What the heck happened, McDonald's?

by Monica Watrous
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McDonald's hamburger and fries
McDonald’s may have lost some of its customers by moving away from the dollar menu, the CEO said.

NEW YORK — McDonald’s CEO admits some of the chain’s challenges in the US over the last two years were “self-inflicted.” The fast-food company’s sales results fell 11 straight quarters through April, when McDonald’s reported a 0.6 percent decline in global comparable sales.

“I think when you look at performance, you look at what you can manage and then you look at the outside world,” said Steve Easterbook, president and CEO of Oak Brook, Ill.-based McDonald’s Corp., during a May 27 presentation at the Sanford C. Bernstein Strategic Decisions Conference in New York.
McDonald’s may have lost some of its customers by changing its value menu, he said.

“We moved away from the dollar menu for a variety of reasons, (which) is not necessarily the wrong thing to do, but we didn’t replace it with sufficient enough value in the eyes of the consumer to enable that transition to go without getting some resistance from the customer on that,” Easterbrook said. “And then, when the momentum of the business starts to be challenged, sometimes … the day-to-day operation then becomes impacted.”

Meanwhile, McDonald’s coffee beverage platform and other growth engines initiated in recent years have started to sputter.

“The reality is you tend to get diminishing returns from them over time,” Easterbrook said. “They’re kind of just baked into your baseline, and you need new incremental growth drivers. And probably one of the criticisms we have of ourselves in the business is we didn’t see the tailing of those growth platforms early enough to start to generate the growth platforms in the future.”

As part of its recently announced turnaround plan, McDonald’s has restructured its business into four segments with new leadership and plans to refranchise 3,500 restaurants.

But the efforts go much deeper. McDonald’s has changed the way it grills its beef and toasts its buns to create hotter, juicier burgers. The chain has dropped half of the items from its drive-thru menu boards for faster service and has rolled out new training programs to improve order accuracy and reduce complaints.

McDonald's Sirloin Third Pound burgers
McDonald’s has changed the way it grills its beef and toasts its buns to create hotter, juicier burgers.

 
These little things add up to a big difference for McDonald’s customers, Easterbrook said.

“Clearly the US is a burning priority,” Easterbrook said. “We’re working hard and fast to stabilize and then reverse the guest count and sales declines.

“We have new structures with regional focus, fewer layers, stronger accountability, and already we are seeing an acceleration in the testing of new concepts and product innovation. Things that would previously have been held back by the system are now being championed by the different regions.”

Customers may order an Egg McMuffin for dinner in San Diego or have a Big Mac delivered in the Big Apple. The chain also is offering such regional menu items as a lobster roll in Boston and pressure-cooked chicken in Atlanta.

“We’re moving fast in the US to address the challenges before us in a way that 27 million customers daily will notice,” Easterbrook said. “I’m confident we have the strong foundations in place to win back customers and grow share.

“However, progress will be bumpy and uneven.”

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