The world’s largest fast food chain McDonald’s (MCD, Financial) reported steeper than expected January sales on the back of weakness in the Chinese and Japanese markets. The repercussions of the supplier scandals in China and Japan aren’t over yet. The American fast food chain has been experiencing declining sales, falling market share, and most importantly: losing the faith of its overseas customers.
In order to revive its sales, it has to stick to the basics and offer preparations that it’s best at, instead of confusing its customers with a large menu. Let’s dig in a little deeper and take a look at the problems it is going through, along with some suggested solutions that could help the Big Mac maker revive its sales.
Source: McDonald’s
What do McDonald’s January sales say?
McDonald’s reported a 1.8% drop in worldwide sales for restaurants that were operating for more than 13 months. In contrast, analysts had expected the comparable sales to drop 1.2%. The company has been witnessing global comp sales drop for eight months now.
In the Asia Pacific, Middle East and African region, the company saw its comparable store sales plunge 12.6%. Analyst, on the other hand, had expected comparable sales to drop 8.4% in January. McDonald’s Asian market has yet to recover.
It all started when a news flashed China-based Shanghai Husi supplying expired meat to McDonald’s and Yum! Brands (YUM, Financial). Both companies have been seeing severe drops ever since. Food safety issues rose in Japan too, when objects like tooth and plastic was discovered in McDonald’s food. Sales in Japan and China have shown a declining curve. ‘Brand recovery’ now seems to be the key priority of McDonald’s for its Asian market.
McDonald’s is having a tough run in its domestic market as well. Americans are opting for healthier options and this is pulling down the footfall with the increasing popularity of fast casual chains such as Chipotle (CMG, Financial). The company tried to attract customers by adding healthy items to the menu, but that didn’t work. The company’s comp sales have been declining since October 2013. Finally, December 2014 saw some improvement and comparable store sales surged 0.4% in January. McDonald’s is trying to formulate effective strategies to improve its U.S. footfall.
How can McDonald’s fix its problems?
Cutting down on the menu option: The first and foremost thing that McDonald’s need to do is to get rid of the complicated menu and get back to simple food preparations. It must cut down on salads and other pricey items as that’s not what McDonald’s is known for. Bradford Hudson says:
'McDonald's needs to return to its roots. It needs to make the best burgers and fries that can possibly be imagined. And it should leave the salads and lattes to competitors who make them better'
Making use of simple and real ingredients: What McDonald’s need to do is prepare a new menu and concentrate on its core items and make use of simple ingredients to provide quality food which can provide satisfaction to its customers. This is one of the most vital steps toward winning back its customers.
Identifying its key strength, the value meal: McDonald’s should not deviate from its success formula. When people talk about McDonald’s, the first thing that comes into their minds is ‘cheap’. As McDonald’s widened its menu, it started offering pricey items to get into the league of Chipotle. However, customers disliked the fact that McDonald’s was growing expensive. And if they were to pay premium and spend more on their meals, then why not choose Chipotle that has already earned a reputation of providing high quality food. Jeff Davis, CEO and a market research specialist for food- service companies says:
"Somewhere along the road, while bloating the menu with pricey burgers and costly salads, McDonald's forgot the value component."
