McDonald's executives presented Q4 and full-year 2013 financial results this morning, admitting that they fell short of expectations. Guest traffic was down across major segments, reflecting initiatives that didn't resonate with guests, CEO Don Thompson said during today's earnings call.
To help rectify stagnant sales, the company has initiated stronger consumer insights and market research.
"This will help us make appropriate adjustments to regain momentum as we more clearly align with our customers' needs," Thompson said.
Among those needs are basic execution at a restaurant level, menu relevancy and digital engagement. Thompson acknowledged McDonald's has not "played in the digital arena in a strong way."
"Our intent is to be much stronger with digital outreach and digital engagement," he said.
He added that a big factor in 2013's shortcomings was the rapid pace of menu introductions, which "challenged execution." Among the introductions were McWraps, Egg White Delights, Quarter Pounder Toppers and Mighty Wings.
"We didn't really give the restaurants an opportunity to breath," COO Tim Fenton said. "We (have since) instituted a gatekeeper with the intent of doing fewer products, but better execution."
As McDonald's slows its menu rollout pace, the company will rely heavily on back-of-the-house equipment efficiencies — expected to be fully in place by May to June.
CFO Pete Bensen said the kitchen equipment, including a new prep table and high density UHC cabinets, is designed to improve throughput and order accuracy and offer more choice and variety for the consumer.
"We stumbled a bit last year with too many new products, too fast, which created a lot of complexity," he said. "One of our biggest things we're looking at is peak-hour execution, which goes hand in hand with the enhancements of our prep table. It gives us more capacity during those peak hours."
McDonald's is also working with all of its operators on staffing, positioning and scheduling to make sure the right people are clocked in at the busiest times.
"We have to have the additional staffing required for some of the complexity that we have," Fenton said.
Early signs positive for Dollar Menu and More
Bensen said one of the positives from Q4 in the U.S. system was the margin benefit, and positive check impact, from the new Dollar Menu and More, introduced in November.
Prior to the new menu, McDonald's had an extra value menu, extra value meals and the Dollar Menu. Fenton said these variations caused confusion for the customers and the company.
"The Dollar Menu and More was designed to stretch our products of variety and give us flexibility in pricing. It's simpler, it's easier," he said.
Thompson added that the prior value offerings were pushed to generate additional profit. The Dollar Menu and More, however, is more customer-focused.
"The Dollar Menu and More is intended to drive customer visits by offering greater value and variety while improving restaurant profitability, and results are in line with initial expectations," Thompson added. "Affordability is a key component of our growth as we move forward."
New CMO and marketing messaging
Marketing messaging is a big focus this year, including an effort to create more of a "coffee culture."
"Even today, customers don't realize to the greatest extent that at McDonald's, we are making that sandwich, preparing that in the back of the house after you order," Fenton said. "We really need to be able to advance our marketing messages more."
To facilitate these initiatives, McDonald's announced this week the hiring of Deborah Wahl as its new CMO.
"We look forward to the fresh perspective Deborah will bring as she leads the team as we refine our marketing strategies," Thompson said.
Earnings highlights by the numbers
Full year 2013 results include:
- Global comp sales increase of 0.2 percent;
- Consolidated revenue increase of 2 percent;
- Consolidated operating income increase of 2 percent;
Q4 results include:
- Global comp sales decrease of 0.1 percent;
- U.S. comp sales decrease of 1.4 percent;
- Europe comp sales growth of 1 percent;
- APMEA comp sales decrease of 2.4 percent.
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