What's Eating McDonald's? (And Why Aren't More of Us?)
McDonald's (MCD) disappointed investors on Monday by posting uninspiring performance metrics for the month of November. U.S. comparable sales declined 0.8 percent, continuing a problematic trend that initially reared its ugly head when the world's largest fast food chain posted negative comps in October of last year. McDonald's has been posting monthly ups and downs, and the end result is that comparable sales have inched a mere 0.1 percent higher through the first 11 months of the year.
McDonald's growth isn't keeping up with inflation, and it's certainly not keeping up with market expectations.
Bucking the Trend
This was supposed to be a time for McDonald's to shine. It has always been a haven for cheap eats, but it has spent the past few years broadening its offerings to appeal to folks hungry for more than just one-buck burgers.
From the McCafe rollout that features fruit smoothies and fancy coffee beverages to a menu that embraces premium chicken sandwiches and gourmet burgers, these should be days of growth. The employment picture is improving, and gas prices have held steady enough that no one should fret about queueing in a long drive-thru lane.
%VIRTUAL-article-sponsoredlinks%Clearly, that's not what's happening: The average established McDonald store didn't ring up as much in sales last month as it did last November.
"November's performance was supported by breakfast, chicken menu choices and expanded value offerings," McDonald's explained, but that only meant that everything else is going the wrong way.
"Ongoing competitive activity and relatively flat industry traffic trends negatively impacted performance," the chain concluded, but that also was an incomplete statement.
Eatery trackers Black Box Intelligence and People Report team up every month to put out the November Restaurant Industry Snapshot, and that shows a far more favorable perspective. The snapshot shows that restaurant industry same-store sales actually rose 0.8 percent in November, and that's at odds with the mirrored decline at McDonald's that it's apparently blaming on industry trends.
McDonald's has a problem, and it's trying to do something about it.
Driving Through 2014
"As consumer expectations and the marketplace continue to evolve, we are making investments in our menu, restaurants and service to strengthen our connection with customers and build our business for long-term profitable growth," McDonald's explains.
We already knew this.
During an investor presentation last month, the chain laid out its plan for 2014, which entails introducing deeper prep tables across all of its U.S. locations and incorporating a third drive-thru window at new sites.
The larger prep areas will allow McDonald's to stock more fresh ingredients, giving customers more flavor options. Naysayers will argue that this will only make things more complicated, giving the chain's front line more opportunities to mess up orders. But McDonald's has to do something. The registers are stagnant.
The third drive-thru windows will only go in at new or rebuilt eateries, giving drivers placing complicated orders a different place to wait that won't hold up the line for the others.
These are the two initiatives that McDonald's was referring to when it expressed its intent on Monday of "rebuilding its underlying business momentum by strengthening key elements of customer service and leveraging the breadth of menu choices..."
It's a novel approach, but McDonald's needs more than just new ingredients or a place to park the person requesting a Big Mac cut in half, no pickles, with the special sauce on the side. It needs to reshape consumer perception, and that's something that's never easy to find on a deep prep table.
Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our newsletter services free for 30 days.