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Survey: McDonald’s franchisees mixed on all-day breakfast

Survey: McDonald’s franchisees mixed on all-day breakfast

Analyst survey suggests chain's 4Q same-store sales could tick up

McDonald’s Corp. franchisees gave a mixed review of the company’s foray into all-day breakfast in the latest survey from Nomura analyst Mark Kalinowski.

Many operators suggested that the addition of breakfast items after 10:30 a.m. has helped the chain turn a corner.

But others said in survey comments that the addition was confusing and added complexity to McDonald’s already bloated menu.

Together, the operators said their third-quarter same-store sales fell 0.9 percent. They predicted that same-store sales would rise 1 percent in the fourth quarter, and that breakfast would have a 1.5-percent impact.

“There’s something in here for the bulls and for the bears,” Kalinowski said. “If you’re favorable on McDonald’s stock, this is good news because it appears they’ve turned a corner. If you’re a bear, the third quarter is possibly still going to be negative, and with the fourth quarter being up only 1 percent, is that really a recovery?”

The quarterly survey is based on interviews with 29 franchisees that operate 226 units. That’s a tiny fraction of McDonald’s 3,000 operators and 14,000 locations. But the survey and its comments provide a window into the minds of some of the chain’s franchisees.

It comes after a separate survey on consumer sentiment by YouGov BrandIndex showed consumers’ views of McDonald’s hitting a two-year high due largely to the addition of all-day breakfast.

In some cases, operators’ views on the sales environment are improving. “Should be a good quarter,” one wrote.

“Conditions are improving slightly,” another said. “The market has started to turn around,” one franchisee said.

“I believe that my stores have reached the bottom of the $1 McDouble slide,” another franchisee said. Same-store sales “seem to have been leveling out and starting to climb.”

But others remain deeply skeptical of management and its efforts.

“We are lapping several years of soft sales,” one franchisee said. “We are negative guest counts but have taken price increases. Poor sales in previous years will make the end of this year look like we’ve solved all of our problems, but we have not.”

Others indicated they took price to improve profits at the sacrifice of traffic.

“McDonald’s has no plan,” one said. “They are just hoping sales will grow.”

Said another: “Oak Brook (Ill., where McDonald’s is headquartered) has promised to simplify the menu. It has not happened. Customers are abandoning us in droves because we are either too slow, or subpar quality. Oak Brook suits only care about shareholders and the stock price, not owner/operators. The three-legged stool is dead.”

Likewise, all-day breakfast, introduced nationwide earlier this month, received mixed reviews among franchisees.

One called it “erratic, distorted, disorganized direction from McDonald’s.”

Several said the plan was rushed. One said it would be better if it were rolled out in January. “We would be doing a better job if we had not rushed into it. Not going to be a big deal long term.”

Some said service times have been hurt. “In smaller stores, the problems are vast with people falling over each other and equipment jammed in everywhere.”

One franchisee said a 1-percent increase in same-store sales was a “stretch goal” and another called it a “gimmick from the corporate ‘geniuses’ (using the word very lightly) in Oak Brook.”

Still, others were more positive, with some saying the shift was simple or went smoothly and another saying it generated “better sales than expected” albeit with some slowing of service and added complexity.

Management also received mixed reviews from franchisees. “The CEO seems to be doing OK so far,” one said, and “I think our leadership is headed in the right direction,” said another.

But the largest comments came from franchisees still frustrated after years of weak sales and concerns about the chain’s complex menu. “While I really like my regional leadership team, and I think they like me, I think the lack of leadership and respect coming from Oak Brook headquarters is disheartening,” one wrote. “They are pressuring us to approve discounts that clearly show they have no other ideas.”

Another wrote that, “probably 30 percent of operators are insolvent” and that the region “is looking the other way on a lot of issues as they don’t want to come to the attention of” their higher-ups.

“I believe they are propping up some of the weaker operators to prevent large numbers of failures that would draw attention to the core problems of their greed, piling on fees on top of exorbitant rents.”

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

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