McDonald's fighting to be 'relevant' to customers
- Article by: CANDICE CHOI
- Associated Press
- January 23, 2014 - 4:51 PM
NEW YORK — McDonald's is losing customers, as the world's biggest hamburger chain struggles to attract diners with its higher-priced sandwiches and new offerings like Mighty Wings.
"We've lost some of our customer relevance," CEO Don Thompson conceded Thursday on a call with analysts.
The Oak Brook, Ill.-based company reported disappointing sales for its fourth quarter, as fewer customers visited its established restaurants. Guest counts at those locations fell nearly 2 percent globally and 1.6 percent in the U.S. in 2013, according to a regulatory filing. And McDonald's expects some challenges to persist this year.
To win back traffic, Thompson said the chain will focus on speedier service, better value offerings and raising "awareness around McDonald's as a kitchen and a restaurant" that prepares high-quality food. It's expanding prep tables and plans to beef up staff during peak hours for better execution. It is also bringing in a new U.S. marketing chief, Deborah Wahl, formerly with homebuilder PulteGroup and automakers Chrysler and Ford.
After outperforming rivals for years, McDonald's Corp. is facing a shift in eating habits toward foods people feel are fresher or healthier. The company has added options such as chicken wraps and breakfast sandwiches made with egg whites to keep up with the trend.
But it's received a "muted response." Chief Operating Officer Tim Fenton said on the call that some of the new offerings "over-complicated" the restaurants, forcing longer wait times.
Thompson also noted that in the U.S., fast-casual restaurants now appear to be performing a bit better as customers with a little more to spend skew toward those chains. However, McDonald's main customer base "isn't faring quite as well in the current economy." And that's made competition with rivals such as Burger King and Wendy's all the more fierce. All three chains have been aggressively promoting their value menus in the fight for customers.
To address concerns that the strategy could eat into profit margins, McDonald's recently updated its decade-old Dollar Menu. The "Dollar Menu & More" now includes items that cost around $2 and $5. McDonald's said the new menu is meeting expectations.
For the quarter, McDonald's said global sales slipped 0.1 percent at established locations as weak sales in the U.S. and Japan were countered by strong sales in Britain, Russia and France. The figure is a key metric because it strips out the volatility of newly opened and closed locations. For January, McDonald's expects those sales to be flat overall.
McDonald's earnings were about flat at $1.4 billion for the three months that ended Dec. 31. Earnings per share totaled $1.40, a penny more than Wall Street expected.
The opening of new locations lifted revenue 2 percent to $7.09 billion, shy of the $7.10 billion analysts expected.
McDonald's edged up 44 cents to close at $95.32. Since peaking at an all-time high of $103.70 last April, the stock has zigzagged lower and is trending closer to its 52-week low of $92.25 hit last January.
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