Poor McDonald's (NYSE:MCD). The company just cannot catch a break. After years of growth as the leading purveyor of burgers and fries, food quality and health concerns have led to sales and market-share erosion at the hands of perceived higher-quality food companies such as Chipotle and Panera.
In the last few years, McDonald's has been a revolving door of C-suite executives as investors and the board of directors have pushed for change. Most recently, the company replaced CEO Don Thompson with its chief brand officer, Steve Easterbrook. McDonald's beleaguered U.S. division has had three presidents in as many years. In addition, the chief creative officer responsible for the "I'm Lovin' It" campaign, Marlena Peleo-Lazar, left late last year.
It isn't as if McDonald's hasn't attempted to reverse its slide -- the company has introduced new products to increase demand, among other moves. However, many of the new products seem to be poorly crafted versions of market leaders' offerings. The company's frappes and iced coffees are an attempt to compete with Starbucks; McDonald's chicken wrap is a direct response to Chipotle; and the company's failed Mighty Wings experiment was an attempt to steal market share from Buffalo Wild Wings. But Golden Arches' newest experiment could be the smartest (and simplest) yet: extend breakfast.
A pilot program that's all theirs
For McDonald's, which has grown its menu so drastically that franchisees have complained, this growth strategy doesn't add another costly ingredient that is susceptible to spoilage; that's an especially big problem for new products for which demand is hard to gauge. For example, McDonald's was stuck with nearly 10 million pounds of Mighty Wings due to uncompetitive pricing; it had to significantly discount the wings just to move product.
Let's juxtapose that against the current pilot. According to The Wall Street Journal, the company is planning to push sales of certain breakfast items into the lunch service in some San Diego locations and then gauge demand before rolling the move out nationwide. Considering McDonald's already has the ingredients and the employee know-how to make the product, this appears to be a smart attempt to find the "low-hanging fruit" when it comes to potential demand.
Simple doesn't mean easy...
For pedestrian observers, an obvious question is, why hasn't McDonald's done this before? Despite interest from McDonald's fans for decades, the company has resisted calls to roll out a full-day breakfast menu.
The reason is one of capacity -- simply put, the restaurant's grills cannot easily accommodate both breakfast items and lunch items. In temperature settings, space, and production processes, lunch McDonald's is different than breakfast McDonald's. This extreme specialization helps to produce food more quickly, but comes at the expense of a dual-meal operation.
I expect McDonald's to carefully monitor its production and food delivery times during this pilot program. A hidden risk is if the extended breakfast menu leads to slower delivery times and lost revenue. In the face of slower delivery times for orders, the company has added a third drive-thru window at some locations and even ran a pilot program promising one-minute delivery. Obviously that wasn't rolled out nationwide.
Personally, I like this new pilot program. Over the last few years, McDonald's has attempted to mimic other restaurants for growth, but perhaps making its wildly popular Egg McMuffin and McGriddles sandwiches more accessible is a more cost-efficient option for growth.