Reporter's Notebook
McDonald's and the problem with same-store sales

McDonald's and the problem with same-store sales

This post is part of the Reporter's Notebook blog.

Yesterday, McDonald’s Corp. said that it would stop reporting same-store sales results on a monthly basis. This is a big deal. And it’s usually a bad sign when companies reduce transparency.

But that doesn’t mean it was a bad decision. Indeed, it’s a little surprising McDonald’s didn’t do this earlier.

Same-store sales are widely considered to be the standard for restaurant performance. If your restaurant is improving sales at existing stores, then your concept is attracting more customers or higher-paying customers and therefore it is doing better.

Obviously, we use same-store sales prominently here at NRN, both for company specific stories and for general stories on industry trends. Indeed, if it weren’t for same-store sales I’d probably have nothing to do many days.

But same-store sales are easily manipulated. Taken over too short a time period, same-store sales can be influenced by all sorts of external factors: Weather, sudden declines in gas prices, sudden influxes of tax receipts, delayed tax returns or consumers’ random decisions to spend more on clothing or automobiles. Calendar shifts are particularly troublesome. Easter is in March some years, April in others.

In addition, a good same-store sales report means nothing unless you know what the performance was like in the comparable period. A good report could mean that a company is attracting new customers and improving sales. Or it could just mean that the company is coming off of a real bad quarter.

Indeed, many observers believe that same-store sales are best taken on a two-year basis, to filter out these influences.

Still others believe that, in the restaurant industry, generalized same-store sales even on a two-year basis don’t tell you enough. A better indication of a concept’s performance could be provided if it reported same-store sales by daypart, so you know what time of day when companies are performing best.

Indeed, we know in general that McDonald’s sales have held at breakfast and not at lunch or dinner, based on company comments. But we don’t have that specific data, and we certainly can’t compare it with other concepts.

Monthly same-store sales are especially troublesome, because they represent the shortest of sample sizes. One good month is just that: A good month, and it means nothing on its own.

Not surprisingly, few companies report same-store sales on a monthly basis, at least until they report quarterly earnings. Companies like Darden Restaurants and Bob Evans have historically provided sales by month as part of their quarterly reports, which can provide good context within that quarter. But, as of now, McDonald’s is the only restaurant company to report those sales each month. And in July, it won’t be doing that.

McDonald’s is taking a lot of long-term actions to turn its business around. While many observers we speak with believe the burger chain will turn its sales around, they also believe that any such improvement is a half a year away. At the very least.

From the company’s standpoint, it makes little sense to keep providing updates on a volatile, short-term measure of its performance when true improvement is still a ways off. “It’s early,” CEO Steve Easterbrook said at an investors conference this week. “Don’t expect a smooth ride here.”

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