Recently they have undergone various changes that make me think they are grasping at straws to stay afloat. Are they having financial trouble?
If so, what is the cause? More competition from fast food? More competition from sit down restaurants? People cooking at home?
I’ve seen a few articles within recent weeks suggesting that the franchisees see the business going downhill. One common theme lately is that they are making all these changes hoping to perk up the business, but it’s all backfiring. In particular, there have been a lot of articles lately about this new all-day breakfast menu, which franchisees are calling a disaster.
Here’s an article I just googled up, about franchisees complaining that the business is going to shit. On closer inspection, I note that it’s from a while back (April 2015), so I guess this cup o’ tea has been a while a-brewing.
McDonald’s Franchisees: “We Will Continue to Fall and Fail”. You can google yourself for those recent bitchings about the breakfast menu – you’ll get pages of cites.
I can only answer this third-handed, because my husband, who likes to read about business models and entrepreneurship, was going on about it at the breakfast table. I’m regurgitating what I remember without bothering to look up any facts (which you can probably do on Google News, if you’re so inclined).
Apparently McDonalds’ margins are razor-thin, moreso than most fast food chains. Who’s really suffering are the franchisees, who can’t be profitable unless they own at least a dozen restaurants. The problem is those razor-thin margins in conjunction with the constant experiments and menu tweaks–which inevitably require the franchisees to buy expensive new equipment.
The new CEO seems to be taking a scattershot approach to changing things, such as this all-day breakfast scheme, hoping something profitable will stick. While all-day breakfast doesn’t require new equipment, though, it does expand the menu during most of the day. I guess franchisees generally don’t like it.
It does seem as though they’ve been kind of flailing around lately, trying to copy this chain or that chain, from month to month. The all-day breakfast thing has been making the news lately as being something that makes the franchisees very unhappy.
I’ve seen it estimated that 30% of McDonalds franchisees are losing money at this point - hard to believe, since you rarely see a McDonalds location close down. It’s always seemed like the surest bet for making money with a franchise.
I saw something in the past week indicating that they are doing better, revenue up, outpacing Chipotle and other popular new-comers. I don’t know if it takes into account the all-day breakfast which is reported to be a disaster. I wouldn’t worry about them too much, they’ve had their ups and downs before.
Let’s recall that McDonalds runs their own trade school, Hamburger University, for grooming their own franchisees. They don’t just teach the art of flipping burgers – they teach the whole entrepreneurial skill-set for owning and operating a fast-food franchise (specifically, McDonalds), and they’ve promised their graduates that they can all get rich if they can do this well. At least, that was part of the advertising hype I remember reading about in the past.
Contrast that with Sattua’s remarks just above – franchisees are getting squeezed to the bone, and Corporate just seems to be making things harder and harder for them.
I have noticed a lot of new burger chains catching on recently, Five Guys, In-N-Out, Shake Shack, and probably a few more. There’s a strip mall near me that’s expanding and the sign on one of the new places is “Smashburger”. Looked them up on Wikipedia and they were founded in 2007 and already have 300 locations. We’re experiencing a meat-on-bun renaissance these days.
Yeah, there are many places that serve better burgers than McDonalds. I’ll add Whataburger to that list, plus many local places.
McDonalds has tried to make a better burger, but I think this plan fails for two reasons:
The limited time condition means that even if I try the new burger and like it, too bad customer, it probably won’t be offered the next time you come in. So why would I come back? I know the Five Guys/In-N-Out/Shake Shack/Smashburger/Whataburger will have their delicious burgers for me when I stop in there.
Just the very odd marketing idea of it - We’ll make a good burger for a limited time, but keep offering our crappy burgers year round. I’d like to see someone bring up that brilliant plan on Shark Tank.
The larger the menu is, the slower speed of service becomes, because it becomes increasingly harder to predict what the next customer will order and stage accordingly without hurting food cost.
Speed is pretty much the single biggest thing McDonald’s has going for it, so anything that hurts that is going to impact the bottom line.
Just in the last few years, how many other chains have they been trying to copy? It seems like every new promotion they roll out is directly ripped-off from a competitor. [ul]
[li]Jack in the Box and their “all day breakfast” [/li][li]Chick-Fil-A and their chicken sandwich with two pickles, as well as their milkshakes, with clear cups and whipped cream & cherry. [/li][li]Starbucks - fancy lattes and frappucinos, with different flavors rotated seasonally[/li][li]Did they try chicken wings, or maybe it was flavored chicken nuggets? I can’t remember the specifics. [/li][/ul]
McDonald’s sales are up, according to this Oct. 22 story, and:
If it is suppose to be the same at every McDonalds why do some not carry my caffeine free diet coke or even Coke zero?
the only thing I like a McD’s is fries. The rest is tolerable though…well of what I eat there
Since the all day breakfast hit, I’ve noticed the locations near me are frequently packed with people. I even went on 2 locations to get a late afternoon breakfast, but didn’t pull in due to all the traffic.
So I guess that is good and bad. Good that they seem busy. Bad if it comes off as a clustered mess that keeps the casual shopper away.
And after spending a few days in Texas, I gotta say that I wish Whataburger were here in NH!
The article does not give the rosy picture of the US market that you describe; for example:
“The bump was the result of a higher average check, however, which offset a decline in traffic. That means McDonald’s still has a long way to go in fixing its business.”
Sales are up in part because they have had to raise prices for ingredients, wages etc., "McDonald’s said its operating income dipped during the quarter as a result of its pay hike and other benefits, . . "
Also, there will be fewer Mcdonald’s due to all this, “For 2015, the company is expected to reduce its store count in the U.S. for the first time since at least 1970, according to an Associated Press review of regulatory filings. That means culling underperforming locations to improve the health of its store base.”
They recently announced a reduction in the number of locations here in Taiwan. IIRC, the stores here are all corporate owned and not franchises. Taiwan in not seen as a potential growth market.
I didn’t describe any picture, rosy or otherwise, in the U.S., and I attributed any increased sales to the linked business-news story.
IMHO, Micky D is suffering from:
-high costs (leases made in the past are now being negotiated at much higher rents).
-poor quality beef used-really bad…the vegeburger tastes better
-the emergence of better fast food places (Five guys, Shake shack, etc.)
They seem to be in a death spiral. oddly, they discontinue the best burgers they had-their Black Angus Swiss and Mushroom burger was great-but you cannot get it anymore).
If you think that posting 3 out of context data points showing positive balance sheet and income health from an article highlighting substantial overall decline is the most accurate way to present the information we will just have to agree to disagree.
I don’t see a company in trouble. They are performing better than their competitors in a market they have dominated for decades. The stock price has been climbing recently so a lot of investors don’t think it’s in trouble either. Lack of profitability in some locations is normal for them and they’ll make adjustments.
http://strategyonline.ca/2015/10/01/mcdonalds-capitalizes-on-customizing/ This article talks about an increase to jobs. Here in Edmonton there are several locations with the self serve kiosks and I can honestly say I have not seen anyone use them yet. One of my friends says he has seen a few people using them at the location he frequents. So ok, “Create your taste” with a kiosk. I’m not sure this will aid in the growth or maintenance of this fast food chain. And what if I have a question regarding something? I would have to discontinue my kiosk order to speak with someone. The only burger place I would go to if I wanted to create my own would be Harvey’s. I think McDonalds may be grasping at a few straws. That being said, they have just built 4 more self standing locations in Edmonton and their wages are well above retail stores and other food industries. Adding their chain to Walmart stores was a smart move. Even with all the health conscious people out there, when your shopping with the kids and hungry the quickest and closest place you see is likely where you will stop.