McDonald’s is doing well enough that Nomura analyst Mark Kalinowski increased to 4.6% from 3.8% his Q1 U.S. same-store sales forecast for the chain. First quarter results will be announced on Friday. While not quite as strong as the 5.7% comp-sales gain in 2015’s Q4, 4.6% would signal that McDonald’s recovery is continuing.
But it’s not enough to keep some McDonald’s from voicing disapproval of the company’s direction and marketing tactics. The short-lived “McPick 2 for $2” deal drew disdain from the 26 U.S. franchisees (out of the more than 3,100 U.S. franchisees operating McDonald’s stores) operating 185 units that Kalinowski interviewed, but McPick 2 for $5 is seen much more favorably. The operators surveyed see Q2 same-store sales growth as slowing to 3.7%.
One operator lamented, “Heavy discounting: McPick 2 for $2 and McPick 2 for $5, coupons with [Buy One Get One] and free medium fry and drink, etc. Average check will go down; food costs will go up.” But another applauds the current business environment : “All Day Breakfast and a generally positive feeling throughout fellow operators and customers.”
What’s good about the McPick value platform? “A least McPick is not the Dollar Menu,” said one operator. “The McPick 2 for $5 ha worked pretty well, I have to admit, even though I dislike food discounts,” said another of the 26 respondents. “It isn’t cheap but it creates a good value for products people actually want and it doesn’t appeal to barrel scrapers. Most 2 for $5 customers I have observed add a fries and a drink.”
The downside? “McPick 2 for $2 was the most devastating promotion to operator cash flow we have run in the past 10 years,” one operator told Kalinowski. “Any McPick 2 for below the $5 mark will only erode our check average and cash flow.”
“With 2 for $2 it was traffic with no profits; 2 for $5 has been better,” was another’s assessment.
Many of the franchisees interviewed expressed displeasure with the continual need to invest in new equipment and technology. One said “improvements” have hurt operations: “The kitchen is impossible with All Day Breakfast. It is killing our people. The corporation has lost their direction, and we are killing our managers and crew members. Instead of simplifying the process, we have made it much harder for our people.”
One frustrated franchisee simply said, “Top management plans are grandiose and need to be real world.”