McDonald's plans to lure customers back

by Monica Watrous
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McDonald's egg mcmuffin
McDonald's recently rolled out a revamped Egg McMuffin, featuring a fresh-cracked egg, butter instead of margarine, improved Canadian bacon and a return to the original English muffin recipe.

OAK BROOK, ILL. — More ingredient changes are coming to McDonald’s menu as part of the fast-food company’s comprehensive plan to win back lapsed consumers in the United States. Recently, the chain rolled out a revamped Egg McMuffin, featuring a fresh-cracked egg, butter instead of margarine, improved Canadian bacon and a return to the original English muffin recipe. Amidst the enhancements to the sandwich, McDonald’s announced a long-term commitment to sourcing cage-free eggs and unveiled the nationwide launch of all-day breakfast in early October.

Mike Andres, president of McDonald's US
Mike Andres, president of McDonald’s USA

“Sales for Egg McMuffin in September were up 21% compared to the in-going period,” said Mike Andres, president of McDonald’s USA, during the company’s investor meeting on Nov. 10. “Equally important is how we timed this ahead of our all-day breakfast launch. So those lapsed users who may be returning to McDonald's to fill their need for breakfast at lunch or dinner are getting the great Egg McMuffin taste that they remember, and they will come back for more.”

Even McDonald’s executives recognize it will take more than an improved Egg McMuffin to reverse several years of traffic declines. The company has a number of initiatives planned for the U.S. market, which represents about a third of McDonald’s global revenue and 40 percent of its system restaurants.

“As we’ve been confronted with the significant headwinds to our business, the foundational change in our way of doing business can be summed up as customer-obsessed and insights-driven,” Andres said. “Customers have redefined quality, service, and value. We can no longer define it for them.”

As part of McDonald’s menu evolution, the company previously committed to sourcing antibiotic-free chicken by 2017 and cage-free eggs over the next decade. Earlier this year, the chain introduced a new grilled chicken filet made with simple ingredients, and a buttermilk crispy chicken sandwich prepared with real buttermilk. McDonald’s also has changed beef-cooking and bun-toasting procedures to produce tastier, juicier hamburgers.

McDonald's crispy buttermilk chicken sandwich
Earlier this year, McDonald's introduced a new buttermilk crispy chicken sandwich prepared with real buttermilk.

“We will continue this type of work already exhibited throughout the year, which is committing to responsible sourcing, simpler ingredients and a committed attitude to give customers more of what they want and less of what they don’t,” Andres said. “In 2016, we will make further enhancements to other core products to ensure that we are meeting or exceeding customer expectations around quality.”

All-day breakfast: So far, so good

Beyond ingredient changes, McDonald’s also hopes to woo new consumers with all-day breakfast, which has “continued to exceed our launch volume expectations” since the Oct. 6 introduction, Andres said.

“We are currently seeing more than 15 percent of food purchases outside the breakfast daypart that include an all-day breakfast menu item,” he said. “The lunch day part is providing the largest impact to the all-day breakfast with promising results also during dinner. Rest-of-day average check is higher among those purchasing an all-day breakfast entree.”

Ahead of the all-day breakfast launch, McDonald’s removed a number of menu items in an effort to simplify operations. In July, the company introduced drive-thru menu boards with half the items to accelerate customer ordering. Next year, McDonald’s will deploy new digital menu boards inside the restaurants to further improve customer interaction.

McDonald's all day breakfast ad
McDonald’s also hopes to woo new consumers with all-day breakfast.

“At the part of this deployment, we will install a robust content management system that will engage the customers with food-show-quality moving pictures, enhanced capabilities that will adjust the menu board based on time of day, and product mix movement,” Andres said. “It can monitor the temperature outside. It will know which products sell better at hotter or colder temperatures, and we’ll promote those products. It will be able to monitor the sales of limited-time-only to ensure that sales match inventory.

“And based on the results in our Canadian market over the past two years, we expect these new digital menu boards and content management system will generate higher average checks and incremental sales in our in-restaurant transactions.”

Customization and value

Another component of McDonald’s growth strategy is personalization. The company currently offers a build-your-own-burger platform in 130 restaurants with plans to tweak and expand the program based on extensive consumer testing.

“For over 60 years, we have dictated the terms of our customer interaction,” Andres said. “Today’s consumer wants more control. They want more choice in how they order. They want to be able to personalize the food that they order. They want to know all about the food that they are eating. They expect functionality, but they also want the experience to be more relational, fun, engaging, and relevant.”

Value also figures into McDonald’s turnaround effort. About a fourth of customer visits are motivated by value, Andres said, and “many of those consumers have been tempted away from McDonald’s by a more consistent value offering by our competition.”

The company is working with franchisees to develop a consistent, predictable and compelling national value platform, he added.

“The new platform will not be tied to a singular price point, but it will enable our customers the opportunity to bundle their own meals to suit their desire, which they have indicated to us is very important to them,” Andres said. “Our overall goal with our value strategy is to first and foremost offer items that our customers want, to allow them to choose while still contributing to restaurant guest traffic and profitability. This growth strategy will be augmented by our digital platform, which allows us to move from transactional relationship with our customers to more purposeful relationship where we understand them on an individual basis. Think of this as mass personalization.”

Underpinning these initiatives is McDonald’s new mobile app, which is now available at more than 13,500 restaurants.

“Our U.S. digital strategy will enable us to enhance the service experience, capture additional demand, and engage with our customers through innovative and personal ways,” Mr. Andres said. “Through the app, we’ll also be able to provide individual value-conscious customers with one-to-one offers targeted specifically to them.”

McDonald's restaurant
McDonald’s has raised its refranchising target from 3,500 restaurants to 4,000 restaurants.

Global turnaround update

In addition to the priorities outlined for McDonald’s U.S. business, the company presented new refranchising and savings targets during the investor meeting. McDonald’s has raised its refranchising target from 3,500 restaurants to 4,000 restaurants, which increases the global franchised percentage from the current 81 percent to about 93 percent by the end of 2015 with a new longer-term goal to become 95% franchised.

The company also has increased its general and administrative savings target to $500 million, reflecting a $200 million increase over the previously announced target. The savings will be realized through refranchising, streamlining across non-customer facing functions and realizing greater efficiencies in the company’s global business services platform. McDonald’s also announced its decision regarding a Real Estate Investment Trust (REIT) spin-off, which the company said it will not pursue at this time.

For 2016, McDonald’s management expects to achieve in constant currency system-wide sales growth of 3 percent to 5 percent and operating income growth of 5 percent to 7 percent, excluding potential charges related to refranchising and cost-savings initiatives.
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