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McDonald's Stock Needs More Than Table Service to Win

By Rick Munarriz – Nov 17, 2016 at 4:37PM

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The world's largest burger chain is reportedly rolling out table service nationwide next year. It needs to do more than that.

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You may be pampered like Mayor McCheese the next time you're at McDonald's (MCD -1.25%). The world's largest burger chain -- and largest restaurant operator by sales volume -- is rolling out table service across all of its U.S. locations, according to Bloomberg.

Speaking at a corporate event on Thursday, McDonald's reportedly told attendees that the current test of roughly 500 restaurants that deliver orders to seated patrons at the table will expand to cover all of its stateside burger joints. It's just one of the tweaks coming to a Mickey D's near you, as the chain is hoping to roll out mobile ordering and payments by next year. It's also expanding its use of digital kiosks where guests can place orders on touchscreen tablets instead of having to wait to place orders at the register.

It's easy to see the high-tech appeal. Mobile ordering and touchscreen kiosks should speed up the process and ideally reduce incorrect orders. Table service offers more throwback charm, but it's something that other fast food chains are embracing.

Winning over the franchisees

Orders aren't magically transported to tables. You need food runners for that. It also goes without saying that introducing digital ordering kiosks will also require tech-savvy employees to be around to facilitate the process. In short, the improvements aren't cheap fixes. There's the initial investment and the ongoing staffing overhead to keep these initiatives active.

If McDonald's owned and operated all of its eateries it would only have to convince itself to push through with these moves, but more than 80% of the chain's restaurants are owned by franchisees. They are the ones that need to be swayed, since franchisees are the ones that will have to make the initial investment and cover the subsequent staffing and maintenance costs.

McDonald's is in a good groove these days. It has rattled off five straight quarters of positive year-over-year comps. However, now that it has lapped last year's rollout of all-day breakfast the fear is that it will need to shake things up to keep folks coming back to the Golden Arches. The stock has been flat in 2016, as near-term improvements are offset by concerns of difficult same-restaurant sales comparisons in the year ahead and rising labor costs.

The burger giant will need to position the initiatives as benefits for the franchisees. Mobile ordering, if it catches on, can reduce staffing requirements. Table-served meals will create a more pleasant experience. McDonald's knows that it can't stand still. The last time that it took its dominant market position for granted it was treated to two years of negative comps. It can't look back. It needs to look ahead, and right now that involves telling in-store customers that they can have a seat after placing their orders.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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