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McDonald‘s: We Overcomplicated the Menu

Filed under Business, LTO, Remodel

McDonald’s hit bottom, finally confessing to analysts today that it knows it has a problem. After reporting poor Q4 sales, including a global same-store-sales gain of just 0.1% and a 1.4% decline in the U.S., McDonald’s accepted that its rapid-fire limited-time-offerings menu strategy has to change and that it has lost some of its relevance with consumers.

McDonald’s Corp. Chief Operating Officer Tim Fenton admitted that it “overcomplicated” its menu last year with its never-ending introductions of items, including Mighty Wings, Premium McWrap, Steak & Egg Burrito, Fish McBites, steak breakfast sandwiches, new Quarter Pounders, Grilled Onion Cheddar, Hot ‘n Spicy McChicken, a Dollar Menu & More with five new burgers, the return of McRib and more. “We stumbled a bit last year with too many new products, too fast and we created a lot of complexity.”

Dollar Menu & More is more consumer-targeted than the old Extra Value Meal, McDonald's execs say.

Dollar Menu & More is more consumer-targeted than the old Extra Value Meal, McDonald’s execs say.

That hurt execution (speed and quality) and hurt operators. “We didn’t give the restaurants a chance to breathe” with all these overlapping LTOs, Fenton said.

This, of course, is the same realization that rival Burger King reached last July when it decided to step back from its strategy of introducing new menu items in waves. Now it adds fewer products and LTOs but with more impact (such as Satisfries).

The poor sales performance in the U.S.—December comp sales were a shocking -3.8%, according to Janney Capital Markets analyst Mark Kalinowski—has moved the U.S. into the category of “key opportunity markets.” This is akin to the middle-school room for students who need special studying help. Japan is in the “opportunity” room with us. So are Germany and Australia. Markets that have performed well include the UK, France and Russia, all of which have been seeing innovative full-price menu items rather than value-tier items.

CEO Don Thompson said McDonald’s needs to establish “a stronger customer relationship this year” and to regain consumers’ trust through improve in-restaurant execution, more “relevant” menu items and improving marketing communications. That includes greater use of digital media because McDonald’s “has not played in that arena in a strong way,” he said.

An additional confession came when Fenton explained why the current Dollar Menu & More is better than past value attempts. “In 2012, we had an Extra Value Menu, Extra Value Meals and a Dollar Menu. Rather confusing not only our customers but also to us,” he said. Dollar Menu & More is simpler and easier to execute, allows more pricing flexibility and is margin friendly. “It was a good transition and evolution from where we had to go,” he said.

While the U.S. is down, sales in Russia are up, thanks to promotions like the current "American Classics" cheeseburgers.

While the U.S. is down, sales in Russia are up, thanks to promotions like the current “American Classics” cheeseburgers.

Surprisingly, Thompson said the Extra Value Menu was designed to build profits, not help customers. But now the chain is gong to be customer focused. “To be very honest, Extra Value Menu, while a very solid attempt, was based on mining out additional profitability. From a customer benefit [point of view], it was not as strong as Dollar Menu & More,” Thompson said. “Extra Value Menu was really a reformulation of certain products, adding some others just to build profitability. So this [Dollar Menu & More] is what we mean by being closer and getting back to a stronger relationship with customers.”

But McDonald’s solution to an overcomplicated menu is not to simplify that menu. Instead, it is asking franchisees to invest in the new High Density Kitchen equipment that ideally allow keeping up with the huge menu. These include a new, larger holding cabinet, enhanced prep table and refrigerated rail—all due to be added by June—that are designed to let kitchen staff cope with existing items, add flexibility to handle future additions and give more customization on toppings, sauces and so on. This can be done without slowing service times, Fenton said.

Too many menu additions, like the Grilled Onion Cheddar, just slowed kitchens, service and sales.

Too many menu additions, like the Grilled Onion Cheddar, just slowed kitchens, service and sales.

Thompson wants McDonald’s marketing to stress customization. “Many customers don’t know that we are making every sandwich to order,” he said, while not mentioning the holding cabinets in use. The “Made For You” kitchen design added in the 1990s wasn’t accompanied by strong communications about its benefits, Thompson said. He wants the benefits of current kitchen enhancements to be known and appreciated.

“In the U.S. we’ve lost some of our customer relevance across several parts of the day,” said Thompson. He said the strategy this year will be to make sure the food is relevant to consumers’ needs and of a quality that enhances consumer perceptions of the brand.

With capital going to kitchen enhancements in 2014, remodeling will be slower in 2014. The company expects to re-image 1,000 restaurants this year, compared with 1,529 upgrades in 2013. Openings will include 250 in the U.S. plus 320 in Europe and 830 in Asia (of which 300 will be in China.

Don’t expect significant same-store-sales gains in 2014, executives told analysts. Growth will come by stealing customers from competitors. “It’s a fight for share,” said Fenton. “It’s a street fight and we’re getting at it.”

7 Responses to McDonald‘s: We Overcomplicated the Menu

  1. SanDiegoInExile

    I have a handful of McDonalds customers in my extended family and every single one of us reduced visits when they hiked the price of a McDouble by 20-30%. Rebranding of the Dollar Menu as “Menu And More” drives away customers. All the jazzy commercials with dancing customers can’t shield price hikes. And $7.00+ for a value meal just isn’t a value, especially since any size drink is being sold for $1.00. Every “large” sandwich is now $3.99-$5.99. Sorry, McD, I am not going to pay $3.99 for a regular old Quarter Pounder or a Big Mac. The MiniMeals are not even a deal anymore. They used to be $2.99, now they are $3.79 — a massive savings of 9 cents if you buy the double cheeseburger, large drink, and small fries separately (1.49+1.00+1.39=3.88).

  2. Dom

    Inflation happens, and cost of product and labor costs keep increasing. Expect more increases this year.

    From an operators perspective I do not support the $1 drink promo. It does exactly what you wrote. Rather than get the value meal customers order a la carte, or choose just to get the discounted/promo item and then a $1 drink.

    MCD’s did over complicate their menu, went in to one last week. I could not believe how hard it was to find the item I was looking for on the 1$Menu and more.

  3. Stargazer

    I’m still a fan. If you can’t find what you are looking for on the menu, just ask them. One of the reasons the menus got complicated was the state required them to list calories (like anyone really gives a sh*t.)
    Mickey D is reliable, convenient and the value is still legit. If every decision was all about value, Starbucks (who takes in an ungodly amount of “bucks” but none of mine) would be out of business!!
    Anyone with a brain knows the $1 menu could not last forever (and that includes $1 drinks) so where you gonna go SanDiego when you want something fast and want change for your $10 bill? Tijuana?
    The MCD by me is super-fast and when it comes down to it, that is why I pull in.
    Waiting in a line for a half-hour to get a coffee or burger is a time and gas waster but I guess if you are bored and/or unemployed, you can go for it.

  4. To SanDiegoInExile – in truth it’s OK for a business to lose a few bottom-end customers. Just generating foot traffic with menu pricing that’s unprofitable is no way to run a business. As Dom says, “inflation happens”. McDonald’s can’t be all things to all people and that includes those who want to eat for free.

  5. SanDiegoInExile

    The McD’s just raised the McDouble another 20 cents to 1.39. That’s a 40% increase since last November. Foot traffic is gonna continue to collapse as us “bottom-end” customers skip a quick trip now and then. If I am going to pay $7+ for an alleged “value” meal, Wendys, JackintheBox, and in-n-out are going to get my business. McD’s can’t match the quality sandwich-wise, either with their dry rubbery chicken options or their dismal quarter pounder.

    Jack just returned their $3.99 fish sandwich value meal to the menu (and it will be around for 2+ months until Easter passes). And the KFC GoCup combos (with drink and tax) are $3.75. Carls Jr always has one of their combos on a $5 promo. I wonder if McD’s would have better luck if they rotated deals among their existing combos rather than trying to find The Next New Hot Thing.

  6. Marvin Sport

    It is McDonalds people. Did you ever watch HouseGuest with Sinbad?. Really you get some nice choices in there (Beef, Chicken & Fish) What more do you wan’t? Dollar drinks are good all summer. No five dollar foot-longs but that is okay because I don’t wear a hardhat at work. I would not go to Tijunana to break a $10 bill. I would much rather take the note to McDonalds. Just buy something and they will make the change I swear. It does not effect the prices of the value combos but they still have chairs that spin 180 degrees unlike Wendy’s. The brass at Mcdonald’s should consider bringing pizza back except by the slice. This would do quite well in a point of sale rotating hot case. They should consider fiddling with things other than the menu such as piping up the music and quality of audio systems at the franchises and having fresh flowers at the tables. Clearly they are doing something right, the washrooms are clean and the hand soap is just swell. Did I mention tea and eggs in the morning?. Like I said what more do you wan’t? Mickey Dees should go back to heavy film promotion. That would put a stick in the spokes of Burger King’s bicycle. If you don’t like the price of the value menu well just go somewhere else. The base customers will still come through the door.

  7. I know that this is an old post, but I thought I would freshen it up as it’s still relevant. McDonald’s continues to flounder on this issue. But I would remind readers that the founder’s of McDonald’s believed in keeping the menus simple as did Ray Kroc, the man who built the modern McDonald’s. In his book “Grinding it Out: The Making of McDonald’s he wrote:” I was fascinated by the simplicity and effectiveness of the system they described that night. Each step in producing the limited menu was stripped down to its essence and accomplished with a minimum of effort. They sold hamburgers and cheeseburgers only. The burgers were a tenth of a pound of meat, all fried the same way, for fifteen cents. You get a slice of cheese on it for four cents more. Soft drinks were ten cents, sixteen ounce milk shakes were twenty cents, and coffee was a nickel”.

    I don’t understand when McDonald’s management decided to drop this as their business model. I am trying to figure it out. But it seems to me that they have lost their way. It’s possible that I’m wrong and really don’t know anything, but the current business model sure isn’t working.