McDonald’s: Where Art Thou, Customers?
Poor, McDonald’s (NYSE:MCD). The once highly celebrated fast food chain is now facing a bout of what CEO Don Thompson calls a loss of “customer relevance,” and the company’s efforts to rectify that problem have up to this point all but fallen short. McDonald’s released its latest round of earnings Thursday, and reported that sales at established U.S. restaurants fell 0.2 percent in 2013, and the number of customers declined 1.6 percent.
This was disappointing news for the chain to share considering sales at established stores usually are a good indicator of a company’s health, and they thus made it clear that McDonald’s business isn’t exactly thriving. Moreover, Thompson’s comment on McDonald’s loss of relevance this week indicated that even the chief executive is now recognizing the company’s loosening grip on a fast food industry that it once controlled. Businessweek highlights that customers are fortunately spending more when they do visit McDonald’s stores, evidenced by global sales rising 0.2 percent, but the problem is that consumer foot traffic has significantly dropped off since McDonald’s heyday, and that’s a reality that the chain now simply has to face.
It’s no secret that the Oak Brook, Illinois-based company enjoyed a significant amount of media attention this past year as it rolled out new menu items and strategies; however, its earnings report Thursday illuminated that even the most dramatic of its changes didn’t making a considerable difference when it came to sales. McDonald’s was convinced that its launch of the ‘Dollar Menu & More’ would help it appeal to cost-conscious consumers who also want higher end meals, but Thompson only said in his earnings call that the results from the new menu were what the company expected, and those comments were hard for just about any investor to interpret.
Other McDonald’s efforts included the launch of seasonal offerings like the Mighty Wings, the chicken McWrap, Pumpkin Spice Lattes, and more Quarter Pounder burgers. These items were purposed to appeal to consumers’ changing palates and newer flavor favorites, but McDonald’s aims all but failed, and some of the seasonal rollouts even hurt more than they helped.
The reality of the situation is that McDonald’s has simply lost its niche in the fast food industry. Some chains are now thriving from their healthful offerings — catering to the rise number of health-conscious consumers — while others, like Five Guys Burgers and Fries have done the opposite, boasting their greasy offerings with pride, and still managing to perform better than McDonald’s. That’s because McDonald’s has tried to straddle the line between healthy food items, and indulgent ones, instead of just focusing on one camp to go after. By trying to appeal to both parties — the healthy eaters and the grease-loving ones — the chain has missed its mark, and now it is simply left with a lot of uneaten greens, Mighty Wings, and milkshakes.
Thompson vowed to investors this week that the company is now making plans that will help it realize more success in the future (think: customized burgers and a bigger emphasis on breakfast), but analysts are still slow to hand out any free confidence this time around. The fact that McDonald’s is now suffering flattened demand is only worsened by the fact that it is also lugging around a bad PR image thanks to its low wages, and thus, the chain is certainly up against a lot that many may not realize.
Of course, to be fair, this is McDonald’s we’re talking about, and it’s not like the chain is suffering the possibility of going anywhere anytime soon. However, all we’re saying is that the company has seen better days, and it needs to resurrect a more effective strategy sooner rather than later. While drive thru lines for McDonald’s used to snake around parking lots, now more consumers are lining up at rivals like Chipotle (NYSE:CMG) and Five Guys, and it’s high time McDonald’s does something about that.