direct correlation between the junk food diets that we use to poison ourselves with high intake of sugar, fat, salt, meat and caffeine and our high rates of chronic disease and resulting high health care costs. We are slowly figuring that out with smoking (down from 50% to 20% over 50 years). Maybe we will move faster weaning ourselves off addictive junk foods. A lot of lives (and Q of L) will depend on healthier eating.
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