By Lisa Baertlein
LOS ANGELES Feb 11 Raymond Tremblay, a loyal
McDonald's Corp customer from Los Angeles, thinks the
fast-food chain sells tasty food at reasonable prices and he
cannot think of a quick fix that would help end the company's
disappointing U.S. performance.
"I know it's there and it's always good," Tremblay, 46,
said of McDonald's. "Maybe we just kind of take it for granted."
Such customer feedback underscores the challenges faced by
the world's biggest restaurant company, which has reported 19
months of turbulent sales at established U.S. restaurants amid
sluggish economic growth, stepped-up competition and internal
missteps that have complicated its menus and slowed service.
In a recent call with analysts, McDonald's Chief Executive
Officer Don Thompson vowed to "create more of a coffee culture
through high-quality McCafe products" as well as to double-down
on breakfast and sales of food priced around $1 -- in a bid to
Once or twice a week, Tremblay makes a slight detour from
his morning commute to pick up coffee and a sausage McMuffin
with egg or a sausage burrito.
He has bought the company's flavored coffees, but never
orders the espresso drinks made from pricey McCafe machines that
McDonald's franchisees installed to compete with Starbucks Corp
Tremblay, a production artist for an animation firm, is
happy when his favorite items are on sale - but he and other
customers say that discounts are not enough to change their
Mel Yu, a 32-year-old automotive industry consultant from
Grand Blanc, Michigan, still goes to McDonald's three to four
times a week -- but that is down significantly from a decade
ago, when McDonald's was just about the only place to grab a
quick morning meal.
These days, breakfast competition is fierce. Starbucks is
introducing new pastries, fast-food chains Burger King
and Dunkin' Donuts have come on strong with food and
drinks, and bakery chain Panera Bread has rapidly
McDonald's owners in Yu's area have been couponing and
matching discounts from competitors. Still, Yu said that has not
increased the frequency of his visits to the Golden Arches: "I'm
going there anyhow."
McDonald's did not immediately respond to requests for
comment via telephone or email.
DOMESTIC RESTAURANT SALES FALL
McDonald's on Monday said U.S. sales at restaurants open at
least 13 months fell 3.3 percent in January - more than twice as
steep as the drop that analysts polled by Consensus Metrix
McDonald's blamed the frigid cold and snow that hit large
parts of the United States, but analysts said McDonald's
domestic patrons continue to be pinched by the slow economy.
It is a trend playing out across the industry.
McDonald's and other restaurants that cater to the
financially strapped low-to-middle income masses -- including
Darden Restaurant Inc's Olive Garden and Red Lobster
chains -- are struggling to bring in sales.
At the same time, Starbucks, Panera, Chipotle Mexican Grill
and Darden's Capital Grille steak house, which cater to
somewhat wealthier diners, are outperforming.
KING OF BREAKFAST
McDonald's was the undisputed leader in the U.S.
quick-service breakfast category with 19 percent market share in
2013, according to Nielsen Co consumer data firm Scarborough.
Its closest rivals last year were Starbucks and Dunkin'
Donuts, each with 7 percent market share.
"When you're No. 1, you've got one direction to go and
that's down. Everybody's got a target on your back," Investment
Technology Group restaurant analyst Steve West said.
Some analysts expect investors to give Thompson, McDonald's
CEO who took the helm in July 2012, most of this year to turn
Thompson championed the McCafe push during his tenure as
president of McDonald's USA from 2006 to 2010. That program
required franchisees to renovate restaurants to create space for
equipment, such as an espresso machine that cost between $10,000
and $15,000 per restaurant.
The McCafe expansion -- which also included blended fruit
smoothies and other drinks -- is widely viewed as a success.
While regular coffee sales are reported to be brisk, some
franchisees have complained in surveys that sales of espresso
drinks fall far short of covering the cost of the
high-maintenance machines that crank out lattes and mochas with
the press of a button.
Howard Penney, restaurant analyst at Hedgeye Risk
Management, said McCafe is at the heart of McDonald's
Contrary to conventional wisdom, Penney says the McCafe
business has been slowing down service and that the recent
roll-outs of too many new food products and limited-time offers
have only exaggerated the problem.
For now, McDonald's is focusing on making its food
preparation more efficient. It has called on restaurant
operators to install a $25,000 to $50,000 "high density table"
that stores sandwich toppings and other items. Executives say
that new equipment will help workers turn out sandwiches and
other food faster.
If that investment does not boost sales at established
restaurants in the second half of 2014, Penney said McDonald's
would be forced to look at McCafe.
"McCafe is a sacred cow right now," Penney said.