McDonald’s Corporation (MCD): We Can Save It by Killing Grimace

Grimace may be one of the endearing McDonaldland characters, but too many grimacing employees at McDonald’s Corporation (NYSE:MCD) may also be the undoing of the world’s largest restaurant operator.

Mickey D’s posted uninspiring quarterly results on Friday. Earnings fell short of Wall Street expectations for the third consecutive quarter. Comps were negative. Revenue, operating income, and profitability were essentially flat.

The first three months of the year haven’t been great for chains in general. Even market darling Chipotle Mexican Grill, Inc. (NYSE:CMG) clocked in with a surprisingly mortal 1% increase in same-store sales. Yes, comps at the ballyhooed burrito roller failed to keep up with inflation.

There’s an argument to be made that restaurant operators are struggling since payroll tax rates moved higher in January after a two-year break, but Mickey D’s saw its comps turn negative in October of last year, months before paychecks got slightly smaller.

But let’s get back to that first point. Before the stock tumbled late last year, monthly comps had been consistently positive since 2003, and there’s a reason to believe that surly hires may be at the root of the problem.

The Wall Street Journal recently reported that executives are concerned about a growing number of customer complaints. McDonald’s reportedly alerted franchisees during a webcast last month that the number of gripes calling out rude or unprofessional employees is increasing.

I argued that the chain’s expanding menu could be the culprit, suggesting that fancy beverages and exotic menu variations could be confusing customers, slowing down service, and resulting in more messed-up orders.

Unhappy customers probably wouldn’t be such a big deal if business was booming, but clearly there’s a problem if global revenue climbed a mere 1% and operating income fell 1% in Friday’s quarterly report.

Tastes change, and McDonald’s Corporation (NYSE:MCD) may have thrived with positive comps during the recession simply because it was a reliably cheap place to eat. Now that the economy’s improving to the point where patrons are trading up from the Mickey D’s drive-through, the fast-food behemoth may be trying too hard to woo customers with mango pineapple smoothies and frappe mochas.