McDonald's is trying to do too much at once and should stick to the basics (MCD)

pulse

March 18, 2018 5:07 PM

McDonald's is launching several new initiatives, but it should step back and focus on the basics to stay ahead of the curb.

The analyst believes McDonald's should just focus on the basics because that's what consumers have come to love.

McDonald's may be moving too fast by rolling out several new initiatives at once, a Jefferies analyst says.

For big brands like McDonald's, a positive buzz is important for bringing in customers and building a loyal base. In a Jefferies study of social media trends around the brand, consumers rarely talked about McDonald's revamped $1/2/3 value menu, prompting some analysts to go as far as to slam the initiative.

There was also less chatter about its delivery efforts through UberEats and its "Experience of the Future" campaign, the company's plan to upgrade and renovate restaurants to give them a modern touch.

"This is likely a result of MCD executing on many new significant initiatives at the same time, which does present some operational risks," Andy Barish, an analyst at Jefferies, wrote in a note to clients. "But we believe will be overcome with a more nimble organization and franchisee buy-in."

The analyst credited the "back-to-basics" turnaround that McDonald's management has heralded so far, which involves a focus on operations and people. For instance, its introduction of an all-day breakfast menu has helped propel earnings higher, and the company has expanded that offering by recently announcing a $4 breakfast deal.

Another analyst has criticized McDonald's new value menu marketing as having "stolen thunder away from the Big Mac Trio and $1 coffee promotions that were successful in 1Q last year."

Barish said that consumers need time to adjust to the changes. Still, he sees the favorability of the brand growing. "We are comfortable with early receptivity" of the value menu though he maintained that he will need to see "better adoption" in order to drive upside results.

He kept his "Buy" rating on the stock and $200 price target, which is 22% above its current level.

McDonald's stock was trading at $163.14 per share, down 5.84% for the year.

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