Dual Gaffes of the Week

On a fairly regular basis for more than a year now, we've been looking at CEO gaffes as they occur to hopefully gain valuable investing experience and avoid investing in companies where similar situations are possible in the future. Sometimes, though, a gaffe occurs that isn't necessarily the CEO's fault, but is still, nonetheless, a PR nightmare.

This week, as a slight break from our usual coal raking of CEOs, we'll take a look at two gaffes from the same sector that could turn into a huge PR nightmare for both companies.

The restaurant sector is extremely competitive to begin with, so any negative publicity can crush a company, regardless of its size or dominance, over the short term. This week has been something of a nightmare for fast-food restaurant chains McDonald's (NYSE: MCD  ) and Burger King Worldwide (NYSE: BKW  ) .

You must be at least "this employed" to participate in our budget
It all started earlier this week for McDonald's, which insulted the very core of its customer base by teaming up with Visa (NYSE: V  ) to create a budget planning website that it dubbed "Practical Money Skills for Life." The idea is actually a great one as citizens young and old of upper and lower incomes can always use the reminder and education about how to balance their income and spending. The execution, though, left a lot to be desired.

Here's the breakdown of McDonald's and Visa's sample monthly budget (link opens PDF file) as found on their collaborative website: 

Sample Monthly Budget

Monthly Net Income

Amount

   

Income (1st job)

$1,105

Income (2nd job)

$955

Other Income

$0

   

Monthly Net Income Total

$2,060

   

Monthly Expenses

 
   

Savings

$100

Mortgage/Rent

$600

Car Payment

$150

Car/Home Insurance

$100

Health Insurance

$20

Heating

$50

Cable/Phone

$100

Electric

$90

Other

$100

   

Monthly Expenses Total

$1,310

Monthly Spending Money

$750

Spending/Day

$25

Source: Practicalmoneyskills.com.

I'm not exactly sure what fantasyland McDonald's and Visa were living in when they created this budget, but it's downright insulting to a majority of the public.

First off, there's the assumption that a full-time McDonald's employee will have a second full-time job. I'm not sure McDonald's or Visa is aware of how difficult it is to (1) get a full-time job right now in the fast-food sector with the looming implementation of the Patient Protection and Affordable Care Act, and (2) work around your first full-time job with a second full-time job.

Second, in what alternate universe is health care $20/month? According to research by Bloomberg, in 2010 McDonald's employees paid an extremely reasonable $14/week. This is still incredibly cheap compared to the expected monthly average premium of more than $200/month once the PPACA is implemented, but nowhere near $20/month as this budget assumes.

Also, where's the monthly budget for food, groceries, gas for the car, child care, and life's other intangibles? Oh, yeah, it's right there in the "other" category... $100 a month! Even more comically, the first version of this budget (which has since been rejiggered by McDonald's and Visa) assumed a heating bill of $0! Apparently some of the best things in life are free... just not heating if you live in the real world!

What they're putting in kids meals these days
A gaffe like this for McDonald's, which threatens to hurt public opinion of the company and potentially even thwart some customer traffic, is just what struggling U.S. restaurant chains need to gain ground on the usually dominant fast-food chain. For Burger King, which has redesigned its menu to mimic many of the successful aspects of McDonald's own menu, it could have represented a perfect opportunity to hit McDonald's while they were down. Instead, it tripped up as well.

According to various news and police reports, on Tuesday a Burger King employee in Michigan included a very personal and illegal toy in a four-year old child's kids meal: a marijuana pipe. Apparently an employee hid the pipe in the kid's meal to avoid being caught. Instead, the grandparents of the four-year old discovered the drug paraphernalia when they got home and notified authorities. I understand that Burger King is all about "having it your way," but I'm pretty sure that breaking the law isn't on that menu of options.

A spokesperson for Burger King did their best mea culpa to rectify the situation, but the PR damage has already been done. 

The last fast-food chains standing
If Jack in the Box (NASDAQ: JACK  ) and Wendy's (NASDAQ: WEN  ) can manage to go a few weeks without sticking their foot in the their mouth, they both have a shot at picking up market share based on these PR gaffes from McDonald's and Burger King.

Jack in the Box has already done an exceptional job of remodeling its restaurants after McDonald's own establishments to make them more family friendly and has always been a differentiable fast-food restaurant because of its focus on serving breakfast all day long.

Wendy's, however, could really use the boost with its sales regularly lagging its peers. New summer menu items and an emphasis on its value menu could help, but it really needs to capitalize on any public opinion weakness in McDonald's and Burger King.

One thing's for certain: It's going to be difficult for McDonald's and Burger King to top this week's gaffes anytime in the near future, so they probably have nowhere to go but up from here!

It's practically a given that most companies will eventually trip up. The secret to successful investing is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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  • Report this Comment On November 25, 2013, at 4:42 PM, Mega wrote:

    "Also, where's the monthly budget for food, groceries, gas for the car, child care, and life's other intangibles? Oh, yeah, it's right there in the "other" category... $100 a month!"

    Did you miss the "spending" category, another $750 a month.

    I could live on $24K a year. But I don't think I could work 2 jobs.

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