McDonald's Vows Fresh Thinking After Net Income Declines 30%; Mish Offers Some Advice

A 30% net income decline for McDonald's is quite startling to most. I wonder why such a decline took so long.

In response to that pathetic performance, McDonald’s Vows Fresh Thinking.

McDonald’s Corp. outlined plans for what it called fundamental changes to its business as it reported one of its worst quarterly profit declines in years, driven by problems in nearly every major part of its business.

The 30% decline in net income for the period ended Sept. 30 was the latest in a string of disappointing results for the world’s largest restaurant chain. It is struggling with weak sales in Asia, Europe and, most important, its home market in the U.S.

In the U.S., an increasingly complicated menu has slowed service and McDonald’s once reliable base of younger customers have defected to fast-casual chains boasting customized ordering and fresh ingredients, including Chipotle Mexican Grill Inc., and specialty-burger places such as Five Guys.

McDonald’s has focused so far on efforts including increased staffing at busy times, and has shaken up its management ranks, including replacing the head of its U.S. business for the second time in less than two years. But the changes have yet to boost sales or profit.

The 4.1% decline in McDonald’s September U.S. same-store sales marked the worst monthly U.S. same-store sales performance since February 2003.

In response, McDonald’s Chief Executive Don Thompson on Tuesday said it would simplify its menu starting in January, in part to remove low-selling products, and plans to give the company’s 21 domestic regions more autonomy in rolling out products that are locally relevant.

By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.

“The key to our success will be our ability to deliver a more relevant McDonald’s experience for all of our customers,” Mr. Thompson said. “Customers want to personalize their meals with locally relevant ingredients. They also want to enjoy eating in a contemporary, inviting atmosphere. And they want choices in how they order, choices in what they order and how they’re served.”

Advice for McDonald’s

1. Serve better food
2. Let customers have it the way they want it
3. Let customers have it when they want it

McDonald’s is nearly hopeless. On many occasions while traveling, I have chosen to not eat at all rather than eat at McDonald's. It happened just this past weekend.

Don't want McDonald's "special sauce" (I fail to understand why anyone does), and you have to wait an extra 5 minutes (at least) to get it your way.

In contrast, Wendy's has some nice salads and a very good chicken sandwich.

The one and only thing I like at McDonald’s is their breakfast sandwiches. Breakfast sandwiches may not be healthy, but at least they are very tasty. I like the bacon, egg, and cheese biscuit.

If McDonald’s would offer breakfast 24 hours a day I would eat there more often. Instead, if you walk in one minute past breakfast time you cannot get breakfast. That has happened to me on many occasions.

I say "F* McDonald’s" unless I am certain I can get there before their arbitrary breakfast cutoff time which seem to vary by location and day of the week.

Lunch and dinner at McDonald’s? I'd rather not eat at all!

My advice for McDonald’s is simple: Forget about "atmosphere", expensive renovations, and the ridiculous notion of the “McDonald’s Experience”.

Other than "fast" (in theory but not necessarily in practice for those who custom order) there is no “McDonald’s Experience” except for the occasional "McPlayground" that demographically speaking appeals to fewer and fewer (especially with  rising costs of feeding a family).

I have a simple suggestion: serve better food, the way customers want it, when they want it. And lower prices would certainly help. 

Correction

I originally stated a decline in revenues of 30%. I meant to say net income.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com