McDonald’s Future Doesn’t Look Well Done

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For years, McDonald’s was the standard by which other fast-food chains were measured. Since October 2013, it has expanded its Dollar Menu, added free morning coffee to people coming in for breakfast, and it has put a Clubhouse Burger on the menu. What did all of this innovation get it? Same-store sales in May were down 1 percent — meaning that the chain has seen that stat drop seven months in a row. Other chains are eating Mickey D’s for lunch. Ronald McDonald is replacing Pagliacci as the saddest clown around. The C-suite has given itself 18 months to rebrand the company. Good bloody luck!

According to the company’s latest 10-Q filing with the Securities and Exchange Commission (every publicly traded firm must provide investors and regulators with its financial results every quarter), McDonald’s U.S. same-store sales were down 1 percent; in Europe, they were down 0.4 percent; in Asia/Pacific, Middle East and Africa (APMEA, as the company refers to most of humanity) they were up 2.5 percent.

In the press release that the company used to spin this news, President and CEO Don Thompson said, “Around the world we are pursuing opportunities to provide our customers with their favorite food and drink, create memorable experiences, offer unparalleled convenience and become an even more trusted brand. We are intensifying our commitment to place the customer at the center of everything we do and are determined to create experiences that deliver the most meaningful impact for our customers and our business.”

There’s more bull in that than there is in a Big Mac. It sounds to me like he got some push back from franchise owners and others who don’t like the changes he proposed in an April conference call to investors (these usually go with earnings filings to further the spin of the press release). Those include remodeling restaurants to add Wi-Fi and other amenities that franchisees will have to pay for, open more restaurants that will compete with existing franchises and reaching more customers online which will require more IT spending by franchisees.

The corporate-owned restaurants will simply implement this and move on. The franchises, though, will be a problem. As Thompson said, “It will take time for consumers to notice the changes and reward us with increased visits. This is not about a silver bullet.” To buy a McDonald’s franchise, the Company says, “Generally, we require a minimum of $750,000 of non-borrowed personal resources to consider you for a franchise.” People with that kind of money don’t want to hear that they need to spend even more on their restaurants and that the return on that investment “will take time.”

The problem is not that you can’t get Wi-Fi with a Happy Meal. The troubles stem from lousy service from underpaid workers, menu choices perceived as unhealthy (and in many cases, rightly so) and a lack of anything new on the menu that gets people excited.

Management doesn’t really disagree. In 2016, it will start serving “sustainable beef.” Menu changes will include more vegetable and fruit options. Still, I don’t see how that’s going to get people away from Chipotle, Five Guys and Shake Shack – Wi-Fi or not.

Many wits have suggested that any kind of beef would be an improvement to the food. But the problem is that McDonald’s is cheap in a world where people in its customary markets are growing richer. As a nation develops, the first thing people do is buy better food and more of it. Super-sizing third-rate food doesn’t cut it for long. And if McDonald’s moves up market, there is significant competition.

Taco Bell is running an ad campaign this summer where it gets men named Ronald McDonald to comment favorably on its breakfast menu. It’s highly effective when even a Ronald McDonald prefers Taco Bell to the Golden Arches — even if it isn’t THE Ronald.

Over the next 18 months, McDonald’s will come out with a great many innovations. But I don’t think the company will be able to address successfully the same-store sales problem. The growth is not in America or Europe. Trying to revive the brand in those markets runs against the demographic and economic trends unless the company becomes very different indeed. Consumers in the APMEA are really where McDonald’s target is now. Pleasing them, though, means letting the more-developed markets erode. Franchisees and shareholders aren’t going to let that happen.

In other words, I am glad I don’t have Don Thompson’s job. If I did, though, I’d just try to make everything in McDonaldsland as good as the fries — after that, peace in the Middle East would be simple.

Jeff Myhre is a contributing journalist for TheBlot Magazine.

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