Is McDonald鈥檚 menu simplification hurting it?
McDonald鈥檚 Corp. President-CEO Steve Easterbrook boldly predicted the company鈥檚 now-seven-quarter-long string of down quarters globally will end in Q3. It came close in Q2: same-store sales were down just 0.7% in the quarter ended June 30, 2015. Certainly it helps to be lapping past declines, but the vow reflected his confidence that the turnaround he was brought in to engineer has begun. He cited several major markets showing sales and customer-traffic improvement.
But the U.S. business continues to lag other major markets. Domestic same-store sales were down 4% for Q2, but Easterbrook remains confident about an improvement. 鈥淚 believe we鈥檙e making the right moves to stabilize the U.S. business,鈥� he said. Those moves involve changes鈥攎ore subtle than dramatic, he admitted鈥攊n value, service and menu. Toasting buns a few seconds more, changing how it sears and grills burger patties to improve juiciness: these are the menu improvements being made. Easterbrook reaffirmed that his plan is to improve core menu products and continue the menu-simplification initiative rather than return to a 鈥渇renzy鈥� of new-product introductions. Is that the right strategy?
Easterbrook cited McDonald鈥檚 continuing success in the UK, Canada and Australia, and positive momentum in France and Germany. Since the beginning of the year, McDonald鈥檚 lone major addition has been the introduction of the there-item Sirloin Third Pound burger line. But the major markets that are recovering or improving have had more frequent and more varied product launches. Ironically, several of them are American-themed.
The UK saw a five-week return of its Great Tastes of America promotion, with items such as the California Melt and Dallas BBQ burgers. France鈥檚 鈥淎merican Summer鈥� promotion included the California & Beef and Florida & Chicken burgers. McDonald鈥檚 鈥淕reat Canadian Taste Adventure鈥� promotion earlier this year included such inventive items as Maple & Bacon Poutine, Western BBQ Burger and McLobster. Germany borrowed American flavors for a Wild Double BBQ burger. Australia got a new McWrap with lamb and feta cheese, a new three-item line of chicken burgers and the rollout of Create Your Taste in roughly six months. Sirloin Third Pound burgers seem tame to me next to these items. Is it surprising they didn鈥檛 meet sales expectations?
McDonald鈥檚 U.S. competitors are introducing more interesting new products including Jack in the Box鈥檚 Buttery Jack (and a Portobello Mushroom Buttery Jack launched this week). Carl鈥檚 Jr./Hardee鈥檚 has the Mushroom & Swiss All-Natural Burger; Wendy鈥檚 has the Baconator. These have the buzz鈥揳nd sales鈥揗cDonald鈥檚 couldn鈥檛 generate for Sirloin Third Pound burgers.
Easterbrook says McDonald鈥檚 menu strategy will be 鈥渃alm鈥� at the national level 鈥渨ith more energy at the local level.鈥� But local coops don鈥檛 create new burgers; they don鈥檛 create excitement. They create value; they do 鈥�2 for $5鈥� promotions. That鈥檚 not why Canada and France and Australia have had positive sales.
McDonald鈥檚 has been losing customers on the 鈥渧alue end鈥� to QSRs with lower-price options. But everyone knows value shoppers have little brand loyalty. You can鈥檛 win back and keep those customers. But can change negative perceptions with high-quality, higher-margin premium items that bring in customers who don鈥檛 eat at McDonald鈥檚. They might return.
Easterbrook said McDonald鈥檚 operations in Germany 鈥済ot their mojo back.鈥� The U.S. needs that, too. Will聽聽do it? Maybe, but Easterbrook says that won鈥檛 be introduced nationally 鈥渦nless the net impact is simplification.鈥� Consumer demand seems to be there, but how can breakfast be expanded without being disruptive? That鈥檚 what鈥檚 still being evaluated as McDonald鈥檚 broadens the test.
鈥淲e must operate better restaurants,鈥� Easterbrook told analysts this morning. But there something compelling and appealing must be on the menu to bring in customers.
