McDonald’s franchisees surveyed by Janney Capital Markets projected same-store sales to grow slightly in March and April, though the operators’ outlook for their businesses over the near term and their appraisal of the relationship with McDonald’s Corp. have improved little from a similar survey three months ago.
Many of the 27 owner-operators surveyed said favorable calendar shifts that yielded five weekends in March and moved Easter into April helped them report positive same-store sales. The 27 franchisees collectively operate 86 restaurants in McDonald’s East division, 44 units in the Central division and 89 locations in the West division.
Janney’s survey aimed to estimate McDonald’s same-store sales result for the first quarter, which the brand will report with its quarterly earnings on April 22. Collectively, the operators who were polled reported a 0.6-percent increase in same-store sales in March, with the East division leading the way with a 1.3-percent increase, offset by flat same-store sales in the West division and a 0.4-percent uptick in the Central division. They gave more optimistic projections for April, estimating a collective 1.5-percent increase.
Mark Kalinowski, securities analyst for Janney Capital Markets and the author of the McDonald’s Franchise Operators Survey, noted that the respondents’ same-store sales projections for March and April were 0.9 percent and 1.2 percent, respectively, above the consensus estimates for McDonald’s monthly sales on Wall Street.
Oak Brook, Ill.-based McDonald’s Corp. reported same-store sales decreases of 3.8 percent, 3.3 percent and 1.4 percent, respectively, this past December, January and February in the United States. The company does not comment on Janney’s franchisee survey because it is published in the days preceding McDonald’s reporting of quarterly earnings, when the company is in a mandated quiet period.
Several of the franchisees reported anonymously to Kalinowski that McDonald’s most recent two-week breakfast promotion to give away free McCafe coffees — a response to the threat posed by Taco Bell’s introduction of breakfast — was another in a long line of ideas that failed to drive sales.
“Giving away free coffee — what a brilliant, creative idea from the geniuses in Oak Brook,” one franchisee sarcastically told Kalinowski.
Other comments reprised familiar themes from the other recent operator surveys from Janney, such as a menu that has become too complex for both employees and customers, causing major delays for service times.
Janney has previously conducted the McDonald’s Franchise Operator Survey 61 times and has predicted actual same-store sales results within 1 percent 40 times of those times and within 2 percent 55 times.
'Maxed out' in the U.S.
When asked to rate their six-month outlook for their businesses on a five-point scale, in which a score of 1 meant “poor” and 5 meant “excellent,” the 27 McDonald’s franchisees produced an average outlook of 2.21, or between “fair” and “good.” That number was well below the survey’s historical average of about 2.90 but a slight rise from the 1.89 rating from the fourth-quarter survey in January.
Janney also asks surveyed franchisees to rate their relationship with McDonald’s Corp. using the same scale. Their collective result was 1.73, below the survey’s usual range between 2.10 and 2.20, but a slight improvement from 1.70 three months earlier.
“In general,” Kalinowski wrote, “we argue that corporations who have franchisees on board and enthusiastic about senior management’s plans and strategy tend to fare better than those that don’t enjoy this type of situation.”
One point of contention seemed to be the pace at which McDonald’s USA plans to continue opening new restaurants, the survey found. When polled on their thoughts regarding McDonald’s projected openings of 250 domestic restaurants, 17 of the 27 franchisees responded that this growth rate was too fast, with only seven respondents saying it was about right. One franchisee said the pace was too slow.
“There are already too many [McDonald’s units],” one franchisee reported. “We cannot build a $2.5 million restaurant and then say we are trying to compete with a $500,000 coffeehouse or doughnut shop or burrito place, especially when they are going into every vacant shopping center place.”
Another agreed that McDonald’s was built out, saying, “Let’s not repeat the 1990s by recklessly building stores to impress Wall Street.”
“We need to realize that, store by store, McDonald’s in the U.S. is pretty well maxed out,” another franchisee said. “We will be lucky to maintain our current average unit volumes over the next few years.”
The 27 respondents represent approximately 1 percent of the more than 2,500 McDonald’s owner-operators in the United States, and their 219 restaurants roughly equal 1.5 percent of the chain’s more than 14,000 domestic locations.
McDonald’s operates or franchises about 35,000 restaurants in more than 100 countries.