With McDonald's (NYSE:MCD) struggling to reverse negative same-store-sales trends, the strategy it's pursuing simply isn't working. With competitors like Wendy's (NASDAQ:WEN) and Yum! Brands' (NYSE:YUM) Taco Bell introducing items that resonate with customers, the best McDonald's has come up with is overpriced chicken wings. McDonald's needs to fix itself in 2014, and here are three things that the company can do to regain its stride.
1. Simplify the menu.
McDonald's menu has become a bloated mess as the company struggles to keep same-store sales rising. Back in May, Bloomberg reported that the number of items on the McDonald's menu had grown from 85 in 2007 to 145 in 2013. While it did take some steps in 2013 toward reducing its menu, like axing the Angus burger, the expansion of premium coffee drinks and healthy options like wraps, along with ill-fated promotions like Mighty Wings, have made the situation worse.
This menu bloat has caused McDonald's restaurants to become less efficient, with service being slowed by complicated items like the McWrap. In 2012, the average drive-thru time at McDonald's was 189 seconds, up from 167 seconds in 2007 and far slower than the 130 seconds and 150 seconds at Wendy's and Taco Bell, respectively. In a business where speed is of the essence, McDonald's is falling woefully behind.
2. Stop trying to be a premium brand.
The McDonald's brand is built on value, not quality. When double cheeseburgers and chicken sandwiches are being sold for $1, a $5 cheeseburger probably isn't going to sell. But McDonald's has been pushing premium items, like the McWrap, in an effort to cater to those looking for healthier, higher-quality options. These items are more complicated and time-consuming to prepare, and they don't appeal to McDonald's core customer. No one goes to McDonald's because they want to eat a healthy meal.
McDonald's is also pushing its McCafe line of premium coffee drinks, adding items like a Pumpkin Spice Latte and a Chocolate Chip Frappe in an attempt to copy the success of Starbucks. These coffee drinks are also complicated to make, slowing down the whole operation and adding more bloat to the menu. Next year, through a partnership with Kraft, McDonald's will start selling branded packaged coffee in grocery stores throughout the United States, an attempt to push the McCafe brand and ultimately sell more drinks.
The McCafe brand will never be known for quality, and McDonald's will never be able to achieve the kind of premium prices that Starbucks is able to charge. That's not to say that McDonald's shouldn't sell these types of drinks at all, but the number of options has grown too large for a company that should be focused on speed. On the McDonald's website, I count 20 different McCafe beverages, including smoothies and shakes, with 13 different coffee drinks. This is part of the reason that McDonald's service is getting slower.
3. Focus on promotions that make sense.
McDonald's has a history of very successful promotions, like the McRib sandwich and the annual Monopoly game. The company seems to be off its game, though, because the most recent promotion, Mighty Wings, failed miserably. It was an obvious, predictable failure, and the idea should have been shot down by management almost immediately.
The idea was to sell bone-in chicken wings for $1 each. That's right, each wing was the same price as a double cheeseburger on the value menu. The price was far too high, and with plenty of competition in the wing business, there was really no chance of success. The promotion ended with about 20%, or 10 million pounds, of unsold wings.
This strategy of selling promotional items outside of the company's area of expertise has been far less successful than the recent promotions by Wendy's and Taco Bell. Wendy's saw great success with its Pretzel Cheeseburger, which ran for longer than initially planned due to its popularity, and then built on that success with its Pretzel Pub Chicken Sandwich. This item worked for Wendy's because it fit in with the rest of the menu, essentially being the standard burger with a different bun and higher-quality toppings. While McDonald's strayed from its roots with the failed Mighty Wings, Wendy's stuck to burgers and fries.
Taco Bell had similar success with its Doritos Locos tacos, which are standard tacos with Doritos-flavored shells. Like the Wendy's promotion, these fit in with the current menu and didn't deviate from what Taco Bell does best. Taco Bell has now sold more than $1 billion worth of these tacos, and the item's popularity doesn't seem to be waning. Partly because of this success, Taco Bell has been a bright spot for Yum! Brands in the U.S., and the company plans to add 2,000 more stores in the next 10 years.
The bottom line
While McDonald's is certainly having problems, the company's issues are completely fixable. McDonald's is still one of the best brands in the world, and the highly profitable company has plenty of room to expand in international markets. A simplified menu, along with promotions that make sense, would go a long way toward returning the company to consistent growth. Hopefully, 2014 is the year that McDonald's gets back to basics.
Fool contributor Timothy Green has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. 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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