Leaders at McDonald’s Corp. indicated during the company’s fourth-quarter earnings call that the intense pace of product introductions that “overcomplicated” its U.S. restaurants in 2013 would give way to greater focus on operational execution and more engaging marketing this year.
While the Oak Brook, Ill.-based company still managed to grow its net income 2.4 percent to $5.59 billion for fiscal 2013, its earnings and global same-store sales in the Dec. 31-ended fourth quarter essentially were flat. A higher average check somewhat offset negative traffic in McDonald’s three major operating divisions, including the United States, where fourth-quarter comparable sales fell 1.4 percent.
In order to turn those domestic sales around in 2014, McDonald’s will focus heavily on peak-hour execution, particularly with a major push to replace its back-of-the-house setup with the new “High Density Kitchen” suite of equipment systemwide by May or June, chief operating officer Tim Fenton said.
He told investors that McDonald’s Corp. stumbled in the United States last year “with too many new products, too fast,” which added to operational complexity at the restaurants, a common complaint among the brand’s franchisees.
“We overcomplicated the restaurants,” Fenton said. “If you remember, we introduced McWraps, Egg White Delight, topped Quarter Pounders and really didn’t give the restaurants an opportunity to breathe. We’ve instituted a gatekeeper really with the intent of doing fewer products, but better execution.”
Part of the High Density Kitchen package, an enhanced prep table with a refrigerated rail capable of holding new ingredients, is meant to improve efficiency by cutting down on employee movement in the back of the house and to better allow customization after guests order sandwiches at the register, he said.
But while McDonald’s would look to position its crew members better in the restaurant, the chain also would add labor hours this year to manage its still-expansive menu, he added.
“We have to have the additional staffing required for some of the complexity we have,” Fenton said. “That was one of the stumblings we had last year with all the new products we brought in all at the same time or within close proximity to each other.”
New marketing challenges
Chief executive Don Thompson said the way McDonald’s markets itself to customers in the United States would change in 2014 under the direction of Deborah Wahl, the new chief marketing officer of McDonald’s USA. Namely, the brand should rebuild its awareness among consumers that McDonald’s already allows greater customization than they realize because sandwiches are made to order, he said.
“It means there’s a notion that the awareness customers have about who we really are as McDonald’s and what we’re able to deliver in that kitchen, which is a customized sandwich for you, [is lacking],” Thompson said. “It’s something we really need to be able to advance in our marketing messages more. Now, there has been concern with how hard we could go with that message if we didn’t think we had more capacity headroom. So with that in mind, we did some things with the kitchen.”
Fenton added that the Dollar Menu & More, introduced in November, would be a simpler way for customers to understand McDonald’s value proposition and called the new platform a “good transition from where we had to go with our value menus and the Dollar Menu,” which were ineffective only a few years ago.
“If you look back at 2012, we had the Extra Value Menu, Extra Value Meals and the Dollar Menu — rather confusing, not only to our customers but actually also kind of confusing to us,” Fenton said. “With Dollar Menu & More, it’s designed to really stretch out our product variety and give us flexibility in pricing. … We’re seeing slight gains in guest counts, and of course it’s margin-friendly.”
The new platform is succeeding with both guests and operators in its early run, Thompson said, unlike the previously attempted tiered-value system.
“To be very honest, Extra Value Menu, while a very solid attempt to mine out additional profitability, the consumer benefit was not as strong as Dollar Menu & More,” he said. “Dollar Menu & More is customer-focused, customer-based, builds off the core equity and yields that value to customers in that way. This is what we mean by getting closer and getting back to a stronger relationship with customers.”
McDonald’s needs to continue building its relevance to consumers back up across all dayparts, he added, pointing to breakfast as a key opportunity.
“Coffee tends to be part of the lead for breakfast, but we have great-tasting food,” he said. “If we lose relevance in coffee, then we’re going to lose a transaction that yields a food purchase. So we have to make sure the food is relevant and that the awareness around McDonald’s as a kitchen and a restaurant that cooks and prepares fresh, high-quality food is strong and pronounced in our marketing and our messaging.”
McDonald’s operates or franchises more than 35,000 restaurants in more than 100 countries, including more than 14,000 locations in the United States.