The $10 million to $25 million McDonald’s reportedly spends annually to be a World Cup sponsor is the proverbial double-edged sword. On the one hand, the Cup is one of the best events with which a brand can be associated. But for McDonald’s, the success of this year’s World Cup meant millions of people were at home, at bars or a Buffalo Wild Wings cheering throughout June. Not at McDonald’s.
How better to explain same-store sales for McDonald’s, which saw a 1.5 percent decline in comp sales for Q2 overall led by a 3.5 percent drop in June. McDonald’s Europe sales likely would have been positive in Q2 but for a sudden 3.4 percent drop in June. One analyst at today’s McDonald’s quarterly earnings call actually, embarrassingly asked, “Was there anything happening to explain the sales decline in Europe?” That analyst needs to spend less time dining at Balthazar and more time among the living because yes there was. No analyst asked a question about the World Cup during the call. That was good for McDonald’s since it hardly could blame poor sales on an event of which it is a global sponsor. CEO Don Thompson didn’t mention the World Cup; not even the global ad campaign supporting the event on which it spent millions.
Only Mark Kalinowski, restaurant analyst for Janney Montgomery Scott, had the smarts to wonder if the biggest global sporting event of the year might have had an impact on McDonald’s sales. As Kalinowski wrote in a brief to investors after McDonald’s quarterly report was issued, “Anything that keeps folks at home watching TV, keeps them away from their local McDonald’s restaurant. This may help explain the weaker-than-expected results in Europe and APMEA, in particular.”
The World Cup doesn’t explain away the frightening June decline in total, of course. Unfortunately, no analyst on today’s call asked about sales for the Bacon Clubhouse, the premium burger on which McDonald’s pinned its Q2 sales hopes. Comp sales were down for Q2 but was that because the Bacon Clubhouse underperformed expectations? We won’t know because analysts never ask such simple questions.
McDonald’s poor Q2 sales clearly put Thompson on the defensive. The mantra of the day was “moving with a sense of urgency.” He used it multiple times to indicate that he knows something’s very wrong. The usual response is to point to “a highly competitive environment and a contracting eating out market,” but that is especially unconvincing when you have Chipotle Mexican Grill reporting 17.3 percent same-store sales. Nothing contracting there.
The conference call’s other key phrase was “foundational elements.” These are those building blocks of McDonald’s business—pricing, menu, operations, service, marketing—that will be strengthened under the two-path strategy Thompson outlined. The other path includes increasing customization, accelerating digital efforts and making McDonald’s “an even more respected brand” through ties to organizations such as World Wildlife Fund.
Thompson alluded to but didn’t elaborate on a “learning lab” he says the company has established in California to probe what consumers today want from McDonald’s. There were no analyst questions about the lab either, by the way. Thompson’s emphasis on the benefits of customization and personalization might mean an expansion of the build-your-own-burger option tested in California, or it may just be the expansion of condiment options that will be possible with the new High-Density Kitchen layout.
At one point in the call Thompson said McDonald’s will “evaluate the relationship between pricing and quality perception.” That seemed to answer the concern voiced by a McDonald’s franchisee in Janney’s survey. “We still serve the most customers because we’re considered cheap, rather than the best quality,” said one franchisee. “We certainly have the best facility but we have to find a way to convince them that we offer the combination of service, quality, and cleanliness at the best value, not the cheapest.”
Thompson agreed that McDonald’s needs to reemphasize the quality of its food. But that won’t mean dropping the Dollar Menu & More. “We’re looking at the overall pricing on our menu board. But we’re not giving up on value or affordability,” he said.
Changing advertising creative also part of Thompson’s turnaround plan. He wants ads to focus on product quality and he wants to revive that “emotional connection” between brand and consumer that McDonald’s used to have.
If McDonald’s wants to improve consumer engagement with the brand, why doesn’t it try the “My Burger” promotion—where consumers suggest new burgers and the one with the most votes actually goes on the menu as an LTO—in the US? The crowdsourcing approach was tried for the first time in the UK this spring and what happened? UK sales were among the best, globally, in Q2. Despite the World Cup.