McDonald's (MCD) CEO Steve Easterbrook fan club on Wall Street increased last week after the iconic burger chain posted its best quarterly results in nearly four years, thanks to the introduction of all-day breakfast. The company's franchisees, though, aren't ready to celebrate just yet.
Franchisees are the independent business owners that own the vast majority of the more than 35,000 McDonald's restaurants around the world. They've complained for years that McDonald's has treated them poorly, raising their fees as their profits declined.
"The relationship between McDonald's and its franchisees has been a tough one," said Darren Tristano, the president of restaurant industry research and consulting firm Technomic, in an interview.
Some franchisees were hesitant to go along with all-day breakfast, which began last October, given the costs involved. Others are leery about Easterbrook's value menu promotion dubbed "McPick 2," according to franchise consultant Richard Adams.
"The Dollar Menu was first introduced in 2002, and now franchisees are back to selling discounted food at prices that were loss-leaders in 2002," he wrote in an email. "What's 'modern and progressive' about that?"
That's a reference to when Easterbrook became CEO of the Oakbrook, Illinois-based company last year, at which time he vowed to transform the chain into a "modern and progressive" company with a greater emphasis on customer service, long a weakness.
It was with that idea in mind that McDonald's began offering breakfast items after 11 a.m., which consumers had been clamoring for years. The results in the company's latest quarter indicate that it was a risk worth taking, according to Wall Street analysts.
Sales at U.S. restaurants opened at least 13 months rose 5.7 percent in the most recent quarter, nearly double the 2.7 percent growth that analysts expected. It was also the best U.S. same-store sales in more than 15 quarters. Shares of the burger chain have surged more than 32 percent over the past year as investors bet that Easterbrook's turnaround will be successful.
But the company, which didn't respond to a CBS MoneyWatch request for comment, can't afford to rest on its laurels, according to Technomic's Tristano.
"The novelty will likely taper off and flatten in a few quarters, especially when the big advertising push decreases on the subject," wrote Tristano about all-day breakfast, in an email. "As other brands (White Castle) move to all-day breakfast, consumers will find other venues to get products."
Easterbrook's success with all-day breakfast was particularly noteworthy because it took less than six months, and the company has struggled to develop new menu items in recent years. Several product launches, such as Mighty Wings, bombed. Many analysts see still-better times ahead for McDonald's.
"Just to have that level of organization and having everybody on the same page is a breath of fresh air for this company," said R.J. Hottovy, an analyst with Morningstar, in an interview. "This is certainly a positive for (franchisees). However, they are looking for the next thing to help them out."
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