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Key Takeaways from McDonald's Q1 Earnings Report

4/23/2015
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There were a few interesting things about McDonald’s earnings yesterday, but the key takeaway was negative. McDonald’s saw another 3% decline in global comps, traffic declines in all major segments, and as much as a 8% drop in comps in APMEA due to continuing struggles in Japan and China. Global fast food chains have been banking for years on emerging market growth reliably propping up less positive performances in the US, but McDonald’s is now facing difficulties on all fronts, with no immediately foreseeable way forward.

That said, McDonald’s also teased a big reveal for its turnaround strategy which is expected  to come on May 4th, something to which the stock market responded very positively. There has been speculation that the new plan could bank on delivery, greater participation in mobile ordering and payments, a broader roll-out of McDonalds’ new Create Your Taste platform, or more likely, some combination of the three. While a bold move like the latter does seem to be the kind of shift in strategy it may take to pull McDonald’s out of this slump, there are some very serious operational challenges that make it seem like it could result in trading one challenge for another.

The Create Your Taste platform may be more in line with what modern consumers are looking for, but it also undermines many of the key benefits that have always made up McDonald’s’ core identity and differentiated it from other options. Create Your Taste is not particularly fast, it’s not particularly cheap, and you can’t order it from a drive-through; with all of the other better burger options out there, what’s left to bring customers specifically to McDonald’s? The outlet retrofit will also cost franchisees another considerable investment at a time when many are struggling to remain profitable and anxious for a quicker short-term solution.

The bottom line is that McDonald’s appears to be in a very difficult position, but I’m interested to hear their plan for fighting their way out of it. They’ve fought their way back from similar conditions before, so there’s no reason to think they can’t find a way to do it again.

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