Why MCD’s Millennial Problem Is Overblown

The solution seems silly, but so does the issue

   

For fast-food king McDonald’s (NYSE:MCD), there seems to be one problem after another.

The company came off a Dow-leading 2011 with a double-digit decline in 2012, even as the market posted a hefty 13% climb. MCD’s direction has reversed course this year, with market-beating year-to-date gains thus far, but the company’s same-store sales don’t tell a similar tale. Last month, the metric — which has been haunting McDonald’s for some time — slid a more-than-expected 1.5%.

Now, the company is apparently struggling to resonate with millennials (a vague age group that can range between 18 and mid-30s). McDonald’s, according to a recent internal memo, doesn’t make the cut for the young demographic’s top 10 favorite restaurant brands, as most seem to prefer more customization, healthier options and a sustainable emphasis.

But McDonald’s thinks it has the perfect solution: the game-changing McWrap. The new and relatively healthy offering comes in three flavors … and that supposedly “affords MCD the platform for customization and variety that our millennial customer is expecting of us,” according to the memo. The company’s corporate team is calling it the “Subway buster,” as 22% of its incremental customers said they would go to Subway if the item was not offered.

Let’s overlook a few obvious flaws in this McWrap solution — such as the fact that the McWrap doesn’t seem any more or less customizable than any other offering (Can I get a McDouble plain, please?) … or very different from the various flavored snack wraps already on most menus.

Instead, the real issue I have comes with the “problem.” Looking at the data supporting McDonalds’ supposed struggle with millennials, it all seems like much ado about nothing, for several reasons:

The Niche

Let’s start with the reality that sparked all this chatter — the fact that McDonald’s isn’t a top-10 restaurant brand for the up-and-coming age group.

When you consider what McDonald’s offers — convenient, low-quality, low-priced food — this surely doesn’t seem surprising. If I had to pick my favorite restaurants, a full entree from Cheesecake Factory (NASDAQ:CAKE) or even a burrito bowl from Chipotle (NYSE:CMG) (which, yes, does offer grass-fed beef) would undoubtedly pop in my head and influence my choice before a value meal from McDonald’s.

Still, there are plenty of occasions when I find myself pressed for money or time or a late-night snack … and I end up in the fast-food line under the Golden Arches anyways. (Heck, for that very reason, I don’t even consider Subway a direct McDonald’s competitor because, as lazy as it sounds, you have to get out of your car to eat there. Plus, you definitely can’t get anything after midnight.)

No brand wants to be popular by desperation, but traffic is traffic.

The Recession

The next worrisome stat tossed around was the fact that millennial traffic has been declining in recent years. As Advertising Age put it:

“The hamburger category, which includes McDonald’s, Wendy’s (NASDAQ:WEN) and Burger King (NYSE:BKW), still receives 29% of all millennials’ quick-service visits, according to NPD, more than any other restaurant category.

But hamburger chains have seen a 16% decline in traffic from millennials since 2007, NPD said. In the year ended November 2012, millennials made 3.6 billion visits to hamburger chains, down from 4.2 billion visits in the year ended November 2007.”

That is a notable drop, but we all seem to be forgetting something else that took place from 2007 to 2012: the Great Recession.

Heck, even Advertising Age goes on to add that “there was a 12% decline in quick-service restaurant visits by millennials in the same time period.”

Sounds like a bunch of people simply traded in their quick meals, daily coffee or drive-thru snack for cheaper, eat-at-home alternatives … or nothing at all. But it doesn’t sound like an entire generation has just started shunning one fast-food chain.

The Business

Last but not least, Advertising Age also pointed out one last reason that millennials are becoming even more important targets: “Older consumers are increasingly learning from their children, such as how to use apps on smartphones.”

Objection: relevance.

Sure, that’s a fair point when talking about millennials in a general sense, but I’m missing how it in any way applies to restaurant chains like McDonald’s. It might apply to Domino’s (NYSE:DPZ) with its pizza tracker and ordering app, or maybe retailers like Walmart (NYSE:WMT), or even online commerce companies like Amazon (NASDAQ:AMZN).

But little about the fast-food model has changed thanks to new technology … so nothing about this supposedly increasingly influential demographic really makes sense in this case.

The Bottom Line

None of this is to say that improving millennial marketing isn’t a solid strategy for the future. Generation Y is a huge group, and an influential one at that. Still, McDonald’s might be overestimating its problem.

And while new offerings are important, pitching one as the end-all solution might make for some nice memos and headlines … but not much more.

As of this writing, Alyssa Oursler was long MCD.


Article printed from InvestorPlace Media, http://investorplace.com/2013/03/why-mcds-millennial-problem-is-overblown/.

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