McDonald's, You're Doing it Wrong

Things keep going from bad to worse at McDonald's (NYSE: MCD  ) . The world's largest burger chain posted disappointing performance on Friday morning with global comparable sales sliding 2.5% for the month of July.

The chain suffered its sharpest slide in Asia where fears over a supplier's food safety kept customers away in China. The slide finds Janney Capital Markets warnings that McDonald's may post its first full year of global sales decline in 12 years. However, let's not get too distracted with Mickey D's struggling halfway around the world. Comps at U.S. stores fell a brutal 3.2% in July. 

McDonald's blames the domestic shortfall, in part, on the Monopoly promotion that it ran last summer. It countered with the apparently less popular World Cup prize giveaway this time around. This would be an acceptable scapegoat if this was a one-time dip in popularity. It's not. McDonald's has posted negative stateside comps in each of the past three quarters. In fact, outside of checking in with flat sales in April we've seen the burger giant post comparable sales declines every single month in this country since October of last year. 

You deserve a break today
McDonald's is trying. It knows that it veered too far from its value menu roots. The push to go upscale with premium sandwiches, fancy salads, and high-end coffee and smoothie beverages may have made sense on paper, but broadening its menu isn't working. Folks may be spending more, but they're not coming back as often.

Customers also aren't any happier about the quality of its eats. Consumer Reports polled 32,405 subscribers earlier this year on their fast food experiences. When it comes to burgers, McDonald's ranked dead last among the 21 leading chains.

McDonald's isn't simply in an out-of-favor niche. Many of its publicly traded rivals posted positive comps this past quarter. The Big Mac daddy is in a pickle, and it knows that it's going to have to claw its way back into consumer acceptance. 

On Friday morning its gloomy sales report conceded that its working on service, value, and menu initiatives. However, it's been saying this for the past few quarters, and its actions are falling short on the first two fronts. 

McDonald's continues to roll out and promote premium burger and chicken sandwiches, and even this year's push to get franchisees to install deeper prep tables is all about giving the restaurants more ingredients to choose from in assembling sandwiches. It doesn't take a rocket scientist to realize that more choices not only slows down service but also increases the chances of a sandwich assembled incorrectly. 

McDonald's coasted for years on the appeal of its value menu as an all-weather choice for hungry patrons, but now that it has stumbled in trying to upgrade its value profile it's not going to be easy to find its way back.

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  • Report this Comment On August 10, 2014, at 10:43 AM, ARozenburg wrote:

    I think this is just a minor speed bump in the road for McDonald's. I personally think introducing new menu items opens the door for something new opportunities. McDonald’s won’t be falling any time soon. It's currently not worth a short term investment, but it could be great to buy now if you hold on to the stock for the long haul.

  • Report this Comment On August 10, 2014, at 5:16 PM, marcusraus wrote:

    McDonalds getting smashed by healthy eating trend here in Oz - parents not prepared to let kids eat it. Even refusing sports encouragement awards from Maccas! They need to introduce wholemeal buns for a start. Will always be around but given you can buy a pizza for less than a Big Mac think the glory days are behind them...

  • Report this Comment On September 13, 2014, at 3:45 PM, jmcalafactor wrote:

    McDonalds is getting smashed not because of a "promotional game" flop or because they have added too many different choices on their menu -- they are getting smashed because they choose to sell actual garbage that must be washed in ammonia before it is fit for human consumption, pre-cook everything and keep it warm eternally in plastic trays and charge the cost of a good, sit-down meal for a couple of slop-burgers and some cold greasy fries.

    Supposedly, you can get a "premium" burger ( which may or may not include a real U.S. beef burger ) from McD's but, if I'm paying $7.00 or more for a burger and fries, it's NOT going to be at McDonalds !

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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