McDonald's got World Cup exposure but not revenue
McDonald's reportedly spent between $10 million $25 million to be a sponsor of the 2014 FIFA World Cup. Although McDonald's got publicity from the World Cup exposure, the company did not get the benefit of higher sales.
Germany's Bastian Schweinsteiger celebrates with the trophy after the World Cup final soccer match between Germany and Argentina at the Maracana Stadium in Rio de Janeiro, Brazil, July 13, 2014. McDonald's reportedly spent between $10 million $25 million to be a sponsor of the 2014 FIFA World Cup, but didn't see higher sales.
Martin Meissne/AP/File
The $10 million to $25 million McDonald鈥檚 reportedly spends annually to be a World Cup sponsor is the proverbial double-edged sword. On the one hand, the Cup is one of the best events with which a brand can be associated. But for McDonald鈥檚, the success of this year鈥檚 World Cup meant millions of people were at home, at bars or a Buffalo Wild Wings cheering throughout June. Not at McDonald鈥檚.
How better to explain same-store sales for McDonald鈥檚, which saw a 1.5 percent decline in comp sales for Q2 overall led by a 3.5 percent聽drop in June. McDonald鈥檚 Europe sales likely would have been positive in Q2 but for a sudden 3.4 percent聽drop in June. One analyst at today鈥檚 McDonald鈥檚 quarterly earnings call actually, embarrassingly asked, 鈥淲as there anything happening to explain the sales decline in Europe?鈥� That analyst needs to spend less time dining at Balthazar and more time among the living because yes there was. No analyst asked a question about the World Cup during the call. That was good for McDonald鈥檚 since it hardly could blame poor sales on an event of which it is a global sponsor. CEO Don Thompson didn鈥檛 mention the World Cup; not even the global聽聽supporting the event on which it spent millions.
Only Mark Kalinowski, restaurant analyst for Janney Montgomery Scott, had the smarts to wonder if the biggest global sporting event of the year might have had an impact on McDonald鈥檚 sales. As Kalinowski wrote in a brief to investors after McDonald鈥檚 quarterly report was issued, 鈥淎nything that keeps folks at home watching TV, keeps them away from their local McDonald鈥檚 restaurant. This may help explain the weaker-than-expected results in Europe and APMEA, in particular.鈥�
The World Cup doesn鈥檛 explain away the frightening June decline in total, of course. Unfortunately, no analyst on today鈥檚 call asked about sales for the Bacon Clubhouse, the premium burger on which McDonald鈥檚 pinned its Q2 sales hopes. Comp sales were down for Q2 but was that because the Bacon Clubhouse underperformed expectations? We won鈥檛 know because analysts never ask such simple questions.
McDonald鈥檚 poor Q2 sales clearly put Thompson on the defensive. The mantra of the day was 鈥渕oving with a sense of urgency.鈥� He used it multiple times to indicate that he knows something鈥檚 very wrong. The usual response is to point to 鈥渁 highly competitive environment and a contracting eating out market,鈥� but that is especially unconvincing when you have Chipotle Mexican Grill聽聽17.3聽percent same-store sales. Nothing contracting there.
The conference call鈥檚 other key phrase was 鈥渇oundational elements.鈥� These are those building blocks of McDonald鈥檚 business鈥攑ricing, menu, operations, service, marketing鈥攖hat will be strengthened under the two-path strategy Thompson outlined. The other path includes increasing customization, accelerating digital efforts and making McDonald鈥檚 鈥渁n even more respected brand鈥� through ties to organizations such as World Wildlife Fund.
Thompson alluded to but didn鈥檛 elaborate on a 鈥渓earning lab鈥� he says the company has established in California to probe what consumers today want from McDonald鈥檚. There were no analyst questions about the lab either, by the way. Thompson鈥檚 emphasis on the benefits of customization and personalization might mean an expansion of the聽聽option tested in California, or it may just be the expansion of condiment options that will be possible with the new High-Density Kitchen layout.
At one point in the call Thompson said McDonald鈥檚 will 鈥渆valuate the relationship between pricing and quality perception.鈥� That seemed to answer the concern voiced by a McDonald鈥檚 franchisee in聽. 鈥淲e still serve the most customers because we鈥檙e considered cheap, rather than the best quality,鈥� said one franchisee. 鈥淲e certainly have the best facility but we have to find a way to convince them that we offer the combination of service, quality, and cleanliness at the best value, not the cheapest.鈥�
Thompson agreed that McDonald鈥檚 needs to reemphasize the quality of its food. But that won鈥檛 mean dropping the Dollar Menu & More. 鈥淲e鈥檙e looking at the overall pricing on our menu board. But we鈥檙e not giving up on value or affordability,鈥� he said.
Changing advertising creative also part of Thompson鈥檚 turnaround plan. He wants ads to focus on product quality and he wants to revive that 鈥渆motional connection鈥� between brand and consumer that McDonald鈥檚 used to have.
If McDonald鈥檚 wants to improve consumer engagement with the brand, why doesn鈥檛 it try the 鈥淢y Burger鈥� promotion鈥攚here consumers suggest new burgers and the one with the most votes actually goes on the menu as an LTO鈥攊n the US? The crowdsourcing approach was tried for the first time in the UK this spring and what happened? UK sales were among the best, globally, in Q2. Despite the World Cup.