Here's What's Wrong With McDonald's

Brian Sozzi of Belus Capital Advisers wrote an article on TheStreet, detailing what is wrong with McDonald's Corporation (NYSE: MCD).

According to Sozzi, McDonald's is likely to report "sagging" U.S. sales in its first quarter earnings report on Wednesday. The analyst added that the negative trend is likely to continue as the company is moving too slowly to adapt its menu to local preferences to boost sales.

"Nearly 90% of McDonald's 14,000 U.S. restaurants are independently owned and operated under franchise agreements," Sozzi wrote. "To improve its soft U.S. sales, McDonald's has to unleash the operating prowess of those franchisees. One way to achieve that is by opening the door for franchisees to be more creative with their menus based on the preferences of local customers."

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Sozzi spoke with Steve Stratton, a McDonald's franchisee that owns six McDonald's locations in Louisville, Kentucky. He said for the past 30 years, McDonald's has focused its menu efforts on a national audience dictated by the corporate headquarters, which ignores regional trends and preferences.

Stratton continued that only a year ago, McDonald's U.S. President Mike Andres spoke to franchisees to encourage them to develop more local menu items. The "Spirit of Kentucky" burger emerged from the discussions, which consisted of a non-alcoholic bourbon-flavored sauce and thick-cut Applewood smoked bacon.

While Stratton's "bottom-up" approach has resulted in a unique burger for his market, McDonald's may not be participating in similar strategies across the U.S.

"I think there are a lot of people talking -- (but I'm) not sure how much action there is," said Stratton when asked if he was aware of other franchisees working to develop localized menu offerings.

Stratton also added that he has yet to see McDonald's technological tools that will be rolled out along with the "Create Your Taste" initiative, leading Sozzi to describe the relationship between McDonald's head office and its franchise network as "frayed" in recent years.