McDonald's has a problem — several, actually.
The worst might be how inflation eroded the company's decades-old value proposition. The return of Value Menu items brought back some customers — but not enough — and many franchisees balked at selling items that proved to be money-losers.
Maybe the weirdest is that Motley reported that tiny little rival Burger King, a chain with a perennial identity crisis/inferiority complex, is "resurgent" against the Arches.
With all that, U.S. store traffic is in the hole, the stock is down by about 22% for the year, and there are no easy outs.
Or at least there aren't any inexpensive outs. During Wednesday's Investor's Day, McDonald's — when shares fell an additional 4.8% — announced a 10-year, $13.5 billion-with-a-b modernization plan to turn things around.
I don't know yet if I'm lovin' it, but I am intrigued.
Let's take a look.
And Another Thing: McDonald's also took the beef tallow out of the deep fryers 30-plus years ago and still refuses to put it back. And no, I'll never shut up about how the company ruined what were once the world's most reliably perfect French fries.
There are technical, financial aspects to the company's "NEXT" plan. But if they bored me to near death (and they did), then it's a sure thing you'll be even less interested. So let's get to the important stuff — namely, how McDonald's thinks it can improve its food and service.
The smartest move might prove to be "Developing and rolling out new products," as Axios put it, "including hand-breaded chicken and new protein-based items geared toward GLP-1 users." McDonald's nuggets were show-stoppers when the company introduced them [checks watch] 45 freakin years ago, but the competition caught up and surpassed them ages back. Any improvement would be welcome.
But focusing on GLP-1 users is brilliant, and possibly a nice way to boost margins. GLP drugs are almost certainly here to stay, but there's more to them than just some new menu items. Targeted food items can sometimes command a price premium, which is nice for the bottom line. But GLP-1 users also have reduced appetites. So McD could shrink the portions, keep the price in line with the old value proposition, and still improve margins.
Three more items, also courtesy of Axios, with my notes in brackets:
- Modernizing stores with features like lockers for delivery and pickup. [Lovin' this one.]
- Adopting a new AI-powered ordering system nicknamed Archy. [Inevitable; we'll have to wait and see if it's worthwhile.]
- Retraining millions of workers through what global chief people officer Tiffanie Boyd described as the largest upskilling effort in the brand's history. [McDonald's has never been Waffle House frightening, but now the company wants to aim for Chick-fil-A good. Awesome.]
Shares are up a bit today as investors have had a chance to digest yesterday's news.
But here's where NEXT gets tricky.
McDonald's says the improvements — I didn't list all of them — will cost the company $5 billion through 2030, and an additional $8.5 billion through 2036. And according to one of those more technical items I thought I could spare you, Motley says corporate "has just $4.3 billion in current assets."
There's almost certainly no way from here to 2036 without significantly more debt, and McDonald's already has about $40 billion worth.
But you know what the company could do in short order and at relatively little cost to help turn things around?
That's right: Put the tallow back in the deep fryers.
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