A group of 27 McDonald’s owner-operators representing 231 domestic restaurants have given the most pessimistic outlook for the next six months of business in the history of Janney Capital Markets’ quarterly McDonald’s Franchisee Survey, placing a majority of the blame on the brand’s senior leadership.
Janney’s restaurant analyst, Mark Kalinowski, wrote in a research note that the franchisees surveyed on their six-month outlook gave an average rating of 1.84 on a scale of 1 to 5, in which 1 means “poor” and 5 means “excellent.” Nine of the 27 respondents rated their outlook at 1, and no franchisees indicated their outlook was a 5.
“This 1.84 number is meaningfully below the 2.9 average result over the history of the survey and below the 2.21 result from three months ago,” Kalinowski wrote. “Indeed, this result becomes the worst ever in our decade plus of conducting this survey, even lower than the previous low score of 1.89 from six months ago.”
Oak Brook, Ill.-based McDonald’s Corp. is scheduled to report second-quarter earnings on July 22. Although Janney conducts this survey before every quarterly earnings report, McDonald’s traditionally does not respond because the survey is published during the company’s “quiet period” when it does not comment on earnings.
The franchisees interviewed by Janney also reported a collective same-store sales decrease of 2.6 percent in June, causing the investment firm to lower its projection for McDonald’s monthly same-store sales by 1.1 percent to a companywide 2.6-percent decline for June.
Janney also lowered its projection for McDonald’s July same-store sales by 3.8 percent to a 1.8-percent decrease for the month, based on survey respondents’ estimates for their July sales.
In anonymous comments compiled in the survey, franchisees cited several factors that possibly led to sales decreases this summer, including having to lap a Monopoly Game promotion from 2013 and the pressure to the average check resulting from a $1 any-size beverage promotion.
According to Kalinowski’s note, franchisees also were asked to identify one of three factors most likely responsible for McDonald’s sluggish performance in the United States the past few months, and more than half of respondents cited company-specific issues — including dissatisfaction with sales returns on remodeled units and investments required for new kitchen equipment — as opposed to macroeconomic challenges or other factors like increased competition.
“On average,” Kalinowski wrote, “our franchisee respondents attributed 25 percent of the challenges to macroeconomic issues or consumer fatigue, 52 percent to McDonald’s-specific issues, and 23 percent to other factors.”
As they have said in comments in previous Janney surveys, the franchisees were frustrated that efforts to simplify the menu and operations either have not yet begun in earnest or have failed.
“We’ve put so many complex products in the store the last few years,” one franchisee said. “This impacts service, turnover and morale. I’m not sure what happened to our gatekeeper. His job was to ask the tough questions when new products were proposed, [but he] evidently approved them all, which requires the operator to invest $15,000 in a new prep table to keep the confusion sorted out. We need to trim the menu and focus on our core business.”
Others reiterated that McDonald’s was losing the ability to differentiate itself from competitors in the United States on food quality or service and expressed worry that the brand was becoming known among customers for being cheap and convenient but nothing else.
“All the money spent on rebuilds and remodels got us nothing,” one operator said. “It’s all about the menu. The recent Consumer Reports survey reflects this. Our competitors with simpler menus are doing just fine and run with far less labor. All the investment just increased operator debt load, making it harder to do much of anything for seven years until the debt is paid off.”
Janney also asks the franchisees to rate the relationship between McDonald’s Corp. and the franchisees, on the same 1-to-5 scale. For this report, franchisees rated relations at 1.94, between “poor” and “fair.” That result is below the average result between 2.1 and 2.2 over the decade-plus history of the survey, but above the 1.73 result recorded three months ago.
McDonald’s has more than 35,000 restaurants worldwide, including more than 14,000 locations in the United States.
Contact Mark Brandau at firstname.lastname@example.org.
Follow him on Twitter: @Mark_from_NRN