McDonald's CEO: We Didn't Create a Future Pipeline of Growth

Chain Admits It Didn't Plan Ahead, Readies Initial Details of Turnaround Plan

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Steve Easterbrook
Steve Easterbrook

It's no secret that McDonald's is in the midst of a protracted sales decline. The chain hasn't seen positive quarterly same-store sales in the U.S. since the third quarter of 2013. But while McDonald's has been more vocal about its struggles recently, it has not offered much detail or insight into why the decline happened in the first place.

Until today, when during his first earnings call as CEO, Steve Easterbrook shed some light on where he thinks the chain faltered. An analyst asked Mr. Easterbrook: "Steven, as you have seen all of the research that McDonald's has had, [were] there maybe one or two big things that consumers were telling you about three or four years ago that you needed to change, and you could have prevented the decline in the sales?"

Mr. Easterbrook's candid response was that although there were a number of initiatives executed a few years back, including the long-term project of reimaging the restaurants and the overhaul of the chain's coffee program, one initiative the company didn't take seriously enough or forsee was "to create that future pipeline of growth platforms."

"Sometimes the consumer will guide you there, but sometimes you have to take it into your own hands, and that was probably something we wish we could have done a little better," said Mr. Easterbrook.

He went on to say that "one trend I would say we're working hard to address now is general consumer desire to be part of something big, but to [be treated] as an individual, and that's where the whole personalization piece comes in." He noted the chain's rollout of the Create Your Taste platform, which is part of the chain's so-called turnaround effort, involves an ordering kiosk where customers can customize sandwiches, is an example of how the chain is working to offer personalization.

That platform, which the company said last year will roll out in 2,000 of its more than 14,000 stores in the U.S. this year, is not without its set of issues, according to a franchisee survey by Janney Capital Markets. The survey said that some franchisees were not in favor of the platform, and that they felt that the effort didn't fit the business model.

Details of of the turnaround plan, elments of which were only recently unveiled to franchisees, have so far been vague. The company said on Wednesday that it will unwrap initial details -- not the whole plan -- on May 4. The turnaround plan will presumably flesh out more of its plan to cull the menu and the simplifiy operations, which the company has labeled as priorities.

Among the things Mr. Easterbrook touted on the call are the chain's recent pay raise for workers at company-owned restaurants; its all-day breakfast test; the elimination of antibiotics from its chicken supply; and McDonald's premium limited-time sirloin burger, which will likely be heavily marketed in May when it rolls out nationally.

For the chain's first quarter, global same-store sales decreased 2.3%, reflecting negative guest traffic in all major segments, the company said. In the U.S., first quarter same-store sales fell 2.6%, thanks to product and promotional offers that did not overcome rival competitive activity, the company said in its earnings release. During the quarter, the U.S. "continued to simplify its menu and focus on local menu initiatives to be more responsive to consumers' preferences," according to the statement.

McDonald's has been active on the marketing front in the first quarter. At the beginning of the year, the company launched a brand refresh that focused on positivity, notably the "lovin'" in its longtime "I'm lovin' it" positioning. The company also bought a Super Bowl ad for the refresh, and executed a big digital push during the game to give away every product advertised in the Super Bowl.

Globally, it launched an effort that involved 24 different marketing events and efforts in 24 hours.

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