Adding all-day breakfast helped McDonald's (NYSE: MCD) turn around its struggling core business in the U.S. The problem for the chain is that the momentum from that move has worn off, and the company has struggled to find its next big idea.
In this episode of Industry Focus: Consumer Goods, the team discusses what the burger giant can do to regain its mojo. McDonald's has been far less aggressive than its major competitors in pursuing menu innovation, but it is trying to reinvigorate the Big Mac sandwich while also investing in other parts of the menu.
A full transcript follows the video.
This video was recorded on Jan. 26, 2017.
Vincent Shen: Coincidentally, McDonald's has actually reported their fourth quarter and full year 2016 results earlier this week. What really jumped out to me was, for their U.S. business -- obviously, their largest -- there's already a loss of the momentum that they had from all-day breakfast. The third quarter, their comps were up 1.3%. Second quarter, up 1.8%. First quarter of 2016, up 5.4%. That was, of course, because all-day breakfast had launched relatively recently at that time. You can see it's waning. And now, for the most recent fourth quarter, they're down to negative 1.3%. So, the comps are only going to get harder as they enter Q1 for 2017. Overall, I feel like there is a lack, maybe, on the service side with kiosks and things like that. We'll talk more about that. But in terms of the menu innovation, McDonald's has had very little success with that. The burger hasn't really changed for many years.
Dan Kline: McDonald's has taken a different strategy. Burger King is doing what, in the world of professional wrestling, they would call "hot shotting." You take something that's going to go big and bright, and burn out. Mac and Cheetos is going to be the equivalent of having Mike Tyson at Wrestlemania. It's exciting for a minute, but it has no legs. So Burger King and Taco Bell and KFC, they're in this position where they endlessly have to innovate.
McDonald's should be innovating more, but they've taken a different strategy. What they've decided to do is, they're going to try the three different sizes of Big Mac, because they found that only 20% of Millennials have tried a Big Mac. So, they're going to make a push on that product. But they're also taking the long-range approach of, how do we grow our coffee business? They've been doing that with the $1 for any size coffee, $2 for any small specialty drink. They're not looking at short-term innovations. They're looking at things like all-day breakfast -- if they expand that and add the McGriddle to that menu, can that be a sustainable bump?
I think they should be having some gimmick burgers, and because they're McDonald's, they can make a deal with anybody. But they are taking a smarter approach. At some point, Taco Bell or Burger King is going to have a quarter where whatever ridiculous tie-in they try, the Funyuns Taco is not going to be popular, or the Burger King burger served on four Twinkies is not going to go over well, and they're going to have a 10% drop in sales because they just can't sustain the gimmick factor.
Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.