Why Stories About Shoddy Service Could Reinvigorate McDonald’s Stock

Fabulous article by the Wall Street Journal’s Julie Jargon today about crummy service at McDonald’s (MCD). Geez, you’re thinking, didn’t the last CEO, Jim Skinner, fix that?

Actually, as anyone who runs a restaurant will tell you, fixing service is a daily job and an eatery staff without a details-obsessed manager will soon run amok. Skinner, taking over as CEO in 2004, slammed on the brakes at McDonald’s, slowing new store openings and instead focusing on service, cleanliness and other basics. In doing so, he pulled off one of the great turnaround in Corporate America, and a stock chart helps tell the story.

MCD Chart

MCD data by YCharts

Skinner has gotten too little attention (with the exception of this Fortune article) for the feat because the business press and others prefer to focus on so-called transformational change, like big acquisitions. Companies that instead grind it out with incremental change – notable examples are Southwest Airlines (LUV), United Parcel (UPS) and Wells Fargo (WFC) – seem dowdy, by comparison. But most acquisitions, studies have shown, don’t work out so well, yet huge wealth is created by companies that annually move the productivity dial just a tad.

Don Thompson became McDonald’s CEO when Skinner retired nearly a year ago, and some wondered weather the departing CEO had wrung all the efficiencies out of the operation. Would Thompson look like poor Jeff Immelt, the General Electric (GE) CEO who followed Jack Welch?

He doesn’t have to. New products and pricing are hugely important in fast food, and thus McDonald’s constantly has to rejigger its offerings to compete against Yum (YUM) and Chipotle (CMG) and others.

MCD Revenue TTM Chart

MCD Revenue TTM data by YCharts

But service counts in a big way, too, leading to repeat customers when it’s good and chasing away once-loyal customers when it’s bad. The biggest upside for McDonald’s is to get more out of its existing operations, including 14,000 U.S. outlets, and greeting patrons with a smile, getting their order right and keeping the joint tidy and clean ain’t nothing. The Journal article reports that Thompson and his crew are pushing for improvements.

MCD Chart

MCD data by YCharts

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com.



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