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McDonald's Has More Than a Chicken Wing Problem

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Executives at McDonald's (NYSE: MCD  ) are glad that 2013 is over. It certainly wasn't their year. Shareholders are certainly disappointed as well since shares lagged the overall market by rising only 7%. The headlines haven't been positive as several of the company's initiatives failed to go over well with customers and employees. Sales remain weak in two of its key markets, the U.S. and Japan. The question now is, will 2014 be any better?

Mighty Wings are not flying
According to The Wall Street Journal, McDonald's is sitting on 10 million pounds of unsold chicken wings. It seems that Mighty Wings did not fly as expected. If the wings don't have freezer burn, maybe McDonald's should call Buffalo Wild Wings (NASDAQ: BWLD  ) and make a deal. McDonald's might also want to take a page from that company's playbook and learn how to sell wings...or better yet...stick to selling burgers and fries. Burgers and fries don't appeal to a healthy lifestyle, but they did build McDonald's into the giant that it is today.

McDonald's was hoping that its Mighty Wings would go over well during football season. The company purchased 50 million pounds of chicken wings for its fall promotion. The problem is that the wings were too spicy and expensive . To sell the unsold wings, McDonald's plans to offer another promotion of three wings for $2.99.

One fast-food chain that isn't deterred by McDonald's missteps with chicken wings is Popeye's Louisiana Kitchen, part of AFC Enterprises (NASDAQ: PLKI  ) . Popeye's is launching Bayou Buffalo Wicked Chicken served with bleu cheese dipping sauce, regular fries and a biscuit for $3.99. The special promotion lasts until January 26. Popeye's is hoping the special promotion spurs comparable store sales between now and then.

Problems in the U.S. and Japan
In November, global comparable sales increased 0.5%. Europe was the strongest market with sales rising 1.9%. The U.S saw sales drop 0.8% and the weakest market was Asia/Pacific, the Middle East, and Africa where sales dropped 2.3%. The drop in this region was primarily due to weak sales in Japan. Net income for McDonald's Japan is now likely to be half of what was previously expected.

McDonald's is doing a couple of things to try and turn things around in Japan. The first is a price increase for burgers. This is warranted since there hasn't been a price increase since 2008. The company is also closing 74 locations that were not meeting expectations. The goal with these two initiatives is to boost profitability.

Who needs human resources?
McDonald's was hoping that its McResource online site would help boost employee morale. That has certainly backfired for the company. There have been a number of embarrassing incidents that have occurred since the site went live. Finally, the company took the site down after advice was posted on the site on how to avoid McDonald's food at work.

The site went from one extreme of the economic spectrum to the other. There was an incident on the site that talked about how much McDonald's employees should tip their pool cleaners, housekeepers, or au pairs. Presumably this was for executives.

On the other side, McDonald's offered budgeting tips for employees. With the focus on raising the minimum wage, it was basically an admission from McDonald's that its employees cannot live on wages from McDonald's alone.

Not all hope is lost
McDonald's executives aim to turn things around with the company's "plan to win" strategy. Over the long run, the company is targeting systemwide sales growth of 3% to 5% and operating income growth of 6% to 7%. Next year, McDonald's plans to open 1,500 to 1,600 new restaurants and remodel 1,000. While this sounds expensive, the bet could pay off in a big way should it garner increased traffic. However, McDonald's must improve customer service, cut down wait times, speed up the efficiency of its kitchen, and deliver better menu innovations. If McDonald's can achieve these goals, its systemwide sales goals are certainly achievable.

Shares of McDonald's are still relatively attractive and trade at only 16 times next year's earnings. Shares of McDonald's also have an impressive 3.3% dividend yield, which is one of the highest in the restaurant sector. Shares of Buffalo Wild Wings are more pricey and trade at 31 times next year's earnings. Buffalo Wild Wings does not pay a dividend as the company is using its cash to fund its growth plans.

Foolish assessment
It's been a rough year for McDonald's, but this Fool sees better things ahead for the company. A few of the current initiatives  about McDonald's can be found in "Can The McD App Boost Sales at McDonald's?" McDonald's has had setbacks in the past and has overcome each and every one. Look for the same this time and a turnaround in 2014 for McDonald's. 

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2014, at 10:57 PM, Afterberth wrote:

    I tried the Popeyes Wicked Tenders and they were surprisingly good. Much better than the bat wings McDonalds was trying to hock.

  • Report this Comment On January 07, 2014, at 10:44 AM, stroker27 wrote:

    in the first place they were asking to much money for wings. you can buy 6 wings at almost every eatery in the state of texas fgor $2.99. mc is asking $2.99 for three wings.people that eat at you resturants are not going to pay $2.99 for three wings. have a great day.

  • Report this Comment On January 07, 2014, at 11:01 AM, dahxtra1 wrote:

    Maybe they could speed things up by hiring people that speak ENGLISH. That way , the order is taken correctly and the line moves faster and the kitchen need to be able to READ ENGLISH so they don't get the order wrong when and if the order taker gets it right?????

  • Report this Comment On January 07, 2014, at 8:54 PM, jurnagin wrote:

    too many educated people and not enough folks with common sense!!

    Times are different nowadays Restaraunts operate 24/7 therefore McDonalds s needs to put those women in kitchen early in morning to make bisquits fresh like they use too!!, and throw away that egg in milk carton,yuck!! You are leaving all the flavor at the precooking facility, that's money literally thrown up in the air,duh!

    Those mighty wings taste like those wings in grocery store that everyone has fried that leaves the dried blood on them, and theyre just too expensive, Now if they pressure cook them fresh not precooked frozen bricks then they would be fantastic,

    There are too many items on menu, I don't want a teenager making my salad,They don't wash their hands!!

    hire a few employees and treat them well and the customer service will take care of itself, and why would you let a boy with dreadlocks and saggy pants work in a kitchen? dreads are shedded hair that's kept knotted together to show appearance of long hair, and it stinks, and saggy pants are reflection of hip hop negativity and poor behavior.

    Offer employees college courses on restaurant management and cooking, that would make mcdonalds a higher scale eatery, I know they do already but they need to make it a essentinal part of employment, (every restaurant should have at least 2 certified chef's)

    And whatever happened to Ronald Mcdonald? Keep his slogan simple and aimed at children.

    Wow I just solved all their problems, Mcdonalds are spending too much on engineers, those people with college degrees lack real life experience.

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