After many stumbles, McDonald's takes a small step forward
McDonald鈥檚 Q3 results, announced today, show solid global growth and a slight improvement for the U.S., where same-store sales were up 0.9%. Yes, a 2% pricing increase more than covers that gain, and it鈥檚 true that the U.S. was the only region to report negative growth in customers counts. And indeed, these numbers lap a weak Q3 2014 when U.S. comps bottomed at -3.3%. But no matter what else factors in, this wasn鈥檛 another negative quarter; it was the first positive U.S. quarter since a similar 0.9% gain reported in Q3 2013. And even this small a turnaround sign is a breather for a brand that has been awash in negatives.
The most important change is that 鈥渨e鈥檙e running better restaurants than we were a year ago,鈥� said CEO Steve Easterbrook. Order accuracy and service speed at the drive-thru (source of 70% of its sales) have improved, he said.
Global comparable聽聽rose 4% as a result of positive comparable sales in all segments. The company now reports results for the market categories into which CEO Steve Easterbrook has divided the McDonald鈥檚 system. The聽U.S.聽(40% of operating income) is its own category. The聽International Lead Markets聽category (Australia, Canada, France, Germany, and the UK) saw a Q3 same-store sales increase of 4.6%.聽The High Growth Markets聽category (China, Italy, Poland, Russia, South Korea, Spain, Switzerland, and the Netherlands) validated its name with an 8.9% gain in same-store sales. The remaining 100 countries constitute the聽Foundational Markets, which also showed positive growth.
Easterbrook tried hard not to oversell the results. 鈥淲hile still in the early stages, we believe our turnaround plan is starting to generate the change needed to reposition McDonald鈥檚 as a modern, progressive burger company,鈥� he told analysts. He attributed the Q3 improvement in part to the launch of聽Buttermilk Crispy Chicken聽(on the heels of Artisan Chicken) and a return to the 鈥渙riginal鈥澛�Egg McMuffin聽prep using butter rather than margarine.
The latter may seem a small improvement that consumers might not notice, but Easterbrook said McMuffins 鈥渟aw a double-digit increase in sales immediately following the announcement.鈥�
Additionally, I鈥檒l speculate that the chatter through September about the coming all-day breakfast launch helped sales in Q3, which the company said ended stronger than it began. As reported earlier, YouGov BrandIndex聽聽did show improving brand perceptions in September.
Analysts tried several different ways to ask Easterbrook to quantify sales results for the two-week-old聽all-day breakfast聽initiative. On each repetition, Easterbrook said it was too early to say because sales started very strong: what鈥檚 important is where sales level off. But despite tabloid headlines hinting at franchisee revolt, he said 98% of franchisees approved the rollout and 鈥渋t has gone a lot smoother than perhaps people feared.鈥� The initiative has 鈥渂road appeal,鈥� attracting new customers, and it has had 鈥渁 strong start from an execution aspect.鈥�
One analyst asked about whether the 鈥淪ummer Lovin鈥欌�� promotion worked (Easterbrook said it bumped into too many local discount initiatives initially but gained traction). But no analysts asked specifically about a聽鈥淧ick 2鈥�聽value initiative that Nation鈥檚 Restaurant News聽will be voted on soon by franchisees. The platform likely would involve choosing two budget items for $2.
Easterbrook did say McDonald鈥檚 will have a 鈥渕ore sustained value platform in 2016鈥� to replace its current hodgepodge of value offers. Some markets are offering a selection of $5 Value Menu bundles. In Chicago the chain has taken a cue from Burger King with a 鈥�2 for $5鈥� offer that includes several all-day breakfast items (Hot Cakes with Sausage, Sausage McMuffin with Egg and Egg McMuffin) along with 10-piece McNuggets, Big Mac and Filet-O-Fish.
Despite McDonald鈥檚 commitment to reinvigorate the value tier, it鈥檚 worth noting that the strongest markets all added new聽premium聽sandwiches in Q3. Among International Lead Markets, these included the Create Your Taste rollout and Grand Royal Chilli in Australia; Grand Angus in Canada; Grand Premium in France; Bacon Clubhouse Beef/Chicken and McB organic burger in Germany; and the BBQ Smokehouse and Great Tastes of the World burgers in the UK.
Easterbrook鈥檚 overall message was that accelerating this turnaround will require 鈥渄elivering on what customers want now and laying the foundation for what they expect tomorrow.鈥� He promised 鈥渇ewer [but] bigger initiatives鈥� to improve customer experience and unit economics.
This article first appeared in
