Julie Jargon reports in the Wall Street Journal:
After losing about 500 million U.S. orders over the past five years over failed attempts to widen its customer base, McDonalds said it is going to embrace its identity as an affordable fast-food chain and stop chasing people who rarely eat there. It is planning mobile ordering and payment in 20,000 restaurants by the end of the year. The chain also is testing curbside pickup.“Delivery is the most significant disruption in the restaurant industry in our lifetime.”
McDonald’s Corp. is going back to basics.
After losing about 500 million U.S. orders over the past five years over failed attempts to widen its customer base, the fast-food chain said it is going to embrace its identity as an affordable fast-food chain and stop chasing after people who will rarely eat there.
The decision comes after the company conducted its largest-ever customer survey last year to understand why it was losing customers. The study showed that it was losing customers to other fast-food chains, not to fast-casual restaurants serving healthier fare.
“We don’t need to be a different McDonald’s, but a better McDonald’s,” Lucy Brady, McDonald’s senior vice president of corporate strategy and business development, told investors Wednesday gathered in a warehouse near its new headquarters in downtown Chicago.
Critics have long been urging the chain to focus on its core customers, but McDonald’s had added more salads, snack wraps and oatmeal to its menu to attract health-conscious customers. In recent months the chain pulled many of those slow-selling products. It also had experimented with higher-priced burgers that failed.
Chasing new customers is a pitfall that’s hurt other fast-food restaurants.
Burger King, a unit of Restaurant Brands International Inc., after efforts to appeal to a broader, more health-conscious customer base failed, decided in recent years to return to its fast-food roots.
Chief Executive Steve Easterbrook said the company is more focused now on its core customers. “We’re not the same McDonald’s we were two years ago or even six months ago,” said Mr. Easterbrook, who marked his two-year anniversary as CEO on Wednesday.
McDonald’s said it would focus on improving the quality of its food to retain existing customers and regain lapsed ones. One of its biggest challenges has been getting its burger offerings to resonate with people who have grown accustomed to better burgers from rivals.
The company didn’t share specific plans for making a better burger or provide a timeline but said it is testing new cooking methods to improve the texture and taste of its classic Big Macs and Quarter Pounders. The chain is also testing burgers made from fresh, rather than frozen beef, in Texas and Oklahoma.
McDonald’s is also trying to make coffee a top priority globally to take advantage of customers’ snacking habits. It plans to improve how its coffee is served and presented and to upgrade the pastries at its McCafe coffee stations within restaurants.
The company, which moved to a “McPick” value menu after abandoning its Dollar Menu, also found that it offered too many meal options at too many price points. At one point, there were 120 McPick meal combinations around the country.
“It made it harder for customers to assess our value relative to competitors,” McDonald’s USA President Chris Kempczinski said.
McDonald’s said another part of its plan to retain and attract customers would include serving customers where they want to eat, which increasingly is at home. McDonald’s, which has been offering delivery for many years in Asia and the Middle East, is now testing delivery in the U.S. and Europe and more Asian markets. In Florida, it has partnered with ride-sharing service Uber to deliver food. McDonald’s said that 75% of the population in its top five markets live within 3 miles of a McDonald’s and that more than one billion people globally live within five to 10 minutes of a McDonald’s.
“Delivery is the most significant disruption in the restaurant industry in our lifetime,” Ms. Brady said.
McDonald’s said it is also planning to roll out mobile ordering and payment in 20,000 restaurants in some of its largest markets, including the U.S., by the end of the year. The chain also is testing curbside pickup in the U.S.
McDonald’s said it would spend about $1.1 billion to renovate existing locations, including about 650 in the U.S. About 2,500 U.S. restaurants in all will be “Experience of the Future” restaurants that include self-order kiosks and table service by year-end.
The company is on track to sell 4,000 company-owned restaurants to franchisees by the end of 2017, a year ahead of schedule. And the board has approved a new three-year target of $22 billion to $24 billion in cash to be returned to shareholders.