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Franchisees: McDonald’s same-store sales slowing

Franchisees: McDonald’s same-store sales slowing

This post is part of the On the Margin blog.

When McDonald’s Corp. finally started selling breakfast items after 10:30 a.m. last year, consumers excitedly bought up Egg McMuffins or biscuit sandwiches in the afternoon.

Yet that excitement is waning and, one year later, operators say they’re going to have a difficult time matching that enthusiasm in the coming months.

“Last year’s introduction of all-day breakfast in the fall of 2015 was extremely successful and we are going to be comping over some very high increases, especially from October and November of 2015,” one operator wrote in Nomura Analyst Mark Kalinowski’s quarterly McDonald’s franchisee survey.

Operators in the survey indicated that their same-store sales rose just 0.2 percent in the third quarter, and they’re predicting a 0.8 percent decline in the fourth quarter.

Kalinowski’s survey talked with 30 operators who own 271 stores collectively. That’s a tiny percentage of McDonald’s overall domestic reach of 14,000 locations — and thus the results should be taken with a grain of salt.

Still, the survey provides insight into the minds of a group of operators in advance of McDonald’s quarterly earnings report, which comes out this week.

Investors appear to be expecting a McDonald’s slowdown. Since hitting a 52-week high of more than $131 a share earlier this year, the stock is down 15 percent.

Kalinowski has a Neutral rating on McDonald’s stock and, as a result of the survey, reduced his estimate for U.S. same-store sales to up 0.2 percent. He is also predicting a 2-percent decline in same-store sales in the fourth quarter of this year. McDonald’s same-store sales grew 5.7 percent in the fourth quarter last year.

mcdonald's breakfast
The enthusiasm McDonald's all-day breakfast received from consumers is now waning. Photo: McDonald's

Operators in the survey said the chain should focus on operations, rather than discounting, to improve sales, though at least one operator suggested that the chain do more nationwide value promotions.

Some seemed frustrated by the chain’s recent shift in executives. Experienced McDonald’s executives are leaving the company and are being replaced by outsiders, something that was once rare at a business known for developing talent from within.

“Put people in charge of McDonald’s USA who have actually run McDonald’s restaurants,” one wrote. “Hiring people from other companies to run McDonald’s is not going to work. It’s like hiring a bus driver to fly a 767.”

Others suggested the company should simplify the menu.

“We have so messed up what we are about — convenience — because we continue to add complexity on top of complexity,” one wrote. The operator suggested the chain should speed up its efforts to infuse the chain with technology that could help improve that convenience.

“Simplify the menu,” another franchisee said. “The kitchen is impossible, and our service is challenged more than ever.”

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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