McDonald’s has seen its United States growth slow and has made significant changes, including replacing the long-time president of its home country.
CEO Christopher Kempczinski talked about the company’s shortfalls during its second-quarter earnings call.
“Turning to the U.S. After a solid start to the year, the business slowed significantly, posting comparable sales growth of 0.8% in the quarter. This was below our expectations and something we’re going to address in greater detail on today’s call. We don’t have a strategy problem. We simply didn’t execute at the level we needed to in the second quarter,” he said.
The CEO pointed out some specific changes the chain needs to make to get back on track, which he split into three buckets.
- First, although we’ve restored our overall value and affordability leadership, our restaurant-level results show that execution was inconsistent across the system.
- Second, our restaurant teams were overwhelmed by too many deployments in the quarter, which led to less efficient restaurant operations. This impacted customer service times, and as service times went up, satisfaction scores went down.
- And third, our marketing programs didn’t deliver against expectations.
To fix the problem, the chain has introduced an ambitious program called McDonald’s > NEXT.
McDonald’s focuses on execution
Kempczinski explained the program during the Q2 call.
“We introduced McDonald’s > NEXT, our new growth strategy with a clear ambition to be more customers’ first choice. We’ll do this by improving the taste and quality of our food, engaging and co-creating with our fans in exciting new ways, and simplifying our restaurants so our crew can deliver great hospitality for our guests to do what they do best,” he said.
Those efforts, at least in the U.S., will have a new leader.
McDonald’s has also named Skye Anderson, a 26-year company veteran who has served as U.S. chief operating officer, to replace Joe Erlinger as president of McDonald’s USA, effective immediately.
“Citi analysts said the appointment signals management’s dissatisfaction with recent performance and could pave the way for faster execution of sales and profit growth initiatives,” Reuters reported.
Analysts generally praised the move.
TD Cowen analysts wrote that the firm looks forward to Anderson’s plans to reaccelerate customer traffic and improve franchisee cash flow at the company’s investor meeting set for September, citing Anderson’s lengthy tenure at the company, added Reuters.
RTM Nexus CEO Dominick Miserandino noted that Kempczinski’s view of the quarterly results might be more harsh than needed.
“Calling it a fail is a bit of an overreaction. In a bad economy that is right now, people are watching their budgets and being more conservative on what they order,” he told TheStreet.
Beverages, he added, are an easy indulgence for people to add to their order.
“So you have more of a situation where they are going to the store and just start ordering that extra thing with it,” he shared.
McDonald’s
McDonald’s adding new menu items
Fixing its execution and simplifying operations does not mean giving up on innovation. Kempczinski spoke about one of the company’s largest menu changes in years.
“As we’ve been saying internally, next is now. One way we’re acting next now is in beverages. The launch of our new beverage platform in May was an important part of upgrading our taste and quality,” he said.
Early results, he noted, have exceeded expectations across McDonald’s lead markets of the U.S., Canada and Germany.
“In the U.S., sales are ahead of plan. Guest checks are higher, and we’re seeing new occasions emerge throughout the day. We’ve also seen strong food attachment rates on these orders,” he added.
Beverages could also help McDonald’s reach younger consumers.
Sara Senatore, senior restaurant analyst at Bank of America, told ABC News that younger consumers “really are attracted to that combination of customization” that comes with refresher beverages, which she noted can include “lemonade … carbonated water, and then some customizable level of caffeine.”
The drinks are also “very photogenic” and social media friendly, which has helped them take off in taste tests and other viral videos online, Senatore said.
McDonald’s plans more new drinks, new fall menu
Kempczinski did not lay out all the company’s upcoming beverage plans, but he did confirm one new beverage partnership.
“The addition of Red Bull Energizers in the U.S. in the coming weeks will only further this momentum,” he said.
Snackolator, an Instagram account that tracks fast-food menu launches, has reported that McDonald’s plans to add several new beverages and bring back Spicy McNuggets this fall. McDonald’s has not confirmed the full list, so the reported items should be treated as unconfirmed until the company announces them.
The fast-food giant’s fall menu, which is expected to launch in mid-August should include:
- Caramel Apple Pie Drinks that feature a new caramel apple syrup, salted caramel whipped cream, and apple pie pieces on top.
- Then we’re getting a Dirty Diet Dr Pepper at locations that carry Diet Dr Pepper to go with the current Dirty Dr Pepper.
- They’re also adding new Vanilla Swirl Coca-Cola and Diet Coke that feature vanilla flavor and cold foam.
- Fanta is now an option for their Orange Dream, which has vanilla and cold foam as well.
- And the Red Bull collab is finally here with the Dragonberry Energizer that has blue raspberry flavor with dragonfruit pieces, and this is available in regular or zero sugar – and you can purchase the cans of Red Bull separately if you’d like.
- Then in September we’re finally getting Spicy McNuggets, and this time they’re bringing back the Mighty Hot Sauce (artwork will likely be different this time).
