5 Things McDonald's Wants You to Know

McDonald's stock is under pressure, but the Big Mac daddy had a lot to say in its most recent earnings call.

Sep 3, 2014 at 1:30PM
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It seems as if there are as many things going on at McDonald's (NYSE:MCD) as there are items on its widening menu. The world's largest burger chain has been struggling to grow sales at its stateside restaurants and political tensions are making it a challenge to succeed in some international markets.

McDonald's had a lot to say earlier this summer when it hosted its second quarter earnings call. Let's dig in to find a few McNuggets that came right out of the Big Mac daddy's mouth.

The bar of delusion may be high

Serving good food through good people and being a good neighbor in the communities in which we operate is what McDonald's stands for.

As the country's largest seller of fast food and largest employer among fast food chains, it's easy to see why McDonald's would want to be seen as excelling in terms of quality on both fronts. Unfortunately, reality hasn't been as kind.

A Consumer Reports poll earlier this year asked more than 32,000 fans of fast food to rate chains based on the taste of their flagship items. McDonald's ranked dead last out of 21 chains in the burger category. Despite the McCafe upgrade of its beverage offerings a couple of years ago and the push to offer premium sandwiches and salads, the perception out there remains that McDonald's just isn't that good.

As far as hiring "good" people and being a "good" neighbor, McDonald's still can't seem to shake the negative publicity of being ground zero on the debate to increase wages of fast food employees. The push to $15 an hour as a starting point would be difficult for franchisees to stomach and there are plenty of other burger flippers that pay as poorly if not worse than McDonald's. However, the perception that McDonald's is underpaying its employees with many of them relying on government assistance to get by doesn't paint it as a "good" neighbor and employer.

McDonald's wants to take it easy again

We are streamlining our merchandizing menu board and product offerings and in addition to making it easier for customer to order their favorite products, this will reduce complexity in our restaurants which in turn should enhance accuracy and speed of service.

A popular knock on McDonald's these days is that the speed and accuracy of its service is slipping. Industry periodical QSR reported last year in its annual Drive-Thru Performance Study that the average McDonald's customer had to wait 189.5 seconds after placing an order to receive it. This is worse than the industry average and the lengthiest weight at the burger giant since QSR began tracking transaction speeds.

The logical conclusion is that the chain's widening menu has made it harder for employees to make the food quickly and correctly. McDonald's knows that simplification is in order.

A Bad Year Doesn't Undo a Decade of Success

We know from history that our top line growth overtime is neither consistent nor linear. In addition any growth is a product of the significant base off of which we operate which includes serving approximately 70 million customers every day and generating industry leading average unit volumes in virtually all of the countries in which we operate.

As rough as things have been at Mickey D's, it's important to remember that it's still performing at a high level. After nearly a decade of consistent comparable-restaurant sales growth it's hard to assume that weakness since October of last year is a doomsday scenario. 

As McDonald's would go on to point out later in its call, even in soft times it's been pretty solid. This year has been challenging, but McDonald's has still delivered $4.1 billion in operating income through the first two quarters.

Deep prep tables to the rescue

The high density kitchen was intended to give us more flexibility and allow refrigeration on the prep table which gives us a little bit stronger capability relative to products.

The big back-of-the-house initiative for 2014 is rolling out deeper prep tables. These food-prep stations allow for more variety in the ingredients that can be used in its sandwiches. Naturally, this also opens the door for more complexity at the worst possible time. There is a price to be paid by spinning a wider flavor wheel. However, having more ingredients -- and easier access to fresher refrigerated edibles -- should help tackle the chain's quality perceptions.

McDonald's is beefing up its Internet marketing

We reorganized the marketing department and are reallocating our median mix to place greater emphasis on digital channels. We are also strengthening our creative, to connect more deeply with customers placing an even greater emphasis on the quality of our great food and on the strong emotional connection that our customers already have with our great brand.

There's no shortage of McDonald's TV commercials. However, given the recent weakness at domestic stores it's not a surprise to see the fry king devote more of its resources to digital initiatives. From social media to streaming Internet radio spots to traditional display advertising, there are plenty of ways for McDonald's to get its message across. More importantly, it's easier to track the performance of digital marketing efforts. 

McDonald's already has a pretty strong presence in cyberspace, but its comment about reallocating the mix translates into more McDonald's marketing initiatives moving online. 

 

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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