McDonald's close to smaller menu, but investors don't care

McDonald's (MCD) again stressed on Wednesday that locally influenced and simplified menus will be key changes arriving in its stores, while saying a number of items will be going away in weeks as the world's largest publicly traded restaurant chain attempts to reinvent itself.

During a two-hour investor call centered largely on domestic operations, CEO Don Thompson and U.S. president Mike Andres dealt with themes McDonald's has discussed for some time, those being a menu that makes sense in terms of regional preferences and one that's quicker to grasp for patrons, while incorporating new levels of customization with a plan called "Create Your Taste." The idea is to get guest counts, which have been falling, growing again.

In January, the current 16 Extra Value Meals will decline to 11, and eight menu items will be removed. Andres didn't provide specifics, but Reuters later reported changes would include the menu featuring one Quarter Pounder with Cheese, down from four, while certain premium chicken sandwiches and snack wraps would be dropped. "We don't need to have a big menu board to offer variety," he said.

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The menu regularly has been cited as having gotten to where it slows service and confuses customers -- Andres said over 100 items have been added in the last 10 years.

The remarks took place two days after weak November sales results helped send the Oak Brook, Ill., company's stock to its worst day of the year. In the U.S., home to more than 14,000 of McDonald's 35,000 restaurants, comparable sales had their most depressing month in years, down 4.6%.

Investors weren't especially impressed with the presentation, at least initially, as shares of McDonald's lost 1.3% to $90.22. It may have been the hope that, after the bad news Monday, corporate leadership would unveil they're embarking on some enlightened new path. Of course, in addition to being short-sighted, that would have been unrealistic.

Inflation and ingredients

Regardless, the shares were retreating as Thompson and Andres primarily discussed what's already known broadly: Local markets are going to have more say in the menu, customization is important to the company's next phase and technology and service options, including kiosks, mobile payments and table delivery, will be the future.

"We tend to be very risk-averse," Andres said when discussing new products and the pace of McDonald's response to evolving tastes. "We have, I think, the ability to greatly increase speed to market."

Pricing also entered the discussion, and here Andres, a company veteran who left before recently returning, said it was likely McDonald's had too much of a disparity between its entry-level core items and the premium products. Core items such as burgers may have seen too much price inflation, a factor that could have dented perceptions of quality, he said, while Thompson noted it was necessary to have a clear pricing structure that ensured customers believed they were getting good value for their dollars. Stores such as Chipotle (CMG), which McDonald's used to control, have been able to charge higher prices and still boost traffic by convincing diners the overall experience is a better one.

Healthfulness, as is often the case when McDonald's is involved, had time, as well. Thompson and Andres said that while their company and competing fast-food operators regularly are viewed as having few healthy options, they're looking for ways to eliminate certain preservatives and other ingredients in favor of natural alternatives. McDonald's, they said, is helped by the fact that inventory in the stores is turned over quickly -- even as traffic has dropped, these restaurants remain what most would consider busy.

McDonald's already has implemented considerable change, though it hasn't been helped noticeably, considering American stores have seen monthly same-store sales drop in 12 of the last 13 months. It's reworking kitchen operations, remodeling locations and more recently it's brought out a question-and-answer video series on social media to talk up its food.

Still, even with its setbacks, which this year has included a supplier investigation in China that damaged its Asia-Pacific sales, McDonald's remains a company with $90 billion in system sales, high profits, billions of dollars of real estate, a powerful franchise-based revenue stream and a dividend that climbs annually. Investors got accustomed to wins, as its shares went from around $12 in the early 2000s to over $100 a decade later.

The last couple of years have been more challenging for them. The stock reached a record high above $103 earlier this year, but it fell below $90 in October, then got back to even for 2014 at $97 before falling off again. It has issues that have to get resolved. But its believers aren't giving up yet. Although they might still want to see more.