Analysts were delivered a rude shock on Monday (US time) when long-time fast food supremo McDonald's Corporation (NYSE:MCD) reported a 30% fall in profit and acknowledged significant headwinds in most markets.
McDonald's shares fell over 3% on the news that third quarter profit fell to US$1.07 billion from US$1.52 billion last year, and earnings per share fell to US$1.09 a share from US$1.52 last year. Analysts expected US$1.37 a share but most importantly McDonald's management reported that the company was facing headwinds in many of its regions.
The company blamed once-off factors in Asia and Russia, but most concerning was that the company only had itself to blame for falling profits in the US and Europe. Analysts believe that the increased complexity of the McDonald's menu has resulted in longer wait times for customers, which has then pushed the company into direct competition with restaurants in the 'fast casual' category.
Fast Casual
If this trend continued in Australia, one would expect that McDonald's has lost market share to local rivals such as pizza stores owned by Domino's Pizza Enterprises Ltd. (ASX:DMP) and Retail Food Group Limited (ASX:RFG), or even KFC outlets owned by Collins Foods Ltd (ASX:CKF).
Dominos is reporting rapidly improving profits due to a combination of store rollouts, acquisitions, menu improvements and dropping response times between order and delivery. The group is doing this by improving online systems to improve the accuracy of orders and keep employees making pizzas instead of serving customers.
Retail Food Group is in a similar position. Store rollout is constantly boosting profits, while improving systems have decreased costs. Collins Foods meanwhile, is still trying to find ways to improve its struggling Sizzler stores, but the group's KFC franchises really appear to have stuck to the motto 'keep it simple, stupid'.
Keep It Simple
KFC has a far smaller and simpler menu than McDonald's and has limited the focus on healthier foods. The company's menu is quick and easy to produce, reducing the demand on staff and wait time for customers.
The same should be applied to business. If a company is difficult to understand or seen to make the easy things difficult, you should reconsider your investment strategy.
