WILL ISIGN BE THE ANSWER ? While taking away the reins from Thompson is a plus, the company's leadership is far from its biggest problem. And, while everyone wants to talk about the food quality at McDonald's, it is no better or worse than the thousands of other fast food companies that exist out there.
McDonald's Biggest Problem: Technology Upgrades
McDonald's has had it wrong for several years now. It was never about the food or its leadership. Despite the company's and Wall Street's belief that fast casual chains like Chipotle Mexican Grill (NYSE:CMG) are hurting the company long-term, McDonald's has, and continues to, hurt themselves. The following U.S. comparable sales chart doesn't occur solely from leadership problems, food, or even competition.
Source: McDonald's SEC filings.
Who wants to wait over three minutes in the drive-thru at McDonald's? QSR Magazine did a drive-thru speed of service study in October of 2013. McDonald's came in at 3 minutes, 9 seconds - the slowest time on record for the chain. It is now the beginning of 2015. What has changed to improve this performance? Nothing.
Digital orders and customization through technology upgrades sound like improvements on paper, but really just add more time to the stopwatch on average ordering speeds. The Build Your Burger platform, for example, allows customers to order from a touchscreen kiosks giving them endless combination possibilities. But, the kiosks require hosts to help customers use the machines. And, after paying with a credit card, the kiosk generates a receipt while the customer sits down at a table still without food. Eventually, another runner delivers the food to the table. How is any of this faster?
Then we have the McCafe strategy in full force because McDonald's is trying to tap into the giant ready-to-go coffee industry that Starbucks owns. However, the McCafe drinks require their own separate stations in the kitchen, specific training to the staff, and this also causes longer wait times for all customers.
The domino effect is in full-force at McDonald's. Slow service resulted in customers choosing other options. Comparable sales fell. McDonald's started thinking that competing with fast casual was the answer. Slower service resulted. Even more customers started to choose other options. Comparable sales fell further. McDonald's is now increasing their technology capabilities through upgrades thinking customers want to be able to control more parts of the ordering process.
What McDonald's doesn't seem to grasp is that all these small amounts of time added to the ordering clock really impact the chain overall because McDonald's derives over 70% of its sales through the drive-thru. Essentially, the added time is a huge multiplier in the negative direction in sending customers looking elsewhere at quicker fast food alternatives.
My Recent Experience
Just yesterday, I went through a McDonald's drive-thru. I drove up to the drive-thru behind just one car. That car ordered and then I pulled up. The first thing I was told was that they were only taking cash since their credit card system was not working correctly. That was fine with me. Then I was told to wait. For the next couple of minutes, I proceeded to hear the entire transaction for the car in front of me including how much change they were getting and what kind of sauce they wanted for their nuggets.
I finally place my order: 2 McChicken sandwiches and 2 orders of the 4-piece nuggets. I pull up behind the same car in front of me who apparently still doesn't have their order yet. I proceed to wait another five minutes.
I eventually pull up to the window and I get my order with sauce in all. I look in the bag and I see 2 McChicken sandwiches, 2 orders of the 4-piece nuggets, the sauce I asked for, and a box of fries.
I am just one customer and I doubt the chain is going to ever feel the cents lost by giving away a single box of fries. However, the chain has over 14,350 locations in the U.S. and over 20,000 more globally. Not only did they get my order incorrect while having the latest and greatest technology at their disposal, I had to wait at least five minutes for this seemingly simple order.
Conclusion
There is a classic Seinfeld episode where Kramer's new idea is to start a pizza shop where customers make their own pie. This is what the Build Your Burger platform at McDonald's reminds me of.
Furthermore, based on my experience in the three decades I've been on this planet, adding customization only slows down times whether it be at the post office where customers can weigh and stamp their own packages, to the grocery store where I often find customers going at least twice as slow in the self-checkout lines, or to even at bus stations where there seems to be more and more ways for passengers to not be able to purchase a bus fare. By adding customization options and increasing their dependence on technology, McDonald's is going to suffer slower and slower ordering times and continue to be counterproductive in fixing the real reason why comparable sales keep falling.
McDonald's keeps upgrading their technology, without upgrading themselves.