McDonald's Fallen Arches

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The mighty, international fast-food giant is definitely in trouble. McDonald’s (NYSE:MCD) share price, although up 3.21% today to 91.58, is at its lowest since September 2012. Investors are following customers as they go in other directions.

I remember way back when McDonald’s was considered to be a “sleeping giant” in the traditionally sense of the term. It appears that the giant may have fallen asleep again. One thing is for certain. It has been wandering about like a inebriate who has lost his way. Despite the magnitude of its operations, McDonald’s long ago lost its appeal as a destination. A growing number of David’s have risen up and are slinging well-aimed rocks at the Goliath of the fast-food industry by creating successful, new, fast-casual dining options.

One of the ironies of their success is that they offer simple menus. You would have had to been around in the 1960s and ’70s to remember how McDonald’s used that simple menu concept to appeal to the masses. It would appear that they are now being hoisted on their own petard. The current McDonald’s menu has evolved to what might be the most complex in the industry. The company has added over 100 items in the past 10 years alone. Its menu has grown 70% in item offerings since 2007.

The expanded menu has created unintended consequences that should not have been unexpected. A simple menu equals faster service. That’s was the McDonald’s secret to success. The wait time at the average McDonald’s drive-thru has now deteriorated to nine seconds longer than the industry average. Another indicator of McDonald’s problems is that 20% of the complaints the company receives are customer service related.

Just seeing McDonald’s operate should be enough to make investors run, but the figures add validity to what our eyes are seeing. The “good news” in the company’s November sales report was, “Europe down 2.0%.” The reason we can call that the “good news” is because APMEA was down 4.0%. It looks even better when compared to “U.S. down 4.6%.”

McDonald’s President and CEO Don Thompson said in the November report that, “We are working to bring the McDonald’s Experience of the Future to life for our customers.” This is the same report that stated that “Negative top-line performance is expected to significantly pressure company-operated and franchised margins.”He had better hurry up or the “McDonald’s Experience of the Future” will be fallen arches. 

McDonald’s shares have not traded above 100.00 since July. If investors looked only at the charts, and totally disregarded the fact that the company has become operationally dysfunctional, the current price being about 2% lower than the stock’s 50-day moving average might be a temptation to buy. At this point, however, I don’t expect investors at large to be any more interested in buying McDonald’s shares than consumers are in buying their burgers.

On the bright side, with 80% of the company’s 35,000 locations owned and operated as by franchisees, that group would have the wherewithal to save their collective investments before executive management destroys the entire operation.

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