McDonald’s Corp. has 36,000 locations around the world, which is about the same number of opinions on the chain’s failings that have been published since the company said Wednesday that CEO Don Thompson would retire.
Based on the diversity of those views, the venerable Oak Brook, Ill.-based chain and its new CEO, Steve Easterbrook, are at a fork in the road as they look for ways to regain sales momentum.
Should the chain try to act more like Shake Shack, which went public Friday amid huge lines for its “better burgers” and seemingly longer lines for its stock?
Or should it go back to its roots of convenience and value?
It’s easy to blame McDonald’s problems on the burgeoning fast-casual movement. After all, the chain’s terrible 2014 coincided with a stunning performance from its one-time protégé, Chipotle Mexican Grill, which reported same-store sales approaching 20 percent in some quarters. Vox said McDonald’s “is dying,” and that it’s all because of Chipotle.
Thompson’s surprising but unsurprising retirement came two days before Shake Shack’s IPO, perhaps the biggest in restaurant history. That coincidence didn’t go unnoticed by many in the media. McDonald’s “got all shook up by Shake Shack,” the Washington Post said.
Consumers are willing to pay more for higher quality fast food, so that in theory is taking customers away from McDonald’s. The chain saw guest counts drop 4.1 percent last year. Some of those lost customers had to be going to Chipotle or Shake Shack or the Habit Burger Grill.
Much of McDonald’s strategy appears to be aimed at responding to the threat those chains pose. The company’s biggest strategy at the moment is Create Your Taste, a platform that will enable dine-in consumers to make customized burgers and chicken sandwiches. McDonald’s aims to roll out the platform in 2,000 restaurants this year.
Yet McDonald’s problem is more complex than losing customers to fast casual. McDonald’s customers are different from those who frequent Chipotle or Shake Shack.
McDonald’s same-store sales were 620 basis points lower than quick-service burger competitors in the third quarter of last year. If Shake Shack and Chipotle are taking business from McDonald’s, why are they not taking business from Burger King and Sonic?
McDonald’s is largely about convenience and value, and it has long struggled to sell higher priced menu items. Premium items have come and gone, like the Arch Deluxe and more recently the Angus burger line.
But the biggest failure under Thompson’s reign was Mighty Wings, itself a premium product. In November, Fortune detailed the 2013 Mighty Wings failure, noting that 10 million pounds of chicken wings went unsold, despite early tests that drew rave reviews — much like Create Your Taste is right now.
Unsurprisingly, franchisees and analysts appear to be pushing McDonald’s in the other direction. As Nation’s Restaurant News noted yesterday, many analysts say McDonald’s should aggressively cut items from its menu and focus on convenience, speed and value. One went so far as to say he wouldn’t be surprised if Easterbrook ended the Create Your Taste plan.
Franchisees, too, want the company to focus on the basics. Operators battered by weak sales and spending requests are resisting the chain’s efforts to get them to make improvements.
In Janney Capital Markets’ McDonald’s franchisee survey in January, franchisees bluntly said that the chain should cut huge swaths from the menu, including Premium McWraps, Happy Meals and McCafé choices.
So will McDonald’s follow the fast-casual trend? Or will it go back to its quick-service burger roots? Perhaps, as Thompson had intended, it will do a bit of both. Regardless, that decision is Easterbrook’s to make now.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze
