McDonald’s shifts attention to operations

After a busy 2018, the company is now focused on improving speed and marketing its new strategies to bolster traffic.
Photograph: Shutterstock

Few restaurant chains were as active in 2018 as the biggest one, McDonald’s Corp.

Think about it: The Chicago-based fast-food giant integrated delivery and curbside service, remodeled thousands of U.S. locations, consolidated its support structure, started serving fresh beef and added new value, notably the $1 $2 $3 Dollar Menu.

The result of all this? A 2.2% decline in traffic.

So now the company is hoping that doing less in 2019 will give it the time to improve operations and reverse that figure.

“One of the things you’ll see in 2019 is a big focus on what we call just running better restaurants,” McDonald’s CFO Kevin Ozan said at the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum, according to a transcript of the presentation from financial services site Sentieo. He promised fewer initiatives this year and a focus on improving speed, especially in the ultra-critical drive-thru.

McDonald’s executives have long acknowledged that slowing drive-thru times have contributed to its traffic challenges in recent years, and Ozan blamed complexity for part of the problem.

The chain’s same-store sales rose 2.5% last year, including 2.3% in the fourth quarter. Those numbers stood up well versus competitors such as Wendy’s and Burger King, but they came entirely due to higher prices and menu mix.

Customers’ orders cost 4.7% more in 2018 than in 2017, thanks to higher prices and add-ons.

“If you think about what we’ve done over the past several years—introduced All-Day Breakfast, put in fresh beef, put in some premium products like the Signature Crafted sandwiches that take a little bit longer to make ... some of the complexity we’ve added into the business has now created slower drive-thru times,” Ozan said.

The company also restructured its field offices, going from 21 to 10 field offices and from 180 co-ops to just more than 50. “All of that created just an enormous amount of change in the business,” Ozan said.

Still, company executives believe that it’s a sign of success that they’ve been able to generate same-store sales growth despite all of those efforts. “We feel like it sets us up really well as we start and get into 2019,” Ozan said.

The drive-thru is an especially critical element for McDonald’s because it’s the source of more than two-thirds of its sales. Company executives have vowed to improve speed through those windows to get customers coming back again.

“We have a collective resolve that service times” need to improve, CEO Steve Easterbrook said in February. “We will not accept them getting any longer.”

Ozan said drive-thru service times were slowing down even before 2018. Indeed, drive-thru service times didn’t slow last year, though they didn’t improve, either.

But the company wants to speed them up by improving operations. It is adding digital menu screens in all of its drive-thrus to improve service. And the company is adding outdoor digital menu boards in all of its restaurants to make ordering easier.

The chain is also focused on improving staffing—something it believes is contributing to its traffic woes.

But speed isn’t the only issue. The company has also said that sales in the morning hours struggled last year amid growing competition. All-Day Breakfast has also probably changed customer habits, leading to less morning business.

Breakfast is likely going to get more competitive in the near future as Burger King shifts its focus to the morning with a $5 coffee subscription program.

And the morning, much like the drive-thru, is critical to McDonald’s business. It represents 25% of sales, Ozan said, and it is the company’s most profitable daypart. That helps explain some of the franchisee discontent: Losing sales at a profitable time of day tends to make operators unhappy.

“We need to make sure we don’t continue to lose guest counts at breakfast,” Ozan said.

The company has increased morning innovation and value efforts, including Triple Breakfast Stacks, Donut Sticks and two-for-$4 items. But executives believe more local marketing efforts will also help a.m. sales.

“Breakfast … is more of a local marketing perspective, because if you think about what [customers] eat for breakfast in the Northeast of the country versus the Southwest of the country, it’s very different,” Ozan said.

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