Relevance, simplicity, localization and customization were the watchwords of McDonald’s Corp.’s embattled response to a Q3 sales report that was even worse than the most dire forecasts. Insisting he is “confident in our ability to regain momentum,” President-CEO Don Thompson told analysts that the brand needs to provide more choices and customization, which is what he says consumers are looking for. “We haven’t been changing at the same rate as our customers’ eating-out expectations,” Thompson conceded. “So we’re changing and changing aggressively.”
Whether its aggressiveness will be counter-productive, it remains to be seen. In January, McDonald’s will simplify its menu, tossing out low-volume products (which he would not specify). At the same time, McDonald’s will restructure its U.S. system to give more local markets autonomy over their menu so they can add products they believe will do well in their markets. If Mozzarella Sticks or Chorizo Burritos (both currently testing) are somehow determined to be “relevant” to a region, the co-op can add them to the menu without an OK from corporate. This sounds like an echo of one franchisee’s recent complaint in the Janney Montgomery Scott survey that “They simplify…and then just add more products.” But Thompson insists it will make menus more local, relevant and appealing.
Core products like Quarter Pounders will get more national marketing support. But while McDonald’s Australia promises to have the build-your-own-burger kiosks in all 900+ stores there within a year, Thompson said just three U.S. markets will begin testing by the end of 2015.
Thompson once again vowed to ramp up the company’s use of digital tools, including the rollout of the Apple Pay mobile payment system to all its U.S. stores (including the drive-thru). A reprioritization of resources will help fund all these initiatives, resulting in fewer new stores than had been expected in 2014. “We are targeting to identify and redirect nearly $100 million in savings for future, long-term growth initiatives such as the digital strategy and McDonald’s Experience of the Future,” said Thompson.
McDonald’s U.S. comp sales were down 4.1% for September and 3.3% for Q3. Europe’s quarterly comps were off 1.4% while the Asia/Pacific/Middle East/Africa region was down 9.9% for the quarter. But at least these declines had more easily identified causes. Russia’s political game-playing, resulting in more than 200 McDonald’s stores undergoing examinations for health violations, and the closing of Crimea’s stores accounted for the bulk of Europe’ decline. The tainted-food scare in China (which accounts for 10% of global sales) that reverberated through Japan and Hong Kong continues to depress Asian sales. Thompson said it likely will take six to nine months to fully restore consumer confidence there.