McDonald’s fails to tackle key question: Where’s the beef?
Fast-food chain’s failure to talk about food in its turnaround plan does not bode well for its future nor for investors
Where’s the beef? is a catchphrase in the US. It originated as an advertising slogan for the fast-food chain Wendy’s in a TV commercial in 1984. Since then it has become an all-purpose phrase questioning the substance of an idea, event or product.
It strikes me as relevant
to the current predicament of McDonald’s. McDonald’s, the world’s largest fast-food operator, is experiencing serious problems. Global same-store sales have now been down for four consecutive quarters and six of the past nine quarters.
US same-store sales have now been down for six consecutive quarters. European same-store sales have been down for four consecutive quarters and for seven out of the past 10 quarters.
Perhaps even worse is the fact that the number of customers visiting McDonald’s in the US fell 1.6 per cent in 2013 and then 4.1 per cent in 2014. The European guest count fell 1.5 per cent in 2013 and then 2.2 per cent in 2014. Same-store sales in Asia-Pacific, the Middle East and Africa have been down for eight of the last 10 quarters and the guest count fell 3.8 per cent in 2013 and 4.7 per cent in 2014.
Fundamentally wrong
The fact is, there is something fundamentally wrong with McDonald’s rather than the whole fast food sector.
At least McDonald’s has figured out that it has a problem. The result is a new chief executive, Steve Easterbrook, who ran the relatively successful UK operations, and the obligatory “turnaround plan” launched at an investor conference. My misgivings about this plan began with the news release which preceded the conference. It said the new chief executive identified the company’s priorities as threefold: “driving operational growth, returning excitement to our brand and unlocking financial value”.
Note that the word “food” was entirely absent from the release and the word “burger” was only mentioned once, as in “burger company”.
I think that the first thing McDonald’s needs to address is whether its target customers like the food it sells, and if not, figure out why this is and what it can do about it. Domino’s Pizza did this in 2009 when it made a very public mea culpa about the quality of its pizzas, publishing some damning findings from a customer survey.
This is the sort of action you only take if you intend to change and Domino’s has been reaping the benefits since.
If you are thinking of investing in McDonald’s or any other potential “turnaround” situation I suggest you hold back until you encounter a CEO who talks about the need to improve the company’s product or service in a basic manner. Someone who can answer the question, “Where’s the beef?”