McDonald’s Corp. has figured out how to capitalize on the popularity of its breakfast menu, stop a slide in same-store sales and cut corporate overhead. What it hasn’t figured out is how to get more customers into its restaurants.
The world’s biggest fast-food chain is facing its fourth straight year of U.S. traffic declines, according to internal company documents obtained by Bloomberg. The drop follows at least four consecutive years of customer gains.
“Growing guest counts is our main challenge,” said an e-mail recap of a September meeting among McDonald’s franchise leaders and company executives. “Over the past 12 months, we have been pretty flat.”
The only way to build a sustainable business is to show progress on three key areas: sales, guest counts and cash flow, the e-mail said. “And today we are making uneven progress.”
McDonald’s declined to comment on the notes summarizing the meeting with franchise leaders.
McDonald’s last week reported third-quarter earnings and revenue that topped estimates as results in markets abroad, such as the U.K. and Germany, helped results. The company’s division known as international lead markets boosted same-store sales by 3.3 percent. It wasn’t quite as rosy in the U.S., where sales increased just 1.3 percent.
McDonald’s has made progress in the U.S. since Chief Executive Officer Steve Easterbrook took over in March 2015, but there’s still work to be done. He’s revamped drive-thru ordering and improved food quality by getting rid of certain antibiotics from chicken and switching to real butter in Egg McMuffins. While the introduction of all-day breakfast and speedier kitchens have provided a bump, they may not be the long-term catalyst the chain needs.
The stock began climbing about a year ago after the breakfast expansion, gaining 26 percent in 2015. But the shares haven’t fared as well lately. Shares fell 1 percent to $111.54 at 9:57 a.m. in New York on Wednesday. The stock had lost 4.6 percent this year, through Tuesday’s close.
“McDonald’s has become less relevant to the younger generations,” said Darren Tristano, president at industry researcher Technomic in Chicago.
To lure more U.S. customers, the company is focused on three segments, according to the the document: diners who frequent the chain for breakfast and coffee, those who go primarily for lunch, and families and children.
“We’ve talked about our main focus being growing guest counts, certainly in the U.S.,” Chief Financial Officer Kevin Ozan said during a conference call last week.
Through the third quarter, McDonald’s comparable customer counts are down 0.1 percent this year, compared with a 3.1 drop in the same period in 2015, according to a company filing. The U.S. restaurant industry also is facing a broader slowdown as consumers dine out less due to the turbulent election season and cheaper grocery-store prices.
To better compete, restaurants are aggressively discounting fare with offers such as 50-cent corn dogs at Sonic and $1.49 chicken nuggets at Burger King. But those deals haven’t helped so far. Burger King owner Restaurant Brands International Inc. and drive-in chain Sonic Corp. this week reported disappointing U.S. sales in the latest quarter.
Last year, McDonald’s U.S. traffic declined 3 percent, following a 4.1 percent drop in 2014. Customer counts also fell in 2013, filings show. To reverse the trend, McDonald’s needs to stick to its core identity of convenience and affordability, while also improving ingredients, Tristano said.
“It’s hard to imagine they’re going to be able to compete with better burger and fast casual,” he said, referring to chains like Shake Shack Inc. and Panera Bread Co. “They have to operate within their customers’ perception of their brand.”