Has McDonald's Become Irrelevant?
It’s tough for any business to survive if it isn’t relevant to its customers.
According to McDonald’s (NYSE: MCD) CEO, Don Thompson, his company has that problem -– at least, to some extent. Thursday, during a call to analysts, Thompson said “We’ve lost some of our customer relevance.”
Specifically, Thompson said, the company needed to improve menu offerings and provide better value. In some ways, “improvement” means “simplify.” In an effort to compete with fast casual restaurants that offer healthier options, McDonald’s has added a number of items to its menu. The result has been customer frustration and slow service.
All that translated to a drop of 0.2 percent in sales at Mickey-D's U.S. restaurants in 2013. The number of customers coming through the door was down 1.6 percent, although those who did line up at the counter spent more. Revenue was up two percent to $28.1 billion worldwide.
One of McDonald’s attempts to address its problems, adding “& More” to its Dollar Menu, Thompson said, has garnered results the company expected.
Moving forward, McDonald’s said it would offer customized burgers and would emphasize coffee and breakfast. Whether that means universal all-day breakfast is not known.
In addition to relevance, Thompson spoke about trust in his conference call; saying "the key is going to really be to re-establish the trust of customers."
"That means basic execution at a restaurant level, marketing engagement at a much stronger level," he added, "and also to make sure that our menu is relevant."
According to The Wall Street Journal, McDonald's said it learned from mistakes over the past year. Too many new menu items, added too quickly, created service that was too slow. In addition, some new products were priced above the pocketbooks of McDonald’s customers. One example given was Mighty Wings, which sold well above those offered by competitors.
One source told The Wall Street Journal the company ended that promotion with 10 million pounds of unsold wings.
"We overcomplicated the restaurants and didn't give restaurants an opportunity to breathe," said McDonald's COO Tim Fenton. "We need to do fewer products with better execution."
In addition, the company said it would enlarge prep tables to give workers more space to assemble food -- and would add employees at peak hours and on weekends.
Finally, McDonald’s said it would budget $3 billion in 2014 to be used to add 1,600 new restaurants and to refurbish 1,000 more. The company also said it expected to distribute $5 billion to shareholders through share buybacks and dividends in 2014.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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