Value promos take off for McDonald's
Oct. 26, 2017
by Monica Watrous
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McDonald's is positioning itself to play in premium with its Signature Crafted Sandwich line.
OAK BROOK, Ill. — McDonald’s Corp. is selling more food to more people, a sign the quick-service restaurant company’s recent value promotions and premium menu innovation are taking hold, executives said on Oct. 24.
Net income in the third quarter ended Sept. 30 totaled $1,883.7 million, equal to $2.32 per share on the common stock, up 48 percent from $1,275.4 million, or $1.50 per share, in the year-ago period. Revenues of $5,754.6 million were down 10 percent from $6,424.1 million. The decline was due to the impact of the company’s refranchising initiative.
Global comparable sales increased 6 percent, reflecting higher guest counts across all segments. In the United States, comparable sales increased 4.1 percent in the quarter, driven by value promotions and a new premium sandwich platform, saidChristopher J. Kempczinski, president of McDonald’s USA.
|Christopher Kempczinksi, president of McDonald's USA
“First, we offered compelling, consistent value programs across a number of tactics that clearly resonated with our customers,” Kempczinski said during a conference call with investment analysts. “We continued our $1 any size soft drinks program and supplemented it with the return of McPick 2 for $5 that offered some exciting food deals. We're also starting to get real traction with the targeted mobile offers via our app that are tailored to customers' unique buying preferences.
“Second, we've been able to capitalize on this increased traffic in our restaurants with menu news that drove customers to trade up to premium, higher-margin products. In Q2, we launched our Signature Crafted sandwich line available either in beef or chicken with three flavor combinations, pico guacamole, sweet barbecue bacon and maple bacon dijon.”
During the quarter, McDonald's added a new sriracha flavor to the Signature Crafted line.
During the quarter, McDonald’s added a new sriracha flavor to the Signature Crafted line and reintroduced the McCafé coffee platform in the US market, he said.
“This meant a new, or modern look to the McCafé brand and new choices, including the reintroduction of our McCafé espresso line after a significant equipment upgrade across our system,” Kempczinski said. “The McCafé espresso products performed very well, reaffirming our system’s confidence that McCafé can be a significant growth platform for us in the future.
“As we’ve seen with both Signature Crafted and McCafé, when we improve the taste and quality of our products to meet customers’ rising expectations, they reward us with more business.”
McDonald's recently revamped its McCafé brand and added espresso beverages.
By the end of the year, the company expects to roll out mobile order and pay to all US restaurants and to offer delivery at 5,000 US restaurants.
“We’re learning a lot about delivery and seeing particular success in dense urban metros with high penetration of younger customers like New York, Boston, Miami and Los Angeles,” Kempczinski said. “I truly believe we’re just beginning to scratch the surface on this opportunity.”
Looking ahead, McDonald’s plans to launch a national value platform strategy early next year.
McDonald's plans to launch a national value platform strategy early next year.
“One of the things that we have said to our franchisees in the US is we don’t have to win on value, but we can’t lose on value,” Kempczinski said. “And that means we have to be competitive with our investments against the value program. And I think also, it’s no surprise that over the last, call it, three or four years since we rolled off Dollar Menu, we weren’t as competitive as we needed to be on value.
“And so what you’re going to see from us next year is us being really fully competitive with our nearing competitors with the value program there … our value program is going to be focused on $1, $2 and $3 price points for an everyday value piece of it. And then there will also be deals that we’ll pulse in and out throughout the year as a result of that.
“When you talk about the investment that is being asked of owner/operators, one of the things that we talked about is that this plan has to be looked at holistically. And so while there is an investment that’s being made on the value side, there are also some significant efficiencies that are being captured on the other side around, particularly, marketing and efficiencies that we’re getting there, efficiencies that we’re getting at the restaurant level. And so when you look at all of it on a blended basis, we think that this is a balanced plan.”
By the end of the year, McDonald's expects to rollo out mobile order and pay to all US restaurants.
McDonald’s announcement of positive comparable sales indicates the company’s various initiatives are resonating well with consumers in a highly competitive market, said Bill Fahy, senior credit officer, Moody’s Investors Services.
“Overall, positive same store sales is a credit positive, and we believe operating performance will benefit from the company’s various initiatives that place greater emphasis on addressing the requirements of its core customers and recapturing lost visits as well as enticing casual visitors to become more engaged with the brand,” Fahy said. “However, earnings growth could be challenging as intense competition from both traditional and non-traditional food providers increase, labor cost pressures grow and challenging economic conditions around the world persist.”