Why McDonald's U.S. Growth Has Ended and Will Not Recover
McDonald’s Corp. (NYSE: MCD) posted another month of falling same-store sales in the United States for May. The huge fast-food chain announced a drop of 1%. While the company has not directly acknowledged it, competition has flanked it in terms of locations and menu. And McDonald’s has not created a way to overcome these, and likely will not any time soon, if ever.
As part of the announcement about May, the company’s management commented:
In May, U.S. comparable sales decreased 1.0% amid ongoing broad-based challenges. McDonald’s U.S. business is heightening its customer focus through service, value and menu initiatives to stabilize results. During May, these efforts were reflected in the promotion of Dollar Menu & More offerings and breakfast including a focus on McDonald’s popular McCafé coffee.
However, service alone does not provide McDonald’s a solution.
A decade ago, McDonald’s easily held off smaller rivals, which in particular included Burger King Worldwide Inc. (NYSE: BKW). Also, Starbucks Corp. (NASDAQ: MCD) had become a rival for breakfast customers by then. Wendy’s, Taco Bell, Subway and Dunkin’ Brands Group Inc. (NASDAQ: DNKN) lingered as potential problems, but none of them had made a successful enough assault to dent McDonald’s growth. That trend has changed.
Subway’s relentless effort to brand itself as the healthy alternative to fast food’s high-calorie, high-fat and high-sugar menus has succeeded. Starbucks has strengthened its early morning position and marched into the market for lunch. And Yum! Brands Inc.’s (NYSE: YUM) Taco Bell has aggressively gone after McDonald’s breakfast customers.
Menu changes and additions, and opening 24 hours, acted as successful ways for McDonald’s to hold an edge in the fast-food business. However, its menu has expanded so much that one could argue it has run out of ways to grow significantly. And 24-hour locations have become part of the tactics of most of McDonald’s competition.
McDonald’s largest problem in the United States is that it has run out of logical options to restart same-store sales growth.