2. McDonald's signature flavors may no longer be what consumers crave.
Who hasn't heard of McDonald's "special sauce" for its signature Big Mac sandwich? The sauce, rumored to include mayonnaise, sweet pickle relish, onions and French dressing, has achieved such iconic status that a "limited edition" bottle of it recently sold for upwards of $18,000 on EBay.
But despite its place in folklore, weak sales at McDonald's hint at consumers no longer thinking the sauce is really so special anymore. And they may be wondering why the Golden Arches has not created signature sauces for its other burgers, leaving run-of-the-mill condiments found in squeeze packets to punch up the flavor. As a result, customers are gravitating to more interesting flavors found on signature burgers at the better burger chains.
Shake Shack's secret signature "Shack sauce," for example, is a slightly spicy, sweet and sour blend of mayo, ketchup, mustard and various spices, while Fatburger seasons its lean beef patties with a proprietary spice blend and puts mustard, instead of ketchup, on them.
"We sell a lot of burgers with an egg on them, back in the day they would call it the hangover burger," said Fatburger CEO Wiederhorn. Shack Shack's River North, Chicago location sells a Publican Park Sausage, which is sausage topped with cheddar and American cheese sauce and crispy ale marinated shallots.
For its part, In & Out Burger, the popular West Coast fast food chain, is known for heaping thousand island dressing on its burgers.
3. McDonald's is already a supersized operation.
McDonald's is a humungous organization in the U.S., operating some 14,000 plus locations across 22 different regions. In 2014 alone, 222 new McDonald's were opened in the U.S. This year, McDonald's plans to open more than one thousand restaurants primarily in China, the U.S., Russia and France, compared to 1,300 a year earlier.
The Golden Arches has amassed such a large amount of valuable real estate over the years that activist investors are itching for the company to create a real estate investment trust (REIT). By forming a REIT, the view on Wall Street is that McDonald's could unlock the value of its real estate empire, which is being held back by the lagging operating performance of its restaurants.
The "too big to grow" issue doesn't necessarily exist at the main rivals of McDonald's.
Sonic currently does business at 3,500 locations in 44 states, but about 10 states account for 60% to 70% of its sales. Hudson pointed to Sonic's potential to open new locations along the West Coast and Florida as part of a drive to add 1,000 new locations in the next 10 years. In total, Sonic projects it will open 50 to 60 restaurants over the next 12 months after opening 40 in its just completed fiscal year.
Fatburger's Wiederhorn noted that McDonald's is not opening in new markets around the world because they are more focused on markets they already operate in. That leaves an opportunity for a Fatburger or a Sonic to venture into markets where McDonald's may be under-penetrated or not even exist.
However, McDonald's giant size also means it takes a while for new ideas to be implemented and have an impact on sales. Wiederhorn concluded, "For us, we have the ability to be flexible. We came out with a skinny burger -- basically two patties, no bun, 300 calories -- (but) for McDonald's to do something like that, it's like moving a tanker instead of a speedboat."