In October of 2017, McDonald’s U.S. president Chris Kempczinski offered up this commentary following another stellar quarter, one where guest traffic increased for the second straight period. “When we improve the taste and quality of our products to meet customers’ rising expectations, they reward us with more business.”
McDonald’s was right in anticipating guest demand for quality and premium items, and their willingness to pay for it. Yet times have changed. This past quarter, U.S. traffic fell 2.2 percent compared to a 1 percent uptick in the prior-year period. Same-store sales growth of 2.3 percent was anchored by a 4.7 percent rise in average check.
Much of the traffic lag was the result of an operations slowdown, executives said. And that was the consequence of adding complexity into the menu, like fresh beef, Signature Crafted items, all-day breakfast, and more. While that balance was previously worth the trade-off, convenience has shifted priorities for McDonald’s. The rise of digital pathways and off-premises business lends credence to a changing consumer. And while they might be willing to pay more at certain occasions for certain brands, is it a strategy worth courting for McDonald’s?
The short-term answer appears to be no, at least not across the board. On Wednesday, the company introduced a fresh new Quarter Pounder lineup, including a Deluxe that features lettuce and tomato, and a Quarter Pounder Bacon. This comes at the expense of McDonald’s Signature Crafted Recipe lineup, however, which McDonald’s said it would “move away from” on its national menu.
The brand introduced the Signature Crafted Recipes line, which included Pico Guacamole, Sweet BBQ Bacon, and Maple Bacon Dijon sandwiches, available with either beef or grilled or crispy chicken, in early 2017. It’s now being phased out in favor of convenience and speed, which simply garner more promise than customization these days.
This has played out before for McDonald’s. The previous November, the chain discontinued its “Create Your Taste” customizable burger platform, which allowed guests in select cities to build their own burgers on touch-screen kiosks. The kiosks, as the Experience of the Future design shows, proved a feature worth investing serious capital in (4,500 locations at a cost of nearly $1.5 billion last year alone). But having kitchens take on burgers that weren’t predesigned, to some degree at least, did not.
Removing complexity is clearly a key goal in 2019 for the brand, as evident by McDonald’s recent decision to significantly slice the size of its overnight menu.
McDonald’s drive-thru slow downs have been well documented and that’s a direct example of where operational whitespace lies. Drive-thru service times have increased, year-on-year, for the last five years. At 273.29 seconds, on average, McDonald’s was the slowest brand featured in QSR’s 2018 Drive-Thru Study.
Kevin Ozan, McDonald’s CFO, said at the March 15 J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum that McDonald’s lagging speed was a product of its own doing.
“If you think about what we've done over the last several years: introduced All Day Breakfast, now put in fresh beef, put in some more premium products like the Signature Crafted sandwiches that take a little bit longer to make, and some of the complexity that we've added into the business has now created a little bit slower drive-thru times,” he said.
McDonald’s added tech into the equation as well, installing “zoom boards” to provide live service times within the restaurant so operators could identify bottlenecks as they happen, and fix them.
One of McDonald’s initiatives for 2019, he added, would be on “what we call just running better restaurants.” It’s one of the reasons the brand restructured its corporate to 10 field offices from 21. It reduced co-ops from 180-plus to 50 or so.
This was done so McDonald’s could make sure it was providing the right level of support to franchisees, it said. Eliminating the region structure in favor of field offices and removing layers from the field organization allowed McDonald’s to increase resources in strategic areas, such as technology. It also boosted efficiency by creating a single point of contact to help franchisees build business plans and obtain the corporate resources they need. Another proposed benefit: Improving speed-to-market by managing complexity and improving decision making, the company said.
All of that adds up to McDonald’s pushing the envelope on operations, speed, and convenience. And the Signature Crafted lineup was something that worked against those goals. Whether or not a higher price point was an effective notion is a question as well. McDonald’s famously spent $150–$200 million promoting the Arch Deluxe in 1996—the largest campaign ever in fast-food history at the time, according to The New York Times. When it debuted that May, McDonald’s officials predicted it would generate $1 billion in sales in its first year.
It was promoted as a more sophisticated item meant for adults, with commercials showing kids grimacing at the taste. The main feature was “Arch Sauce,” which was a mustard-mayonnaise combination of sorts. McDonald’s showcased Ronald McDonald going to clubs, playing pool, and hitting the links. Just how badly the product sold was a source of debate, but it was gone from all restaurants by the late 1990s. A similar fate greeted the McDLT in the 1980s and the third-pound Angus Burgers line, which lasted just four years and left the menu in 2013.
McDonald’s has shifted recently to more local value in favor of the national construct of past years.
Ozan said in March it would offer more autonomy to operators on which products it wanted to slot into the $1 $2 $3 Dollar Menu tiers. Each co-op in McDonald’s system is required to have a $1 any size drink and $2 small McCafe drink. But the rest is now effectively up to local co-ops to determine at the ground level what works and what doesn’t when it comes to value.
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