How McDonald’s Is Getting Its Mojo Back

McDelivery Day enters the scene

Author: Andria Cheng

July 25, 2017

There are still consumers who vow that they won’t eat at McDonald’s, but the fast-food giant appears to be pleasing an ever-larger number of palates.

The company on Tuesday reported a better-than-expected Q2 global comparable-sales gain of 6.6%, its eighth straight quarter of positive same-store sales increases. Customer visit counts rose 3%.

In its top market, the US, a center of focus, sales at McDonald’s owned and franchised restaurants operating for at least 13 months rose 3.9%. That’s a sharp contrast with the underwhelming performance in the US restaurant industry, which according to TDn2K’s latest data hasn’t seen one month of positive same-store sales since February 2016 through June this year.

Overseas, the gain was also consistent, and the growth did not rely solely on increases in emerging markets such as China. In fact, the company saw sales and traffic gains in every one of its top nine markets for the first time since 2008, CEO Steve Easterbrook said on the company’s earnings call Tuesday. For instance, Canada saw its highest sales growth in the past five years, he said.

Related Links

Organic Initiative

Organic products: Niche no more

Under Easterbrook, who became CEO in 2015, McDonald’s has moved to respond to consumers’ increased preference for healthier, natural, and environmentally conscious food, including using more cage-free eggs, sustainable beef and a plan to use fresh beef instead of frozen meat for its Quarter Pounder in all US restaurants by mid-2018. This year, menu introductions included a line of customizable Signature Crafted burgers and sandwiches like pico guacamole topping with artisan grilled chicken sandwich, which McDonald’s has credited with driving Q2 demand. In China, a new line of burgers are made with recipes from a Michelin Star chef, he said.

The company also has tuned in to customer demands in other ways. Despite knowing “all-day breakfast” topped its US customers’ wish list, McDonald’s didn’t do anything about it for a long time out of concern that it would be difficult operationally, CFO Kevin Ozan said at an RBC conference in June. McDonald’s finally introduced the All-Day Breakfast Menu in October 2015.

“Historically, at McDonald’s, it was we couldn’t do anything until everything was perfected,” Ozan said. “And so, it would take us a really long time to test it, retest it, go test in another country. By the time we’ve got through our testing, the world had moved on from where we were. So, we’ve gotten to be a little more nimble in moving quicker (and) taking some risks.”

Responding with what consumers want on the menus is just one part of the strategy. After realizing it was losing some customer visits to its fellow quick-service restaurant rivals that were winning value-conscious patrons with aggressive promotions like a 4 for $4 bundled menu deal, McDonald’s has also been more aggressive in rolling out its own offers, including $2 smoothies or blended coffee drinks this year.

“It’s a market share fight,” Easterbrook said.

Then there are also the initiatives that Easterbrook said will count as McDonald’s “competitive advantages.” The company has been remodeling stores, dubbed “Experience of the Future” concepts, to feature things including ordering kiosks that customers can use to personalize their menus. Those restaurants also have freed up some behind-the-counter staff to deliver food to patrons’ tables. Easterbrook said on the call Tuesday that remodeled stores in the US and other markets have seen an immediate sales lift.

The company also is expanding the feature of mobile order and pay, which Easterbrook said has seen higher average transaction, to 20,000 restaurants globally by the end of this year, including 14,000 in the US.

Related Links

Industry Bright Spot

US restaurant delivery sales are projected to outpace industry growth

Meanwhile, as online delivery turns into a bright spot in the US restaurant industry, McDonald’s also has jumped on the bandwagon, partnering with UberEATS to deliver food in test stores in Miami earlier this year. Easterbrook said the company has seen positive feedback and the delivery initiative is being expanded to more than 4,000 restaurants in markets from the US to Australia, on top of some 3,500 restaurants primarily in Asia and the Middle East where McDonald’s already has been delivering food for over 20 years. 

“Delivery illustrates our ambition to redefine convenience for our customers,” he said, adding the move can allow McDonald’s to leverage the fact nearly 75% of the population in its top markets live within three miles of a McDonald’s. He said McDonald’s is seeing average transaction size between 1.5 to two times bigger than the average check.

“We're encouraged by the results we've seen so far with expansion of delivery,” he said. “They give us confidence there's meaningful opportunity with the customers we want to regain. And we've only scratched the surface.”

Indeed, McDonald’s is rolling out aggressive campaign promoting the new offering. It has dubbed Wednesday Global McDelivery Day and is also unveiling a line of McDonald’s themed apparel and accessories. To attract consumer attention, a recent sketch of Jimmy Kimmel Live included that of the comedian and his sidekick Guillermo stranded on an island while Guillermo gets his delivery of McDonald’s fries and Coke via UberEATS.

“These layers are early but could result in sustainability to US share gains” for McDonald’s, said Jefferies analyst Andy Barish.