Thank goodness that's over with. McDonald's (NYSE:MCD) has issued its final monthly sales report, and the May numbers offered more of what investors have come to expect: falling U.S. and global sales at stores open at least 13 months.
Turning off the spigot
The restaurant operator announced last month that this would be the final monthly tally of same-store sales. In the future it will report them on a quarterly basis like everyone else. This marks the end of the drip of bad news that reminded everyone month after month after month just how bad its business was. Unfortunately, it's not likely to be the last time we hear about the deterioriating situation at the burger joint.
For May, U.S. comps were down 2.2%, the fourth straight month in which sales fell and the 13th of the last 16 months that McDonald's didn't show growth. The restaurant has pretty much offered flat or anemically positive growth only when it's giving away coffee. Otherwise, customers are fleeing in droves.
Year to date, McDonald's U.S. comps are down 2.4%, twice the rate at which they fell over the same period of 2014.
Global comps are also down, though May saw comps rise 2.3% in Europe.
While McDonald's blames "ongoing competitive activity" for its domestic woes -- global comps were down 0.3% in May, which wasn't as bad as analysts had anticipated -- the excuse ignores its own hand in driving customers away, which is why the company also reported "negative customer traffic" in May.
Going nowhere fast
Despite the obvious envy McDonald's displays for the success of its fast-casual brethren, and the heavy-handed way it's trying to emulate them by, for example, introducing opportunities for order customization using fresher, more unique ingredients, Chipotle Mexican Grill and the like aren't the cause of its problems.
McDonald's customers skew toward the middle- and low-income levels and visit the chain looking for value. CEO Steve Easterbrook suggested he understood that when he acknowledged the restaurant had moved away from its popular Dollar Menu and didn't replace it with more value items. But the recent addition of pricier sirloin burgers to the menu shows there is still a disconnect between headquarters and its customers.
McDonald's strength lies in breakfast, where it's estimated to own anywhere from 20% to 30% of the daypart, depending on who's doing the counting, and which accounts for about one-fifth of the chain's $28 billion in annual revenue. The burger chain also generates a whopping 70% of its sales from its drive-thru window. Most fast-casual restaurants that are typically assigned blame for McDonald's problems don't do breakfast and don't have drive-thrus. Their customers also tend to have higher incomes, and McDonald's isn't necessarily losing customers to them as people aren't going to go from eating burgers off the Dollar Menu to filling their trays with burrito bowls or $10 burgers.
All things are not equal
No doubt more than a few customers have been lured away by the contemporary dining experience fast-casual chains offer, but if that was the true source of McDonald's problems, then Wendy's, Burger King, and Sonic would all be equally hard hit -- but they're not.
The wellspring of McDonald's troubles is in trying to be too many things to too many people. Even though management says it is streamlining the restaurant's menu, it really has only shaved off a handful of items while still adding new products and giving regional managers the option of customizing menus further by adding local flavor dishes.
Easterbrook said he wants to transform McDonald's into a "modern, progressive burger company," whatever that means. Both he and predecessor Don Thompson, who fell on his sword earlier this year after the worst year in the company's history, have thrown a lot of ideas at the wall in hopes that something sticks. So far it looks like everything continues to slide down.
McDonald's updated sales reporting schedule can't mask the chain's failure to address the root causes of why customers have turned away from the burger joint. But if it can return to providing a good meal at a good value, there might be hope for the chain yet.