With CEO out, does McDonald's have any answers? (+video)(Read article summary)
McDonald's CEO Don Thompson is stepping down, to be replaced by McDonald's UK head Steve Easterbrook. Can McDonald's turn around its lagging sales and lure back customers in the near term?
In poker a “tell” is a facial expression or word that inadvertently betrays the power or deficiency of a player’s hand. It can happen in business, too, and Mike Andres, named last August to replace Jeff Stratton as president of McDonald’s USA, said something during last Friday’s Q4 earnings call that was, well, telling.
McDonald’s performance for all of 2104 “fell short of our expectations,” now-resigned president and CEO Don Thompson told analysts earlier this week. Global comparable sales were down 1% for the full year and off 0.9% for Q4. U.S. comp sales were negative for the fifth consecutive quarter, dipping 1.7% in Q4. Europe comps were down 1.1%; Asia/Pacific/Middle East/Africa comps fell 4.8%.
Thompson said McDonald’s is responding to the declining sales “with a sense of urgency.” What has the company done so urgently? “We redefined menu choice and personalization with the introduction of the Create Your Taste platform in Australia and the U.S.,” Thompson said. “Beyond our existing menu we are asserting McDonald’s burger leadership by offering greater customization and choice. Not only does Create Your Taste provide new menu news that excites consumers, it has the potential to lift sales of core classics by bringing more customers into our restaurants.”
During the Q&A session Andres responded to a question about the Create Your Taste platform this way: “Relative to Create Your Taste, please keep this in mind: We have been modeling out looking at Create Your Taste, Build Your Burger now for over three years.” His comment was intended to emphasize the company’s long-term commitment to the customization approach, but keep this in mind, too: After three years the platform was being tried in a handful of Southern California units at the end of 2014. Now it is being expanded to 30 stores and the company has said it hopes to have it in 2,000 of its 14,000 U.S. by the end of 2015. If the approach really has “potential to lift sales,” shouldn’t the chain be moving faster?
McDonald’s will export the Bacon Clubhouse to France next month. Perhaps it can bring back something fresh and novel in exchange.
There’s the rub. McDonald’s is trying to remedy deep near-term problems with long-term solutions. Can that approach be effective? The company says it hopes to have Create Your Taste kiosks in all 900+ Australian units by the end of 2015. That’s great but in what shape will U.S. same-store sales be then?
Keep in mind, too, that there’s no real menu innovation with Create Your Taste, it simply uses technology to allow customers to choose toppings for their burgers. It’s part of the “digital engagement” that McDonald’s believes will modernize its customer experience and reverse its sales slide. But what if customers don’t like or want McDonald’s food? Ah, that’s a different problem.
What significant, successful menu additions has McDonald’s made since it introduced the Bacon Clubhouse burger I March 2014? The $2 Jalapeňo Double maybe? Don’t tell me Go-Gurt and clementines in Happy Meals. Yogurt and fruit won’t save this brand. It tested an Original Cheddar Melt and guacamole-topped burgers but didn’t roll out either nationally. If McDonald’s truly wants to bring in lost customers right now, not years from, it ought to be able to introduce more than one menu star a year. Its European operations have no trouble developing unexpected menu items. It’s adding The Grand, a version of a successful doubleburger it sold in Spain , in the UK in early February. Denmark is showcasing three varieties of Big Tasty burgers.
Thompson insists that “changes we announced last year to create a flatter, more nimble organization have opened the door for decisions to be made closer to the customer,” including menu decisions. So are there menu winners just waiting to be added by, say, the Jacksonville, Fla., owners co-op? Maybe so. But if so, McDonald’s might want to get them out there soon. It’s urgent.