Are McDonald’s 38,000 Locations Too Many?

For the full year 2014, McDonald’s reported revenue fell 2% but was flat when currency effects were factored in. Worse, per-share earnings fell 13% to $4.82. Comparable store sales were off 1%. Management said it was hit in every major market. The fourth quarter was no better. Comparable store sales were down 0.9%. Revenue dropped 7% (down 1% in constant currency) and earnings plunged 19% to $1.13 per share. Again, management said the problem was global.

And 2015 will be a challenge. CEO Don Thompson said:

As we begin 2015, we are taking decisive action to regain momentum in sales, guest counts and market share. This involves driving foundational improvements in our major markets and continuing our recovery efforts in markets affected by unusual events. We are accelerating our efforts behind solutions that capitalize on the investments we’re making in our technology and our restaurants to bring McDonald’s Experience of the Future to life for our customers and deliver on our commitment to drive sustained, profitable growth for all stakeholders.

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Rumors spread through the media that the fast-food company would cut menu items in an attempt to serve customer demand. McDonald’s already has said it will enhance its menu with healthier food.

At its core, McDonald’s may have too many locations. The same problem has faced a number of U.S. retailers, whether they are in the food business or not. Falling sales without reducing the number of locations leads to inefficiency at many stores or restaurants.

McDonald’s has over 38,000 locations worldwide, scattered around more than 100 countries. Without being in management at McDonald’s, it is hard to determine revenue per location except on average. However, management already knows that when same-store sales are down 5% or more from 2012 to 2015 or 2016, it is time to make the system more efficient.

Retailer management can cling to locations in expectation of a turnaround. Evidence is that for McDonald’s that will not happen soon.

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