When McDonald’s debuted its all-day breakfast menu last fall, customers hit up the chain in droves, lured by the simple novelty of being able to scarf down an Egg McMuffin after the once-ironclad 10:30 a.m. cutoff time.
The frenzy gave a badly needed sales jolt to a lumbering fast-food giant that had long struggled with sagging sales.
But if you thought all-day hot cakes and hash browns could be a panacea for what ails McDonald’s, the company’s latest quarterly results offer a clear message: McDonald’s problems were always more complicated than that.
The Golden Arches said Tuesday that sales were up 1.8 percent at its U.S. restaurants open more than a year. That’s only tepid growth, especially considering it’s a year-over-year comparison to a quarter in which sales sank 2 percent. Investors sent the stock down nearly 5 percent in morning trading, probably because they had been expecting a more robust increase.
To be sure, adding the anytime breakfast accomplished important things for McDonald’s: It showed customers that the company was listening to them. And it demonstrated to investors that new chief executive Steve Easterbrook is willing to take bold steps — not just make incremental tweaks — to try to pull the burger chain out of its rut. But, even though McDonald’s plans to make more items available on its all-day breakfast menu later this year, the offering appears to be bumping up against its limits in terms of its ability to drive long-term sales growth.
That’s why some of McDonald’s less-talked-about initiatives are crucial to its future. For starters, there’s the McPick 2 program, in which diners pay $2 for two items selected from a limited portion of the menu. It is effectively a replacement of the Dollar Menu, which was popular with value-conscious customers and which McDonald’s has been struggling to retool for years. (Remember the Dollar & More Menu?)
Executives said McPick 2 was a key sales tailwind this quarter and last, and this is significant. At a moment when fast-casual restaurants are gunning hard for more-affluent diners, it is meaningful that McDonald’s has hit on this way of reconnecting with value-oriented customers — who probably present the chain’s best shot of getting its groove back.
McDonald’s has also been working on changes to speed up and improve service at the drive-through window. The chain has simplified its drive-through menu boards and has implemented a policy called “Ask, ask, tell,” which is meant to ensure that employees get the order right the first time. It has even adjusted the font size that is used on order receipts so workers don’t miss a special instruction such as “hold the mayonnaise.” Executives say these measures have helped speed up service meaningfully, and that is no small thing: It has been estimated that more than 60 percent of McDonald’s sales come from drive-through orders.
As the company tries to solve the problems that are particular to its brand, it will have to do so against what appears to be a backdrop of gathering storm clouds for the industry overall. Fast-food behemoths including Dunkin’ Donuts and Yum Brands, the parent of KFC, Pizza Hut and Taco Bell, have said a softness in the U.S. restaurant marketplace overall weighed on their businesses in recent months. According to market research firm NPD Group, traffic was flat at quick-service restaurants in the latest quarter and was down 2 percent at fast-casual spots. (The decline in fast-casual is the first ever recorded since NPD started tracking the category more than a decade ago.)
Meanwhile, drive-through sales broadly appear to be under a more long-term siege from delivery concepts. NPD recently found that drive-through traffic declined by 128 million visits over the four years ending May 2016. In the meantime, food delivery orders grew by 69 million. NPD researchers believe the growth in delivery is coming at the expense of drive-through visitation, a finding that has to send a chill down many fast-food executives’ spines, including at McDonald’s.
And then, of course, there is the ongoing issue you’ve heard about before: Consumers are making a long-term shift toward healthier eating and are showing an increasing desire to know where their food comes from. McDonald’s has taken steps to address these preferences, including by committing to switching to cage-free eggs and by launching a new marketing campaign based on the slogan “The simpler the better.”
The chain’s efforts may ultimately pay off: It has already made some noteworthy progress, and McDonald’s has some of the most loyal customers in the business. But the terrain it faces in trying to make these changes is not getting any easier to navigate.