Fundamental change was the name of the game at the close of quarter announcements for McDonald’s Corp.
Plagued by years of problems in several aspects of its business, corporate management has vowed to overhaul several aspects of the business in order to increase net income. The period ending September 30th saw a 30% decline in net income – and included weak sales in Asia, Europe and its home market of the U.S.
Slower service, complicated menu. In the U.S., service times have been growing slower due to a complicated menu. While 20-somethings seek out Chipotle Mexican Grill and Five Guys burgers, McDonald’s consumers – young people – are more often opting for fast-casual chains that have more variety…and thus sales have dropped.
During the month of September alone, there was a 4.1% decline in the same-store sales in the U.S., which was the worst sales performance month since February of this year. The company has already begun efforts to change this trend, including focusing on increasing staffing at busy times and replacing the head of the U.S. business. However, these changes haven’t boosted sales or changed profits at all.
Changing the experience. “The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers,” said Chief Executive Don Thomas in an earnings call to analysts, media and investors.
Part of this change will focus on the menu. Mr. Thompson said that they would begin simplifying their menu at the beginning on 2015. Primarily, they will remove low-selling products. In addition, they will give their 21 regional districts more control over placing locally relevant foods on the menu.
Following this, by the third quarter of next year, they will have new technology in place that will promise to make it easier and faster to get orders. Customers will be able to customize their orders digitally, and the food will be served just the way they like. It’s all part of what the company is calling “McDonald’s Experience of the Future” initiative.
Personalizing meals. “Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they are served,” noted Mr. Thompson.
However, their menu is not the only problem that the fast food giant has been facing. There was a scandal at one of the meat suppliers in China, which drove confidence down in stores in that country. Same-store sales were down 9.9% in the latest quarter in McDonald’s Asia/Pacific, Middle East and Africa region. In addition, Europe has experienced a broader economic softness which has impacted McDonald’s directly. In Russia, these economic problems have been complicated by political troubles. Authorities in that country have been inspecting and shutting down some McDonald’s restaurants, which the corporation sees as retaliation for U.S. sanctions.
Looking for transparency in ingredients. These problems may turn out to be short-term, but it complicates things for the corporation as it tries to save the U.S. market. American McDonald’s account for 40% of the more than 35,000 global restaurants. In addition to a simpler menu and technology assisted ordering, American consumers are looking for more transparency about the source of ingredients in their food.
“We recognize that we must demonstrate to our customers and the entire McDonald’s system that we face and are taking decisive action to fundamentally change the way we approach our business,” said Mr. Thompson on the earnings call.
Even though McDonald’s has plans to change, analysts on the call remain skeptical. There may be too many shifts in consumer behavior and expectations for the company to weather long-term. While some stated to the New York Times that adding healthier fare would bring in a younger audience, but others said that the company should focus on the speed of service rather than the health quality of the food.