McDonald’s could be nearing its final days, with dire warnings from franchise owners that the popular and omnipresent fast food chain is nearing a crisis that spells its doom.
A survey of franchise owners shows deep displeasure with the direction of CEO Steve Easterbrook, who has instituted full-day breakfast and digital ordering booths in an attempt to extend the restaurant’s audience. Franchise owners seem to disagree with these plans, Business Insider reported, with many saying that the changes are destroying the company’s traditional brand.
“We are in the throes of a deep depression, and nothing is changing,” one franchisee wrote in response to the survey by Nomura analyst Mark Kalinowski. “Probably 30% of operators are insolvent.”
Others more directly attacked Easterbrook’s plan.
“The CEO is sowing the seeds of our demise. We are a quick-serve fast-food restaurant, not a fast casual like Five Guys or Chipotle. The system may be facing its final days.”
Many targeted McDonald’s plan for all-day breakfast, saying it makes kitchen operations difficult and makes the menu more complicated.
“The system is very lost at the moment,” one franchisee wrote. “Our menu boards are still bloated, and we are still trying to be too many things to too many people….Things are broken from the franchisee perspective.”
There are also troubling signs for McDonald’s in the latest earnings report. The report found a decrease in sales, with guest traffic down in all major segments.
Easterbrook tried to temper the news by noting that McDonald’s was still in the midst of implementing its turnaround plan, one introduced in May.
“To position the business for long-term growth, we’ve undergone significant organizational change and are streamlining our global resources to improve our efficiency and effectiveness,” he said. “While our second quarter results were disappointing, we are seeing early signs of momentum.”
Many see the re-organization plan as a response to chains like Five Guys and Chipotle, which are perceived as serving a higher quality of fast food and have been gaining market share against McDonald’s.
“McDonald’s is such an internally focused organization, it’s a situation where you don’t have a fresh perspective coming in,” said John Gordon, a restaurant industry analyst with Pacific Management Consulting Group.
It also difficult to tell how much credence the survey has for all franchises. Kalinowski received responses from 29 franchise owners, covering 226 individual restaurants. Some of the responses were in favor of Easterbrook, at least cautiously.
“I think our leadership is headed in the right direction,” one wrote. “It will take time.”
And despite the difficulties and signs of gloom for McDonald’s, the company’s stock has reached all-time highs. Seeking Alpha analyst Vince Martin explains it’s a bit misleading given the problems the company faces. But Martin adds that there are some other factors moving in the restaurant chain’s favor.
“And there’s another, quieter tailwind coming: lower food costs. Egg prices have moderated after an avian flu-fueled rise (though one wonders if McDonald’s all-day breakfast might increase prices on its own, particularly if demand is sustained). Chicken prices have dropped as well, and falling cattle futures imply potentially lower input costs for beef as well. This is a not-insignificant benefit to margins that could provide a boost to back-half 2015 and 2016 earnings.”
That plan also included an unprecedented contraction. In June, the company announced plans to close more restaurants this year than it opens, the first time its done that since at least 1970, the Associated Press reported. Company spokeswoman Becca Hary said the closings would be “minimal” given the 14,300 locations across the country.
It may be clear soon if McDonald’s is moving forward with its plans or if the signs of gloom from franchise owners is grounded in reality. The company will report its next earnings report on October 22, which will show how well the restaurant chain may have rebounded.
[Image via Instagram/McDonald’s]