The past three years have been great for a vast majority of investors, with the broad-based S&P 500 in all-out rally mode. For investors in McDonald's (NYSE:MCD) however, they might feel a bit hamburgled out of their gains. A side-by-side comparison of the S&P 500 and McDonald's over the trailing three years would yield around a 70-percentage-point under-performance for the golden arches.
As Foolish colleague and consumer goods specialist Rick Munarriz has noted, McDonald's sub-par performance relates to a number of factors, including the quality of its food, operational miscues, and a bounty of negative PR for the company.
Amazingly, though, McDonald's future isn't without hope. It could actually become golden once again if it would be willing to implement some simple strategies to get consumers back in its restaurants. By making the following five changes, I suspect McDonald's could once again be the dominant force it once was in fast-food dining.
1. All-day breakfast is a necessity
First, McDonald's needs to get over its aversion to offering breakfast past 10:30am in most locations. As a BurgerBusiness.com interview with an Atlanta-based McDonald's owner uncovered in 2013, the reason McDonald's hasn't moved into an all-day breakfast scenario is that it's a capacity issue. In other words, McDonald's needs its toasters and grills to make hamburgers and other lunch foods starting at 10:30am.
The solution for some of McDonald's competitors, like Starbucks (NASDAQ:SBUX) which has excelled in the breakfast space, is to bring in its products pre-cooked. Though pre-cooking does remove a bit of the restaurant quality for McDonald's, it could be an option that allows the company to expand its capacity to meet those who want breakfast beyond traditional breakfast hours, short of cramming more toasters into its restaurants.
Why is this important? The fast-food breakfast business was worth $31.7 billion in 2012. Despite already owning the largest share in the breakfast market, I'd suggest McDonald's still could garner quite a bit of additional share following in the footsteps of Jack in the Box which has seen its profits soar on the heels of its all-day breakfast menu.
2. Trim the extras, boost the greens
Secondly, McDonald's needs to clean up its menu in a big way. Adding more options works for some restaurants, while for others it doesn't. As you might imagine, having too much on the menu can actually be more of a distraction for the consumer than it's worth since McDonald's success is reliant on serving its customers in a high-quality manner as quickly as possible. The solution: trim lower-margin and select higher-fat content from its menu and boost the selection of healthier food items.
To be fair, it's not as if McDonald's is asleep at the wheel in recognizing that consumers want healthier food options. The company has introduced a "favorites under 400" menu to highlight low-calorie options for health-conscious consumers, as well as expanded happy meal side options to include fruit and yogurt (at least in the U.S.)
Still, between 2007 and 2013 McDonald's menu of items grew by 70% to around 145 items. This is a trend that has to be changed if the company is going to keep its service quick and efficient.
3. Shift its PR toward positive events
Internally, McDonald's needs to stop shooting itself in the foot with bad publicity. The company's sample budget for its employees, for example, which assumed they'd get a second job and would find health care for $20/month, is a perfect example of the company putting its foot in its mouth.
How will McDonald's get back in consumers' good graces? The answer is by taking things one small step at a time.
The great thing about consumers for McDonald's sake is they tend to have a pretty short-term memory when it comes to corporate faux pas. In Sweden, for instance, McDonald's is allowing citizens to collect cans for recycling and exchange those cans directly for food. Collecting 10 cans nets a citizen a hamburger or cheeseburger, while 40 cans earns a free Big Mac. The reward is a cleaner environment and certainly the potential of an improved image for McDonald's. If the company were to bring this idea to the U.S. there's a good chance it would result in positive press for McDonald's. Small initiatives like this could translate into big results for McDonald's over the long run.
4. Focus on millennials
To say that McDonald's has a "millennial" problem would be a vast understatement. According to data gathered by Technomic, on behalf of The Wall Street Journal, the percentage of people aged 19 to 21 that have visited McDonald's on a monthly basis has fallen by nearly 13% since 2011, while those aged 22 to 37 that visit McDonald's monthly are flat over the same time span.
For McDonald's to boost its traffic it's going to have to focus on its customer of the future: millennials. One way it can do that is by offering healthier menu options, as was mentioned above. Millennials are considerably more conscious about what they eat compared to their parents, so tightening up its menu options could go a long way to getting millennials through its doors.
In addition, targeting millennials in a comfortable setting, such as through social media, is going to become increasingly important for McDonald's. Based on an interview between Digiday and Rick Wion, McDonald's director of social media, the company doesn't have a very cohesive social approach across platforms like Facebook and Twitter. Instead, as Wion notes, "A lot of our social team members are doing social as part of other jobs as well." That's going to need to change as these social outlets are quickly becoming the go-to news source for a lot of millennials.
5. Clean up the value menu
Lastly, I'd suggest that McDonald's has to recognize that its value menu is one of its strongest traffic drivers, and that it needs to be more consistent to that end with its pricing.
Currently, the company's "Dollar Menu & More" offerings are, much like the rest of its menu, a bit confusing. Gone are the days where everything was a dollar. Instead, now consumers see around a dozen items with varying price points from $1 up to nearly $5. After years of advertising items at $1, even if the number of items has to shrink, I'm a believer that McDonald's needs to stick with a single price on its value menu in order to drive additional consumer traffic.
The fast food industry is built on speed, repetition, and quality, and if McDonald's can deliver on that consistency with newer consumers drawn in by its value pricing then it has a decent chance of converting that person into a loyal customer.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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