Investors aren't sold on plans to introduce new McNugget flavors, and an analyst recently noted that McDonald's has struggled to break through on chicken-related innovation
McDonald's stock was down more than 5% Wednesday.
McDonald's on Wednesday said it will make the biggest menu upgrade in its history to win diners back, with an overhaul that includes new chicken sandwiches and fresher coffee.
The move is part of an $8.5 billion effort over the next 10 years that also includes restaurant refreshes and a deeper embrace of artificial intelligence, amid what management expects to be a tougher restaurant-industry backdrop going forward.
"We expect industry traffic growth in our wholly owned markets will be flat, while inflation remains elevated," CEO Chris Kempczinski said at McDonald's (MCD) investor day. "For McDonald's to succeed in that environment, growth must come from capturing greater share."
But the plans appeared to worry investors. Shares of McDonald's slid more than 5% on Wednesday, making the stock the worst performer in the Dow Jones Industrial Average DJIA.
Much of McDonald's plans to capture more consumer spending focus on chicken - including new flavors of Chicken McNuggets, new chicken sandwiches, wings and wraps, and hand-breaded chicken. The company estimated that its $30 billion-plus global chicken business was already an industry leader in most of its biggest markets.
Smaller improvements - like adjusting the amount of oil used to fry chicken and tweaking other fryer settings - would go a long way across its nearly 40,000 worldwide restaurants, executives said. Some fast-food customers over this year have opted for chicken tenders and sandwiches after beef prices ran higher.
McDonald's on Wednesday also said it would roll out bigger burgers, adding that it was exploring fresh Quarter Pounders and hot-off-the-grill preparation in more areas. Furthermore, the chain will expand its beverage selection, introducing fresher coffee beans, new espresso machines and dairy alternatives.
And McDonald's restaurants will be getting a makeover. Along with new play areas and dining rooms, the refreshed layouts will feature open kitchens and visible McCafe beverage preparation areas intended to "strengthen customer perception of great taste and quality," said Jill McDonald, the company's global chief restaurant-experience officer. Things like new delivery lockers, she said, will make it easier for restaurants to handle digital orders.
The company continues to test AI and is using the technology to take drive-through orders in English and Spanish, with accuracy of above 90%. AI is also helping to automate inventory tracking and improve order accuracy, executives said.
McDonald's announced the plans amid a more than 22% drop in its stock price so far this year. The stock was trading at around $237 a share, at last check - well off highs of around $341 reached in February.
The chain, like its rivals, has struggled with higher costs and customers who have been wary of higher menu prices. Fast-food chains have discounted aggressively in an effort to reclaim those customers. Over the summer, the restaurant industry also contended with a cyclospora outbreak that made more consumers squeamish about ordering things like salads.
McDonald's last month said too many promotions at once - along with changes to its McValue discount platform - led to complications for restaurant workers and questions from customers. The company said then that U.S. same-store sales were "slightly negative" in July.
BTIG analyst Peter Saleh, in a research note last week, acknowledged that McDonald's sales had been under pressure.
He said the stock appeared to be "excessively cheap," but noted that McDonald's efforts to boost its fried-chicken business over the years hadn't always worked out. Offerings like last year's McCrispy chicken strips had flopped, Saleh added.
"Over the years, McDonald's has tried multiple iterations for chicken and strips, opting for different seasoning, cuts and sauces, all with little success," he said.
But as fried-chicken deals proliferate among its rivals, Saleh said that McDonald's is now stuck in a "game of chicken," with "no choice but to play."
-Bill Peters
Comments