Once a pioneer in the fast-food industry, McDonald’s Corp. (MCD) is widely considered to be too comfortable with its success. As a result, the company appears to be losing touch with customers and franchise owners, even internationally. In the second quarter of 2015, McDonald’s saw its sales and earnings per share (EPS) fall. CEO Steve Easterbrook, who was appointed in 2015, turned the stock price around considerably but has yet to bring innovation to the stalling fast-food giant, leading to deficiencies in operations that are frequently noted by consumers and franchise owners as areas that need improvement.
Eating at McDonald’s can be quite an experience, as the menus flip over at high speed, which makes for a cycle of ever-changing options, which can seem overwhelming. By getting back to its roots – hamburgers, cheeseburgers, and French fries – the McDonald’s brand can strengthen and continue to identify itself with its core consumer. Quick and simple ordering means happy customers, and revolving customers are the core of every restaurant business.
McDonald’s failed experiment with pizza in the 1990s should have taught the company that consumers don’t visit fast-food restaurants to sit around and wait for food. Franchisees complained about the expensive pizza ovens and long cooking time, but it took until 2000 for McDonald’s to close its pizza chapter.
Another example is when both consumers and franchise owners were complaining about the McWraps. The tricky menu item took a longer-than-expected amount of time to prepare and led to frustrated, impatient consumers. McDonald's has since phased out the McWrap, admitting that the menu had become "overcomplicated." The issue with trying and failing is that consumers grow attached to a product and lose loyalty when it is discontinued for operational purposes.
By listening to its franchisees and by extension, its consumers, McDonald’s can restore its image as a restaurant at which to get fast and cheap food.
McDonald’s once made the tastiest hamburgers in America, but today the best hamburger award goes increasingly to fast-casual restaurants like Shake Shack Inc. (SHAK) and Five Guys. McDonald’s, in a bizarre move, abandoned its core brand of being fast and cheap and attempted to copy the upscale hamburger places to woo back consumers.
McDonald’s should be focusing on improving the quality of its core products. Locally sourced ingredients, organic food, and a high standard of quality are not necessarily the first thing consumers want from McDonald’s.
At the management level, there appears to be a general lack of initiative that goes into providing a pleasurable experience inside McDonald’s to match the service levels of its competitors. The best and easiest solution for improving the time spent in a McDonald’s is self-service kiosks, which are growing in popularity and widespread in Europe and Canada. These popular machines allow fast and precise ordering, secure payment options, and free up the workers to perform other tasks and improve customer service, which in a rather automated restaurant like McDonald's, does not necessarily need to be human-to-human interaction.
McDonald’s raison d’être is to serve cheap food quickly, and consumers who are willing to spend more than $5 on a hamburger will go to a fast-casual hamburger restaurant instead. With its fancy Angus burgers and wraps, McDonald’s is failing its investors and the consumers who frequent the establishment for inexpensive calories.
By simplifying the menu and implementing self-serve ordering, McDonald’s can lower its prices from the labor deficit and ingredient cross-utilization. Smaller, uncomplicated menus not only translate into lower staffing costs, but they also don’t force franchisees to purchase expensive specialized equipment or keep as much inventory on hand to sell a wide variety of menu items.
The Bottom Line
McDonald’s needs to stop trying to please every type of consumer. Fast-casual restaurants are not their competition. McDonald’s will never be a place where people go to eat artisan loaves of bread and exotic meat hamburgers stuffed with imported cheese; it’s a place to buy cheap, decent-tasting hamburgers that are ready within minutes of entering the building.
As long as McDonald’s continues to compete against the wrong companies, it opens the doors for its real competition – The Wendy’s Co. (WEN) and Restaurant Brands International Inc. (QSR) subsidiary Burger King – to take over the lion's share of the fast-food market.