It was recently revealed that McDonald's (NYSE: MCD ) has around 10 million pounds of unsold Mighty Wings sitting in freezers because the company wasn't able to sell enough of them; this equates to approximately 20% of the company's initial inventory of the limited-time product. This puts McDonald's in the unenviable position of having to develop a new promotion to move the excess product and potentially revamp its promotional calendar to squeeze the next wing promotion in.
The wings setting in frozen storage are just a symptom of a larger problem for McDonald's, though. Anyone watching the Golden Arches will recognize this as the latest in a string of disappointments for the company, as the limited-time promotions that started off strong with the McBites have provided less of a draw with each new promo.
Admitting the problem
The 10 million pounds of wings that McDonald's is sitting on indicates more than just a lackluster promotion. Being unable to sell the wings hints that McDonald's doesn't know its target audience nearly as well as it thought it did; this is potentially disastrous if the company can't learn from its mistakes.
CEO Don Thompson spoke during one of the company's conference calls about the failings of the Mighty Wings, attributing the sales problems to a price that was "not the most competitive" and wings that were too spicy. Thompson also acknowledged that the slow-to-recover economy might have played a part, as might the look of the wings (which have been described as looking like "McNuggets with bones").
If that sums up all of the problems with the Mighty Wings, a revamping of the menu offering could help increase sales when they are reintroduced. That sales bump won't necessarily come to pass, though, especially if people still remember their previous experiences with the wings.
Is there a larger issue?
McDonald's introduced a new item that (in theory, anyway) sports fans would love, and advertised it decently. Unfortunately, the company wasn't able to successfully penetrate the sports fan market due not only to the price of the wings (at nearly $1 per wing, there are both better and cheaper options available) but also the timing of when the wings became available. Sports fans trying to get ready to watch their preferred teams might not want to wait until McDonald's breakfast hours are over and then deal with the early lunch crowd; this could be especially problematic for West Coast fans watching games broadcast from further east.
That's not to say that McDonald's was foiled by its breakfast hours, since the impact of such a scenario would be difficult to gauge at best and certainly wouldn't be as big of a factor as price or spiciness. Instead, it points to the fact that even a seemingly perfect target population might not have been a "sure thing." McDonald's overestimated the demand for Mighty Wings, and didn't think things through when determining just how many wings its target demographics would buy during the promotion.
Sell the wings, or else!
McDonald's is putting a lot of pressure on its franchises to get rid of the excess wings, reportedly letting franchise owners know that they'll have to participate in another promotion or will be held responsible for the storage costs of the wing surplus. Fortunately for the franchises, there will be a much smaller volume of wings to go through next time around.
Of course, this gives franchise owners one more reason to be unhappy with their McDonald's franchises; earlier this year, a number of franchise owners were complaining that the company was raising its franchise fees to unacceptable levels. Some owners suspect that the company is trying to prop up its sales by offloading costs onto the franchises and hiking fees to make those franchises more profitable to the company.
This could backfire for the company if franchise owners start choosing other restaurants when opening new stores; almost 90% of U.S. stores are franchise-owned, so offloading the damage onto franchises is yet another potential misstep by the company.
The bottom line
McDonald's used to be the fast-food king. Its crown is starting to tarnish, however, and if it wants to stop its decline then it needs to start learning from its mistakes. Better market analysis and improved franchise relations could help the company immensely, but there's no guarantee that either is going to come soon. If McDonald's can't learn from its mistakes, 10 million pounds of frozen wings might just be the tip of the iceberg.
The next step
Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you what you need to get started, and even gives you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.