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McDonald’s Needs More Than Gimmicks to Boost MCD Stock

MCD - McDonald’s Needs More Than Gimmicks to Boost MCD Stock

Source: http://en.wikipedia.org/wiki/File:New_McDonald%27s_restuarant_in_Mount_Pleasant,_Iowa.jpg

McDonald’s Corporation (MCD) is mired in its worst sales slump in more than a decade, and some of the ideas to shake it are getting downright silly. Hey, if MCD wants to get sales and McDonald’s stock moving again, the last thing they should do is make ordering food even more complicated and time-consuming.

mcdonald's-mcd-stock ko stock yum stockBut that’s exactly what MCD is toying with in testing a build-your-own-burger idea called Create Your Taste. The pilot program which MCD is in the process of expanding lets customers choose toppings like tortilla strips or jalapenos using a touch screen.

The idea is to make MCD more like Chipotle Mexican Grill, Inc. (CMG), but that’s not really McDonald’s game. If anything, MCD is suffering from slower service and less consistency with its food. Having customers struggle with unsanitary, glitchy (and annoyingly imprecise) touchscreens won’t get the line moving faster.

True, CMG has taken some market share from MCD. Burger King Worldwide Inc (BKW) and Wendys Co (WEN) are faring better these days too. But MCD isn’t going to regain momentum by copying Chipotle or the traditional burger-chain also-rans.

Some of what MCD needs is very much in its control, like faster, better service and keeping locations and rest rooms clean. More promotions and discounts on menu items customers most want would help too. And innovation like the original dollar menu has been sorely lacking.

Get the menu and prices in order, and that will go a long way toward fixing MCD’s sales woes.

MCD Needs Help From the Labor Market

But one of the biggest headwinds for MCD has been the weak recovery and sluggish labor market, and now that’s beginning to turn around, too. Even at low prices, MCD is still a discretionary purchase, and consumers have been very tight with their cash throughout the anemic recovery.

Things are beginning to change, though. Discretionary spending is slowly trending up, as is hiring. The latest monthly jobs report, where payrolls expanded by more than 300,000, is great news for anyone holding McDonald’s stock. After all, MCD is a popular lunch spot for everyone from office drones to construction workers.

Better economic conditions and MCD getting back to what it does best are more likely to reverse its fortunes than trying to become something its not. But, hey, it has to try something. Sales are becoming a disaster.

Same-store sales — a critical measure of health — fell 4.6% in U.S. locations last month, which is the biggest monthly decline for the chain since 2001. Indeed, U.S. same-store sales have failed to grow for 12 consecutive months now.

It’s actually kind of amazing how patient the market has been, seeing as anyone holding McDonald’s stock has seen it drop by nearly 6% this year even as the S&P 500 has gained more than 11%.

An improving labor market alone should help MCD have a better time next year, but it will be months before any signs of improvement from that and any other initiatives become evident.

Until then, no, McDonald’s stock isn’t all that compelling these days. It hardly screams “buy.” But don’t be surprised if MCD becomes one of the surprise hits of the second half of 2015.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/mcdonalds-stock-mcd-stock/.

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