As the excitement of the All Day Breakfast menu wears down, McDonald’s (MCD) franchisees are preparing themselves for little-to-negative growth for the rest of the year.
In a survey by Nomura analyst Mark Kalinowski, franchisee owners responded higher to “No way we can beat last year”. They said that sales slowed down 0.2% in the third quarter and expect it to continue to decline by 0.8% in the fourth quarter this year.
After deliberation, here are three of the main reasons to why things aren’t going so well for McDonalds.
1. McDonald’s offers too many discounts
Several franchisee owners observed that McDonald’s is milking their profits as much as they can by offering so many discounts. They said that things will only get worse as the cost of labor rises.
“We are discounting almost everything from all drinks to many items on the regular menu, and some items on the breakfast menu. It is all about top-line sales, not running profitable restaurants. That is why operators need several restaurants today, as the return on their investment dwindles.” one franchisee wrote.
2. The Cost of Labor is Too High
Smaller operators are getting shutdown because of shrinking profits.
“We have an image problem and a people problem,” one franchisee wrote. “Will have to pay at least $10-$12 per hour to compete, maybe even $15 per hour.”
“The increased cost of labor today and in the near future means the days of discounting our food are coming to an end,” one franchisee wrote. “Smaller operators who do generally run superior operations continue to leave the system. Welcome to mediocrity!!!”
3. The Menu
Menu and kitchen operations are still very complicated, slowing down service.
“The kitchen is impossible, and our service is challenged more than ever,” one franchisee wrote.
Franchisees suggested simplifying the menu: “We must continue to simplify our menu which has not really occurred.”
Two franchisees said business is strong, however.
“My part of the country is on a roll,” one operator wrote.
Another said: “Our region has a good mix of value, core products, and breakfast.”