It isn’t breaking news that McDonald’s (NYSE:MCD) isn’t doing so well. Even for those who aren’t privy to the company’s earnings reports, it’s not hard to recognize that while McDonald’s drive-thru lines used to snake across parking lots and sometimes even out into traffic, customers now have more than a handful of parking spots to choose from, and drive-thru wait times have gone down considerably. That may be good news for consumers, but it’s not so ideal for McDonald’s, the chain that once ran the fast food game, and now is falling behind the likes of Chipotle (NYSE:CMG) and even Starbucks (NASDAQ:SBUX).
In the past, McDonald’s executives have been quick to refute any kind of problem, justifying declines in same-store sales and company earnings; however, just recently, a number of the chain’s leading men have opened up about McDonald’s current struggles, and have offered plans on how they plan on changing them. According to Burger Business, Chief Operating Officer Tim Fenton said to analysts in mid-January that McDonald’s had “overcomplicated” its menu in 2013 by “adding too many new products, too fast.” McDonald’s menu has increased in size 75 percent between 2004 and 2014, and the current menu has 121 permanent items, not even taking into account the seasonal limited-time-offerings the chain has been known to push forward.
The problem with expanding McDonald’s menu so considerably is that the chain’s execution — speed and quality — has since suffered from the overload of menu items, and franchisees have also become frustrated. Back in December when McDonald’s pulled its fall “Mighty Wings” from the menu, operators complained about the excess inventory they had left over from the poultry push, and we all know that intra-company dissatisfaction is never a jumping off point for sales.
But McDonald’s isn’t giving up; it’s just getting smarter. CEO Don Thompson shared some 2014 strategies earlier this month that he hopes McDonald’s can execute over the new year, and they focus on three areas: customization of products, the employment of social media to advertise said products, and an increase in kitchen investment to make sure said products get efficiently produced. It’s still unclear whether these new focal points will pay off in the long run, but thus far, Thompson is sticking to his guns. Here’s how.
1. Kitchen investments
Notice how we didn’t mention a contraction of McDonald’s menu as one of Thompson’s focal points. That wasn’t a mistake. McDonald’s 121-item menu will stay as is, and likely grow bigger, but in order to support that expansion, the chief executive wants franchisees to invest in new High Density Kitchen equipment that is purposed to ideally allow keeping up with the company’s huge menu, according to Burger Business.
High Density Kitchen equipment includes a new, larger holding cabinet, enhanced prep table, and refrigerated rail that are designed to help staff support existing menu items, as well as handle additions in the future. The equipment also allows for more customization of sandwiches, burgers, and breakfasts, which we’ll touch on later. COO Fenton believes that this investment would help McDonald’s avoid slowing service times, but now it still needs franchisees to agree.
McDonald’s plans to allocate much of its capital to kitchen enhancements in 2014, and pull back on funds that once went to remodeling. According to Burger Business, the company expects to re-image 1,000 restaurants this year, compared with 1,529 upgrades last year.
As aforementioned, with the help of an increased investment in kitchen equipment, McDonald’s wants to ensure that the company’s marketing stresses its ability for customization. Thompson explained via Burger Business that, “Many customers don’t know that we are making every sandwich to order.”
The chief executive went on to explain that the benefits of the “Made for You” kitchen design added in the 1990s weren’t sufficiently communicated to McDonald’s customers, and now many of them are still in the dark about McDonald’s customization abilities. If McDonald’s orders are really that customizable — what are the holding cabinets in the back used for, then? — it is important that the chain communicates this capacity because consumers have recently shown a significant interest in the restaurants that offer room for customization.
Chipotle recently released its latest earnings that showed a 9.3 percent jump in same-store sales, and analysts attribute much of that success to customers’ appreciation of the customization that the chain makes possible. Now, Thompson wants to make sure that McDonald’s fosters those abilities too.
3. Social media
Lastly, do McDonald’s changes really happen if the company doesn’t Tweet, Facebook, or Instagram them? In this day and age, the answer is no, which is why Thompson recognizes the need to jump on the social media bandwagon and make sure all of its channels are covered. According to Burger Business, the chief executive wants his company’s employees to employ digital means to establish “a stronger customer relationship this year” and improve marketing communication. Thompson acknowledges that McDonald’s “has not played in that arena in a strong way,” and that’s a reality he is hoping to change.
Thus, it is clear that the company’s executives have already outlined set changes McDonald’s needs to make this year if it wants to keep its head above water. The chain’s poor sales performance in the U.S. has already moved McDonald’s domestic market into the category of “key opportunity markets” — read: those markets with special needs — and now McDonald’s U.S. needs to dig itself out of its hole that it got itself into. The company is still performing well in the UK, France, and Russia, but Americans used to be its most popular customers, and it needs to call the patriots back.