McDonalds has been slowly reinventing itself over the last few years. Big menu changes and and healthier items have been a major part of that shift. Now the restaurant chain is doubling down on one its recent focus areas—breakfast. A few years ago McDonalds decided to make a handful of breakfast items available all day. The change was a hit with customers and investors and helped grow sales for the year. However, recently, McDonalds has blamed it for slowing sales as its morning business has actually weakened because consumers can get breakfast items all day. Now it is changing its tact by offering breakfast sandwiches starting at just a Dollar and offering extra-meat breakfast sandwiches all day.
FINSUM: It seems all day breakfast has cannibalized some sales for old Mickey D’s. The dollar menu approach in the morning should help.
McDonald’s has made a lot of changes over the course of the last couple years. Investors were skeptical at first, but the company’s CEO seems to have one its shareholders over. Now McDonald’s has a new plan to reverse its sliding grip on US fast food sales: take over the “dead zone”, or the period between lunch and dinner which are a doldrums for fast food chains. Between roughly 2 and 5 pm, fast food outlets do very little business. McDonald’s thinks there is an opportunity there, and counter to its recent focus on healthy food, it is rolling out the sweets and pastries to try to lure customers in during those hours. It will offer some new indulgent treats with aggressive pricing. It also says there is an opportunity to expand its coffee business.
FINSUM: We think this is a sharp idea. People seem to get an energy low in the middle of the afternoon, so peddling fresh coffee and sweets then seems like a solid strategy.
Of late, there has been an incredible amount of press covering the struggles that McDonalds is going through. The fast food chain is losing customers and many analysts fear that same stores sales will drop for the first time since 2002. The company has lost market share to a select group of major rivals in the new “fast casual” space, which is slightly more up-market than fast food and generally caters to a younger audience. The group of popular “fast casual” restaurants, which includes Chipotle, Shake Shack, Five Guys, and Nando’s among others, are growing very quickly (in many cases at 20% or more) and are generally more profitable on a per-restaurant basis than McDonalds. Diners like the chains’ apparent embrace of “fresh” and “natural” foods, their uncluttered menus, and the fact that each of their restaurants has a unique look, which makes young people feel like the companies are “less corporate”. All of this has helped the businesses squeeze 40% more revenue out of each customer than McDonalds.
FINSUM: McDonalds has slowly but surely let a major problem development in not seeing these generational changes coming. However, the rise of “fast casual” has been too much about McDonalds, and too little about the new brands themselves, many of whom might make good investments in their own right.
Most investors will be well aware of the struggles McDonalds is going through. The company’s sales are shrinking alongside its profitability, and the chain is trying to downsize their menu to better suit their customer base. This article takes an interesting look at where McDonalds is losing business. The huge Millennial generation has turned its back on McDonalds in favour of smaller, more natural, more fashionable rivals like Five Guys and ShakeShack. McDonalds is seen as artificial and down market by large sections of the younger population of the US, a fact that its smaller rivals have capitalized on by branding themselves as upscale and including extensive branding language about “no artificial hormones or preservatives” etc. ShakeShack is vastly smaller than McDonalds at $83m in revenues versus McDonalds’ $28 bn, but they have higher profitability per restaurant.
FINSUM: This is a really good article for assessing what the future of the largest US fast food chains might be. There is truly a generational change occurring and the old chains will need to adapt quickly.
In an article that could not be more indicative of the changing and turbulent socio-economic landscape of our times, this story covers the recent announcement by several fast food chains that they would start to automate many of their restaurant functions, presumably as part of an effort to lower their employment costs. Fast food businesses, like McDonalds, have been under intense pressure to raise wages and have seen severe backlash from employees and the public. The company has responded defensively and no resolution has been found. However, others in the space, including Panera Bread, Chilis, and Applebees have all announced that they will automate parts of the restaurant. For instance, in the latter two restaurant chains, tablets will be mounted on all tables so that customers will not need to interact with any employees to order, a change that seems very likely to shrink employment. Industry analysts say that pressure to pay $15/hr will inevitably force companies to look for ways to lower costs, and automation is one of the easiest methods to do so.
FINSUM: This is a seemingly small, but massively indicative article of the changing tide of the economy. The market for workers, skilled, but especially un-skilled, is dwindling rapidly in the face of new technologies, and that is beginning to create large socio-economic chasms. How will countries meet this challenge?