McDonald's Not as American as Apple Pie

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Nothing in the food industry has ever been as American as McDonald’s (NYSE:MCD), but the company has been losing its grip on the restaurant sector or its appeal to American customers for several years. MCD’s share price has been in decline since 19 May. It’s current share price is 96.32, up 1.16 in intraday trading, near its midpoint for the last 52 weeks. Despite having difficulty breaking the 100.00 mark, it has recovered from its YTD low of 88.78 on on 28 January and is trading modestly above its 31 December 2014 price of 93.70.

It’s the declining U.S. sales that are more problematic for McDonald’s future health. If they continue to do so, and if international sales follow suit, a sharp decline in share price could result from lack of investor confidence. The company issued a press release on 12 June announcing corporate restructuring for the express purpose of “turnaround.” Month after month the company has been reporting declining sales, but only recently have such major moves as this one been forthcoming.

In the press release McDonald’s board announced that Karen King, the former head of the company’s eastern U.S. division will now take on a newly-created role of Chief Field Officer (that’s a CFO of a different color). She had most recently been called out of retirement to serve as the company’s Chief People Officer. In her now capacity she will focus on improving sales at McDonald franchise locations.

McDonald's U.S. Same-Store Sales Business Insider

Other moves include expansion of top executive roles, each of which appears to include a much more hands-on role and responsibility. Overall, the announcement seems to downplay the enormity of the corporate shakeup that includes “the departure” of long-time executive Jim Norberg who had been with McDonald’s for 32 years, most recently as Chief Support Officer for McDonald’s entire U.S. business.

Although each announced role has its own particular significance, I find it interesting that Erik Hess, Senior Vice President of Global Consumer and Brand Strategy will become Senior Vice President of Customer Experience, indicating a concentrated effort on regaining lost customers. That is going to be an uphill struggle every step of the way and a battle typically not easily won. One competition has siphoned off faithful McDonald’s customers (if there is such a thing) with better-tasting food and better perceived value, it will be extremely difficult to win them back, even though McDonald’s USA President Mike Andres declared that the company is “On a journey to becoming a modern, progressive burger and breakfast restaurant to get ahead of customer expectations for the future.

During 2015, McDonald’s will close some 700 “under-performing locations,” which means that it will, for the first time according to some sources, close more stores than it opens. The closings include both company-owned and franchised locations. Once closed, those locations will no longer be a drain on U.S. sales figures, but that will not correct the company’s operation performance or its appeal to customers who have moved on to other fast food favorites.

MCD also announced a short time ago that it was hiring Robert Gibbs to be its Chief of Global Communications. Gibbs was previously President Obama’s Press Secretary. Given that background we might expect at least one of two new strategies.

  1. Free burgers. Offering free cell phones in return for votes helped Obama get re-elected.
  2. Mandatory burgers. People who don’t buy their burgers will be taxed Obamacare style.

The American people are unhappy with Obama and they are unhappy with McDonald’s. What is the country coming to?

 

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