Many changes are to come for the fast food giant
The only good thing about 2014 for McDonald’s is that it’s finally over.
As Fortune detailed in November, this has been a terrible, horrible, no good, very bad year for the iconic fast food giant. Today the company capped it off by reporting fourth-quarter and full-year results that made 2014 the first year since 2002 in which it reported a decline in global same-store sales.
The year was historically bad for McDonald’s U.S. business in particular. Nation’s Restaurant News reported last week that the company’s slump in the U.S. market would be the first time its numbers waned compared to the year before in at least 30 years, ending the longest run ever of domestic restaurant sales growth for a single chain.
On the earnings call today CEO Don Thompson cited a litany of actions the company is taking to turn things around, including localizing its menu, allowing patrons to customize their burgers, and launching fresh marketing. He stressed that McDonald’s is “acting with a sense of urgency”—but he also made the case for giving management more time for a turnaround to kick in. He noted that McDonald’s is only six months into the 12- to 18-month plan he outlined in July.
“History tells us that these efforts will take time to resonate,” Thompson said on the call, “[and therefore] expect continued volatility in the market through most of 2015.” As he put it, “2015 will be a year of regaining momentum globally…. It will take time, especially in larger markets to notice the comprehensive changes that are under way.” He warned that the company would continue to feel pressure on sales and earnings in the first half of the year, with negative same store sales already expected for January.
Thompson certainly inherited some of the company’s issues, such as menu bloat, which had been a long time in the making when he became CEO in July 2012. Thompson had to report a slowdown in sales growth in most major markets his very first quarter on the job, but he’s now had two and a half years to change the company’s trajectory and the arrows keep pointing the wrong direction.
One promising sign, perhaps, came from a subtle shift in what McDonald’s said about food quality—a sensitive issue for the company. McDonald’s management has always maintained that its food is excellent, arguing that it was a simply a perception problem; the company, it said, just needed to do a better job educating consumers about its ingredients and how they’re prepared. But this time Mike Andres, president of the U.S. business, acknowledged on the call that “we have to make sure our quality aligns with consumers’ definition of quality moving forward. And so we’re going to be very agressive in that area.” He said that he’s building culinary talent and bringing in outside consultants to help with “menu vision.”
It was an important acknowledgement. But the company’s challenge remains daunting. It needs to simultaneously pare its menu, improve its offerings, increase its speed, and hone its message—a combination of factors that will be hard to pull off, particularly in a world where many customers are craving healthier offerings.