Even an all-day breakfast can’t fix everything. McDonald’s announced its second-quarter earnings on Tuesday, reporting that its revenue dropped by 4% to $6.26bn as the burger giant’s turnaround efforts stumbled both at home and abroad in the face of growing uncertainty among consumer.
McDonald’s announced the fourth consecutive quarter of positive same-store sales across all of McDonald’s business segments but investors were disappointed that growth appeared to be slowing.
British-born chief executive Steve Easterbrook said global uncertainty had dampened consumers’ appetites. The latest quarter included the run up to the UK’s exit from the European Union, known as Brexit, and an increasingly hostile election campaign in the US.
“There is a broader level of uncertainty in consumer’s minds at the moment both trying to gauge their financial security going forward whether through elections or through global events people are certainly mindful of an unsettled world,” said Easterbrook. Uncertainly causes people to hold back on spending, he added.
For the quarter ending on 30 June, same-store sales for US stores opened for at least 13 months were up by just 1.8%. Analysts expected growth of 3.4%. Global sales rose by 3.1%, below the 3.6% expected by the analysts.
“Our second-quarter performance, which marks our fourth consecutive quarter of positive comparable sales across all business segments, provides a clear indication that customers are responding to the steps we’re taking to deliver the menu and value options they want at the convenience of McDonald’s,” Easterbrook said on Tuesday.
Easterbrook noted that the company was making “steady progress” in its transformation as it entered the 15th month of its turnaround plan, which was unveiled in May of last year.
Parts of that plan, the All Day Breakfast and McPick 2, which allows customers to select two items from its McPick menu for $5, continued to contribute to sales growth, the company said.
McDonald’s has doubled down on its All Day Breakfast strategy. Come autumn, its All Day Breakfast menu will include three new breakfast items: biscuits, McMuffins and McGriddles.
McDonald’s is also refreshing its partnerships and promotions offers to engage customer, said Easterbrook. A good example of that, he said, is the company’s partnership with mobile game phenomena Pokémon Go in Japan. As part of the promotion, McDonald’s 3,000 restaurants in Japan will be turned into Pokémon gyms – where players can train their virtual pets.
The fastfood company was the first corporate partner to sign up with Pokémon Go. “Clearly, we are a preferred partner,” said Easterbrook. “It’s been a fun program, it’s been great for the business.”
As part of its turnaround plan, McDonald’s is also planning to relocate its global headquarters from suburban Chicago to the city’s downtown area. The move was announced last month and is expected to be completed by spring 2018.
McDonald’s is also in the process of selling about 3,500 of its 36,000 restaurants. By 2018, about 90% of McDonald’s restaurants should be franchised, Easterbrook announced last year.
“I will not shy away from the urgent need to reset this business,” he said when he took over in January 2015.
These efforts to restructure McDonald’s do not come without costs. The second quarter’s operating income included about $230m in charges related to company’s relocation and refranchising plans.
Some have raised concerns that in its effort to become a leaner and more profitable company, McDonald’s might seek to eliminate some jobs and replace its workers with machines. The debate about whether robots could replace fast-food workers has become even more heated amid a years-long push by workers to increase the US minimum wage to $15 an hour.
Speaking at this year’s shareholder meeting in May, Easterbrook said that McDonald’s “will always have an important human element” and that any automation would just be another way for the company to focus on its customer service and “better dining area experience.
“I don’t see it as being a risk to job elimination,” he said at the time. “It might change the nature of the jobs in our restaurants.”
On Tuesday, Easterbrook noted that the company continues to look to technology to make visiting McDonald’s a “smoother, more enjoyable and easier experience”. Technology has been especially helpful in streamlining McDonald’s drive-through operations, he said.
“Once you get your accuracy right, then the whole drive through lane just operates far smoother,” Easterbrook explained. To improve its drive-through operations, McDonald’s has simplified its menu boards and even changed font size on the order receipts. The company will continue to let technology “do some of the heavy lifting” in improving of its processes “whether it’s voice recognition in the drive through speakers all the way to ordering ahead via the internet or the app”.
McDonald’s shares were down 5% after the announcement.