Learn something new every day, that much is for sure.
For close to two years, I have been authoring stuff on the demise of McDonald's (MCD). I have sat here and basically watched the company disintegrate. When I say disintegrate I mean its once-proud bond among franchisees and corporate, its sales and profits, and its standing as a trusted place to eat fast food. And, of course, its stock price. Frankly, it has all been very sad to see for such an American brand. While I have understood that turning around McDonald's would be a herculean effort, I perhaps didn't appreciate how long it could take before sales turn sustainably positive.
Here are a couple of broader industry things I am seeing that may prevent a McDonald's turnaround in 2016 (yes, 2016):
An intense focus by competitors like Yum! Brands' (YUM) Taco Bell and Dunkin' Donuts (DNKN) on breakfast innovation. These companies continue to churn out impressive limited-time breakfast foods, while McDonald's goes at it mostly alone with its Egg McMuffin. To its credit, McDonald's has released an Egg McMuffin with avocado on it Japan. Wish it was here -- that's the type of no-brainer food the company should be introducing stateside. I expect both Taco Bell and Dunkin' to make more splashes in breakfast before the year ends.
More companies are focusing on fountain-drink innovation, notably cleaning up the ingredients by offering sodas devoid of artificial additives. McDonald's hasn't even budged on this front yet, and it's a huge problem given fountain drinks are instantly profitable.
Fast-food companies are moving into alcohol. Chipotle (CMG) sells a good bit of beer, and I suspect over time it will branch out to inking local partnerships with craft beer players. Taco Bell is making a push into alcohol. Starbucks (SBUX) is moving into an evening's menu rollout, which features craft beer and affordable wine. No chance in hell McDonald's sells alcohol, leaving rivals to steal market share as heads of households migrate to places where they can snag a drink and a meal for the kids. (Starbucks is part of TheStreet's Action Alerts PLUS portfolio.)
Burger King (BKW) has a very strong CEO in the young Daniel Schwartz. Not that McDonald's new CEO Steve Easterbrook is a slouch, he is rock solid. However, Burger King's new culture of exciting limited item offerings done sporadically, and marketed very well, is likely to continue driving positive social buzz. Nowadays, social buzz drives sales of fast food. Burger King has the social buzz working in its favor, McDonald's doesn't.
Panera Bread (PNRA) is becoming a much, much stronger competitor during the lunch and dinner hours. Yes, its products are a bit pricey, but there is a reason for that. The work the company is doing to clean up its ingredients is outright impressive, and it needs to be paid for those efforts. Panera's same-store sales are gaining momentum, which I think will weigh some on McDonald's lunch and dinner sales going forward.
Southern-based competitors to McDonald's -- Popeyes (PLKI), Sonic (SONC), Bojangles (BOJA) and Carl's Jr. -- have some aggressive growth plans in the works. I think these hard-charging value players (note McDonald's is shrinking in the U.S., rival value players are growing) with their sought-after breakfast menus and quality dinner options will hurt McDonald's.
In terms of raw data, it's not a great deal prettier for McDonald's. According to research firm NPD Group, there were 61 million visits to fast-food restaurants in the U.S. in June. Visits to quick-service restaurants (QSR) represented about 79% of those visits -- the segment's total visits only rose 1%, despite an improving U.S. economy. The hamburger category alone, which McDonald's calls home, accounted for 23% of total QSR visits. NPD notes visits to hamburger chains like McDonald's were "quite weak" in June, same goes for sub shops (likely due to the struggles of Subway, which dominates the category).
On the other hand, the bright spots in the business remain fast casual dining (like Chipotle), and more specifically those hawking Mexican food, coffee and doughnuts.
It's time for McDonald's and its new CEO to show more of their hand beyond announcing a major restructuring. The fall is approaching, where parents will be in a rush to feed their kids (and themselves) before doing homework. McDonald's badly needs new menu items right now, and it needs to issue a press release so that Wall Street and consumers know what the new items are and where they are available. Further, they need to invite influential members of the press (such as myself) and food blogging community to taste-test events in major markets (not McDonald's headquarters in Chicago -- McDonald's needs to come to us and rebuild the relationship, and tell us stories on how its new amazing products will change the company's course).
At the moment, food news on McDonald's is getting away from corporate -- it's being shared on Twitter by XYZ region, and speculated about within media circles depending on whether products are being tested next to their newsroom headquarters. It's embarrassing, and has to be halted in order to start rebuilding investor confidence.
I was one of five prominent members of the press two weeks ago to attend a taste test of Burger King's new fiery chicken fries before they were officially released five days later. Once there, the company pitched us a great story on the product, we ate the product, asked tons of questions, and then five days later watched stories explode on social media amid favorable responses to the new product.
You mean to tell me McDonald's can't orchestrate something like this? It damn sure needs to do this, and as quick as it takes to serve up a Big Mac.
