McDonald's (NYSE:MCD) may not be in bad shape, but things are certainly heading in the wrong direction. The company's last quarterly report delivered 10% declines in both sales and earnings, and franchisees -- the cornerstone of the business -- are reportedly more dissatisfied than ever before. Mickey D's is also facing a rising tide of fast-casual chains, with companies including Chipotle and Panera Bread pairing tasty meals with carefully cultivated brand strength.
Recognizing the need to get back on a better track, new CEO Steve Easterbrook has emphasized that the company will be making some big changes and making them quickly. To get an idea of what initiatives could restore some glimmer to the Golden Arches, we asked three Motley Fool contributors to spotlight a move to get McDonald's back in fighting form. Here's what they had to say.
Bob Ciura (offering all-day breakfast): To me, the most promising catalyst working in the company's favor going forward is the upcoming move to all-day breakfast. This is a huge event that has gained lots of attention, which is notable itself since it's the first time I can remember that McDonald's has gotten some positive headlines.
As a shareholder, it's been extremely frustrating for me to see the stock go nowhere as the company's fundamentals deteriorate. Last quarter, total revenue and earnings per share each declined 10% year over year. Clearly, McDonald's needs something to help turn things around. Breakfast may be just that opportunity, as McDonald's is still viewed as a top choice for breakfast enthusiasts.
According to a recent survey by brand perception researcher YouGov BrandIndex, McDonald's is the most popular restaurant among "breakfastarians," a term describing consumers who eat breakfast foods multiple times per day. McDonald's is seeing its business deteriorate across the lunch and dinner segments because of intensifying competition. But it has largely retained its supremacy in breakfast, and I believe aggressively leveraging its breakfast dominance could be just what McDonald's needs to fuel its turnaround.
Daniel B. Kline (simplifying the menu): It's a frequent complaint from McDonald's franchisees -- the menu has gotten bloated and complicated. That's a hard fact for management to dispute when you look at a selection of products which now includes wraps, a full array of coffee drinks, and a list of burger-based sandwiches that has grown absurdly long.
Yes, some of these products make sense. In 2015 the fast-food chain would be crazy to not have salads, but it will probably get by just fine without the Bacon Clubhouse Burger. In its heyday, McDonald's had a core offering of burgers supplemented by Chicken McNuggets, Filet-O-Fish, and seasonal items. The relatively small offering made it a big deal when the company trotted out a new product.
Items launched for a limited time brought people into stores. Now they're just one more thing on an-already confusing list. McDonald's needs to pare back to its core offering, supplemented by its most popular new choices. Then, the company has to set the bar much higher for adding something new to the menu, even if it's on a limited-time basis.
This is a truly a case where less can be more, and having a smaller menu will drive sales of new items and make things such as the seasonal release of the Shamrock Shake an event again.
Keith Noonan (getting marketing right): Turning Steve Easterbrook's "modern, progressive burger company" mantra into a reality hinges on a range of successful changes, and casting the brand in a new light will be among the most important. McDonald's is fighting deeply ingrained negative perceptions about its food and restaurants, and a more focused marketing front in conjunction with menu and service adjustments seems to be the only way the company will return to a healthy growth path.
McDonald's has a lot of work to do on the ad and brand fronts, but it has a potential winner with its mobile app, and one that addresses service and marketing issues in a single package. The app is rolling out across the country this month and could eventually be used to place and pay for orders at nearby McDonald's locations. Meanwhile, it already opens up direct-to-consumer marketing opportunities that could greatly improve the efficiency of ads. Simply improving ad targeting to existing customers won't be enough, however.
Mickey D's has to find marketing campaigns that fit the modern climate and maximize the value of menu changes and operations improvements. The company's efforts to detail its food production processes and publicize moves such as not using certain hormones and reducing the ingredients in its grilled chicken are early steps in a longer process to restore favor with consumers.
Stigmas associated with the brand have driven customers away from The Golden Arches, and preventing further drain and recapturing lapsed traffic is about more than making changes. McDonald's has to announce to the world that it has improved, and present that message as effectively as possible.
Bob Ciura owns shares of McDonald's. Daniel Kline has no position in any stocks mentioned. Keith Noonan has no position in any stocks mentioned. The Motley Fool owns and recommends Chipotle Mexican Grill and Panera Bread. 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.