Could This Little-Known Company Reverse McDonald's Fortunes?

By Markets Fool.com

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For McDonald's investors, 2014 is shaping up to be a year they'd rather forget. As of this writing, the company finds itself down 2% in a year when the greater S&P 500 index is up 13%. And while many of us at The Motley Fool follow Ben Graham and know the share price doesn't always follow the fundamentals in the short term, in McDonald's case this underperformance seems particularly apt.

For proper perspective, McDonald's reported a same-store sales drop of 4.6% in the United States in November, and that's following a 4.1% drop in September. On a global basis, the company reported a 2.2% drop in November that widely disappointed analysts. CEO Don Thompson addressed the company's poor performance by stating, "Today's consumers increasingly demand more choice, convenience, and value; we are working to better deliver against these evolving expectations."

The knock against Thompson's time at McDonald's has been that he's led a company that's been slow to address changes. In recent times, the company has been reactionary rather than setting trends. If you look at recent menu additions -- the failed Mighty Wings, frappes and premium coffee drinks, and premium wraps -- you'll notice they tend to be a way to attempt to compete with other restaurants:Buffalo Wild Wings,Starbucks, andChipotle Mexican Grill, respectively.

However, with the help of little-known firm Piper, McDonald's may have found a more competitive way to deliver on the convenience and value proposition.

Is Ronald texting me?
McDonald's recently paired with technology firm Piper to utilize beacon technology, essentially a location-based communication system that uses Bluetooth. The possibilities are vast, but many retailers see value in the ability to offer tailored ads to nearby shoppers via smartphone and tablet notifications. For McDonald's, this means sending limited offers to hungry travelers near one of its restaurant locations.

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And if the limited pilot is of any indication, this can help McDonald's reverse its poor U.S. performance. 9to5Google reports that Piper stated that "McChicken sales increased 8% and McNuggets increased 7.5% from the previous month" using its proximity-based technology in the Columbus, Ga., area. And, surprise, it appears McDonald's is looking to expand its service to more retail locations after this success.

But even with the beacon technology, McDonald's finds its app behind others when it comes to convenience. Yum! Brands' Taco Bell app does a great job to eliminate any friction associated with ordering a meal by allowing users to preorder a meal to skip the line. For app users, Taco Bell has found a way to make fast food even faster -- only in America, right?

McDonald's with 7.5% growth? Well, no so fast
While the beacon technology portends growth, McDonald's investors shouldn't celebrate just yet. First, this appears to be a very limited rollout; one city does reflect a nationwide response. In addition, I'd like to see the results across multiple products and longer than a four-week period. That said, this points toward McDonald's seeking to lead rather than follow with technology -- a much welcome change for investors.

For consumers, beacon technology brings with it both positives and negatives. On one hand, look for your phone to become the next billboard as you go shopping (if enabled, of course). On the other hand, savvy shoppers should be able to derive better deals from retailers that are better at price discrimination on a one-to-one basis as they incorporate purchase history and other data from consumers.

Many have been bearish on McDonald's performance, myself included, but it's good to see the company lead on beacon technology. In the end, this could revolutionize retail as we know it. Pick up the phone -- it's Ronald on line one!

The article Could This Little-Known Company Reverse McDonald's Fortunes? originally appeared on Fool.com.

Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, McDonald's, and Starbucks and owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.