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America's Not Lovin' McDonald's

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McDonald's To Alter Dollar Menu With Higher Priced Items
Scott Olson/Getty Images
It's not just you. McDonald's (MCD) isn't as crowded as it used to be.

The world's largest burger chain posted uninspiring quarterly results Tuesday morning, falling short of Wall Street's top- and bottom-line expectations. However, the real focus -- and rightfully so -- is the dreadful state of comparable-restaurant sales at domestic locations.

We already knew that the year got off to a lousy start. Comps at U.S. eateries plunged 3.3 percent in January and 1.4 percent in February. On Tuesday, McDonald's reported that same-store sales for the quarter declined 1.7 percent. Working the math suggests that comps may have started to turn the corner last month, but still clocked in slightly negative in March.

Things aren't getting any better at the Golden Arches.

Spin-off Showoff

McDonald's points out that traffic counts declined in this country during the quarter. Despite rolling out several new items, consumers just aren't craving the chain's offerings.

Several restaurants will post negative comps during the first three months of the year, but that only makes it that much more painful to see Chipotle Mexican Grill (CMG) -- a chain once owned by McDonald's before it was spun off -- check in last week with a 13.4 percent increase in same-restaurant sales during the same period.

There may be some merit to January's storms slowing business, but what about the balance of the quarter? The weather in February and March wasn't that bad. There's no point in trying to find a scapegoat outside of the company. Chipotle's 13.4 percent surge in comps makes all external excuses invalid. Besides, this is now the third consecutive quarter that store-level sales in this country have declined.

Test Kitchen Nightmares

McDonald's has been building out its menu over the past year, but some moves haven't panned out.

The Mighty Wings push found it ordering more chicken wings than it could sell. Other moves have come with more upside, like beefing up its "Dollar Menu & More" selections by tacking on the BBQ Ranch Burger and Grilled Onion Cheddar Burger for a buck apiece.

More moves are on the way. McDonald's has been testing mobile ordering and tablets. It plans to enhance the drive-thru experience by adding more windows at new locations.

One change that could pay off in a major way is replacing its current prep tables with deeper food prep areas that offer room for more ingredients. This will widen its potential burger toppings, but naturally this could also backfire if it creates more customer confusion and botched orders.

Burgers and Breakfast

McDonald's can't afford to coast. The first big challenge came late last month when Yum Brands' (YUM) Taco Bell rolled out a national breakfast menu. The taco builder has introduced two ads taking jabs at McDonald's as the reigning champ of fast food breakfast.

If McDonald's thought it had its hands full with "better burger" chains -- including Five Guys and In-N-Out -- expanding geographically, now it has to deal with even more places specializing in burgers. Even Olive Garden introduced a burger sandwich last year.

The last three quarters of negative comps have been disappointing, and that's not going to change unless McDonald's makes more than just token menu and design changes.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill and McDonald's.


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John Bond

I still love McDonald's. Though I don't eat there often, I would be upset if they were to suddenly disappear. I will actually go there today.
John Bond | http://www.drsherwyn.com

April 29 2014 at 12:57 PM Report abuse rate up rate down Reply
wvvincent

When I think of McDonalds now, I think of the taste of over salted ketchup or old cheese. That is about the only flavor their burgers have. Their fries are the worst in the nation, and they don't even have a clue. Wendy's has a natural sea-salt fry, and even Burger King now has a crinkle fry. They used to be a big draw for the kids, with play areas and activity tables, but now McDonalds is focusing on adults ... and that means I now have to yell at my kids for bouncing on their chairs and couches because my kids associate McDonalds with a play area. Its just not worth the hassle. Lastly, and most important: Price! McDonald's "food" is no longer in expensive. For the price of feeding me and my two kids at McD's, I could simply throw in a buck or two and go to a sit down restaurant (Red Robin, a Chinese Buffet, etc).

April 26 2014 at 12:36 PM Report abuse rate up rate down Reply
bwhit1964

McDonald's lost its way a long time ago. Holding cabinets, microwaves....these were the things that McDonald's prided themselves with not having until a few years ago. The lack of fresh in-store made biscuits, along with steam table eggs (which makes every egg dish taste like boiled eggs), has destroyed their desirability. Letting go of core values in any business is a great way to destroy customer loyalty.

April 26 2014 at 10:51 AM Report abuse rate up rate down Reply