McDonald’s is looking to accelerate its U.S. market performance. | Photo: Shutterstock.
McDonald’s isn’t really messing around in its biggest market.
The fast-food giant on Tuesday named Skye Anderson president of McDonald’s USA. The move has been broadcast for some time, as Anderson had recently been named the market’s chief operating officer. Indeed, the company said that the move was part of a planned transition, and that Joe Erlinger is leaving on his own volition.
Yet there is also this quote, from CEO Chris Kempczinski in McDonald’s earnings announcement:
“While our playbook is working around the world, we see an opportunity to accelerate performance in our largest market. Skye Anderson’s appointment today as president of McDonald’s USA will bring focus and urgency to these efforts.”
And then on the company’s earnings call Tuesday, executives made it clear they were unhappy with the performance of its U.S. market, saying that its restaurant teams were “overwhelmed by too many deployments,” which slowed service and hurt customer satisfaction.
McDonald’s same-store sales rose just 0.8% domestically last quarter. That was an acceleration on a two-year basis. But the company’s efforts to generate more traffic with discounts does not appear to be working. Customer counts at the company’s restaurants declined in the quarter.
Skye Anderson | Photo courtesy of McDonald’s.
McDonald’s has been sluggish in its home market for most of the past couple of years, due largely to a low-income consumer that simply isn’t dining with all that frequency. The company has been specifically undone by a reputation for higher prices, which may be driving some consumers to either order more expensive items or stay home.
The company has responded to this environment with a lot of discounts, a strategy that Kempczinski has pushed for multiple years.
McDonald’s deployed a lot of political capital in its push to get franchisees on board with that strategy.
The result was lowered prices on its Extra Value Meals, $5 bundled meal offers, and more recently a menu with items priced at $3 or less.
Ian Borden, McDonald’s CFO, specifically mention the decision to shift away from a buy-one, get-one-for $1 offer, suggesting that the decision hurt the company’s value reputation and contributed to its weakness.
Discounts are supposed to drive traffic. In theory, higher traffic more than offsets the lower prices and operators make more, as does the company through higher royalties. But they can be problematic when the traffic declines, because that means a smaller group of customers exchange regular priced items for the cheap stuff. And profits worsen as a result.
And it makes it more difficult for franchisors to convince franchisees to go along with their plans in the future.
McDonald’s also recently revealed its newest strategy, called “McDonald’s Next,” which includes an interesting new prototype, upgraded menu items to compete more directly with specialists, and a big dose of hospitality.
Anderson will be tasked with implementing that strategy in the U.S., where McDonald’s operates nearly 14,000 locations.
The company needed to inject some energy into the market, given the relatively sluggish performance and the need to implement that new strategy. And it turned to Anderson, who has been clearly groomed for the job.
She is highly regarded within the system and has spent recent weeks meeting with the brand’s U.S. operators.
She has held several positions within the system and once led the company’s West Zone in the U.S. During her four-year tenure, same-store sales rose some 30% and per-store cashflow rose $100,000.
Time will tell whether she can have the same impact while responsible for the full market. But much will be riding on whether she can.
