McDonald's at the crossroads. Again.

McDonald’s is losing sales, customers and market share globally. The fast food giant filed its annual report with the SEC this week, offering few new insights into how it intends to reverse its precarious position.

Lucy Nicholson/Reuters/File
The signage outside a historic McDonald's restaurant is seen in Downey, Calif. The 10-K annual report McDonald’s Corp. filed with the SEC this week gives a glimpse into some of the challenges that await the company in the coming year.

On Sunday (March 1), Don Thompson officially steps down as president and CEO of McDonald’s Corp. after two-and-half years. Steve Easterbrook, previously corporate senior executive vice president and global chief brand officer, takes over and mercifully gets to shorten his title.

McDonald’s is leaking customers, not just dollars.

The 10-K annual report McDonald’s Corp. filed with the SEC this week gives a glimpse into some of the challenges that await Easterbrook et al. McDonald’s is losing sales, customers and market share globally. The filing offers few new insights into how it intends to reverse its precarious position.

  • Company-operated stores sales were $18.169 billion in 2014, the lowest since 2010. A reduced number of company stores accounts for some of that but only a little: the 6,714 company stores are year-end were only 24 lower than a year ago.
  • Franchised-store sales in 2014 were $69.617 billion (lowest since 2011).
  • Total U.S. sales were $35.447 billion, down 1.1% from last year. The company employs 420,000 people worldwide, roughly double the global workforce of General Motors.

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  • Oddly, McDonald’s Corp. always had tucked away sales results for Canada, the Caribbean and Central and South America under “Other Countries & Corporate” on its ledger. It’s especially odd now because this mystery category actually saw salesincrease by 6.6%. Traffic was down just 1.5%. Why not talk it up?
  • Global systemwide sales (company and franchised) were $87.786 billion, down 2%.
  • But the sales slide may not be the worst problem. Globally, McDonald’s saw guest counts decline 3.6% (compared with a 1% decline in comp sales). It’s leaking customers more than dollars.
  • Customer loss in the U.S. was most dire, with 4.1% transactions in 2014 than in 2013. In Europe, by comparison, customer traffic declined 2.2%.
  • Customers have left despite the company’s unmatched marketing strength. Corporate contributions to its advertising cooperatives totaled $808.2 million, plus an additional $98.7 million to cover production costs. These numbers, only slightly higher than in 2013, include costs related to McDonald’s Olympic sponsorship.
  • For the first time, McDonald’s admits it is loosing share in the global restaurant competition. The 10-K reports that “Based on data from Euromonitor International, the global IEO segment was composed of approximately 8 million outlets and generated $1.2 trillion in annual sales in 2013, the most recent year for which data is available. McDonald’s Systemwide 2013 restaurant business accounted for 0.4% of those outlets and 7.5% of the sales.” For the past two years, McDonald’s 10-K’s have claimed an 8% share of the global IEO segment.

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  • The solution? “Our revamped marketing approach includes a new national brand campaign complemented by local advertising that is more responsive to individual market preferences. We plan to execute initiatives that are designed to address customer insights and the competitive dynamics that are unique to each market. We are focused on strengthening our menu pipeline by providing more choice and customization, with plans to begin expanding the Create Your Taste platform in 2015. Our menu initiatives also include plans to enhance core products, particularly in the chicken and beef categories. We are also refining our value proposition to offer the right balance of value and choice and to create more logical relationships across menu price tiers.”

Whether the new hug-it-out “Lovin’ it” campaign, the Create Your Taste burgers (in just 30 stores now?) and marketing support for low-price menu items will be enough for the Arches to regain positive momentum waits to be been. I think it needs fresh, unexpected ideas in menu and marketing. We’ll see if Steve Easterbrook brings them with him on Sunday.

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