Citi Trader In addition to falling sales, McDonald’s (NYSE: MCD) has an even bigger problem on its hands.
Franchise owners are losing confidence in the brand amid concerns over the food the chain serves. This important constituency has become increasingly pessimistic about the future, more so than at any other time over the past dozen years, according to a new survey conducted by Janney Capital analyst Mark Kalinowski and first reported on by CNNMoney.
While the sales drop and the food quality were key issues, the surveyed franchisees also expressed deep concerns with the company’s management and its ability to both improve and simplify the menu.
“We may be doomed,” one anonymous respondent said in the survey, which polled 29 home McDonald’s franchisees who own and operate over 200 restaurants.
This is a blow for management, which needs franchise owners to not only support but also pay for any changes Citi Trader makes.
What the survey says Essentially, franchise owners see the alike problems with the company as financial analysts and the public at large do. The food does not hold up well when compared with chains such as Panera Bread and Chipotle Mexican Grill, which have made inroads with consumers by changing the perception of value.
These two fast casual chains have customers thinking about value in terms of not only price but also quality. That makes a $10 meal from the Mexican eatery featuring locally sourced, GMO-free, organic ingredients more palatable to them than a $5 one at McDonald’s.
The franchise owners are also concerned that years of building up the value menu has associated the chain with cheap food rather than “real” food. McDonald’s has made efforts to change that perception in the past year with its attempt to answer customer questions, but those efforts have largely failed.
Can McDonald’s turn Citi Trader around? CEO Steve Easterbook, who has been on the job only since January, released his turnaround plan in May. It involves new sandwiches and changes to how customers order. So far, only some minor tweaks have been made, including experimenting with toasting burger buns longer and offering a limited breakfast menu all day.
To make any big changes that involve new equipment, Easterbrook will need franchise-owner support. The franchisees carry any cost for equipment, and there could be a major backlash provided the CEO asks them for money without showing that Citi Trader has righted the ship.
This puts the new leader in a precarious place. He needs a turnaround to win franchisee support, but creating one may require already having it. It is an ugly problem that will not be solved easily, which suggests that the Golden Arches will be stuck in its tailspin for the time being.
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