Image Source: Food Matters

McDonald’s (MCD) had an absolutely horrible year last year. If it weren’t for the company’s dividend, its 3.2% drop for the year would have been much, much worse. But as the company’s CEO Don Thompson announced its plans to rebound, I was impressed and encouraged. In addition to cutting menu items and getting rid of non-essential ingredients, the fast food giant is rolling out an initiative this year called “Create Your Taste,” giving customers a touch screen that allows them to customize their burgers.

There were not a few naysayers out there saying it wasn’t enough, but I felt like it was the biggest change the company has made to its menu since it introduced breakfast over 40 years ago. And I felt that change could be what the company needed for a full recovery in 2015.

But Then This Happened

McDonald’s issues with Japan started in December when it had to initiate a ration on French fries. The problem arose when union disputes in the US and the Pacific Maritime Association led to a delay in potato imports. McDonald’s responded quickly by flying 1,000 tons of potatoes by air to fill the need, which seemed to quell the tide of angry customers.

But then another food scandal hit as customers began finding foreign objects in their food, such as pieces of plastic in their chicken nuggets and a human tooth one woman found in her fries. In an effort to stop the madness, McDonald’s ordered an investigation at the Thailand plant that manufactured the nuggets, but it was concluded that there was no link between the plant and the plastic. Additionally, McDonald’s had an investigation done in its restaurants, which led to another inconclusive response.

And that’s the worst news McDonald’s could hear. Why? Because if no one knows where the plastic came from, there’s no assurance that it won’t pop up somewhere else in a country where customers have lost their confidence. Unless McDonald’s can get to the bottom of this, it may be difficult to get out of its slump in Asia right now.

4th Quarter Disappointment

McDonald’s took another blow after it released its Q4 2014 numbers last week. Missing on both revenues and earnings, the company saw further contraction of comparable sales (from restaurants opened for at least 13 months) in its top three markets: the United States (down 1.7%), Europe (down 1.1%), and APMEA (down 4.8%).

“We’re acting with a sense of urgency as these steps are critical to addressing current performance and to advancing our longer-term strategies,” said CEO Don Thompson. And that’s exactly what the company needs right now. But while the “Create Your Taste” can help alleviate some of the long-term downward spiral in the United States, it’s going to take a while for it to get there.

Asking For More Time

Based on some recent developments in Asia, the recent earnings report, and a few taps on the brakes by management, it seems as if 2015 will in fact be just as volatile as 2014 was, at least for the first half of the year. Thompson expressed that much in last week’s earnings call, “History tells us that these efforts will take time to resonate, [and therefore] expect continued volatility in the market through most of 2015.” As he put it, “2015 will be a year of regaining momentum globally…. It will take time, especially in larger markets to notice the comprehensive changes that are under way.”

He’s asking for a little more time to let things work through the process, but patience isn’t much of a virtue on Wall Street. As much as I would like to see a turnaround this year, it wouldn’t surprise me if we saw things continue to get much worse before they get better. 

That being said, I still do believe that McDonald’s can save itself from its current predicament. One way to do that is to get ahead of the game on any sort of supplier issue that comes up. It can take pages from Chipotle’s book (CMG) on that one. That would go a long way to foster consumer confidence, which has been waning for far too long.

The company can also benefit from accelerating its decision to pare down the menu and cut unnecessary ingredients from its food products to cut down on wait times and also to really put their money where their mouth is in regards to defending how they make their food and what goes into it. By being more transparent and actually acting on the public’s desire for more quality food, McDonald’s could once again become the world’s darling fast food restaurant. However, it may still be a while before that happens.