It's no secret that McDonald's (NYSE:MCD) has had a rough ride in 2014, which was marked by crumbling sales in both the United States and abroad. Domestically, McDonald's has been hit by its core customers' continued financial distress, as well as slowing service times at the drive-thru and an overly complex menu. In the international markets, McDonald's is still reeling from a food-quality scandal in China. In fact, China has been a rough market all year for most large fast-food chains, including Yum! Brands. The operator of the KFC, Taco Bell, and Pizza Hut chains recently cut its 2014 earnings forecast for the second time this year based partly on China woes.
The most troublesome aspect of being a McDonald's shareholder is that even though management pinpointed the company's problems early on, very little was done throughout the year to change course. In monthly sales reports and quarterly earnings releases, Chief Executive Officer Don Thompson repeatedly cited the complicated menu as a problem, and vowed to fix it, without offering much in the way of specifics. That is, until now. McDonald's is finally doing something to simplify its 100-plus-item menu, eliminating five Extra Value Meals and eight items that could include variations of the Quarter Pounder with Cheese, Premium Chicken sandwich, and Snack Wrap.
Several items getting the boot
The rising wait times and worsening customer service at McDonald's have been well-documented. As McDonald's released more complex menu offerings, it suffered in its ability to complete orders in a timely manner. As fast-food industry publication QSR stated in its Drive-Thru Performance Study last year, McDonald's had sunk to its slowest average speed of service in the history of the survey, at just over three minutes. Not surprisingly, this is hurting the company's financial performance. Global same-restaurant sales at McDonald's fell 3.3% year over year in the most recent quarter, ended Sept. 30, because of declining traffic across all operating segments. Things have deteriorated since then, as November comparable sales fell 4.6% in the United States.
On Dec. 10, McDonald's revealed it will cut eight food items from the menu and five Extra Value Meals, leaving 11 Extra Value meals. The Wall Street Journal reported that day that executives did not specify which items would be cut.
Other organizations are now reporting on what might get the ax nationally.
McDonald's is currently testing cutting out three varieties of the Quarter Pounder with Cheese, USA TODAY reported, reducing the options from four to one. In addition, McDonald's is also testing cutting Premium Chicken sandwiches and Snack Wraps from three to one, USA TODAY quoted a McDonald's spokeswoman as saying.
In its announcement, McDonald's reiterated that more menu changes are to come. The burger chain is gearing up to offer customization of burgers, for example. In certain restaurants, customers can choose toppings as part of McDonald's "Create Your Taste" initiative. This is clearly designed to better compete with restaurants such as Chipotle Mexican Grill, which offer station-to-station ordering in which customers make all the choices of what goes into their meals.
Complexity is out; customization is in
This is the right course of action for McDonald's. The initial thinking that "bigger is better" when it comes to the menu was flawed. Having more items on the menu does not necessarily result in higher sales and profits. In McDonald's case, the menu was so bloated that customers waited in line for longer and took longer to place orders, and workers took longer to complete orders. The expanded menu did little but create bottlenecks that slowed the entire ordering and meal fulfillment process
To be sure, there is no guarantee that these initiatives will cure all that ails McDonald's. The company still suffers from the negativity surrounding the health effects of fast food, and that will remain. But McDonald's only made its problems worse with a bloated menu and slow customer service. There was little reason to offer four different versions of the Quarter Pounder and so many Extra Value Meals. This simply drove customers to the company's Dollar Menu and More, which offers simpler, individual items that consumers can piece together for lower costs. McDonald's isn't out of the woods by any means, but it's finally waking up and taking action.
Bob Ciura owns shares of McDonald's. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill. 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.