Changes help McDonald’s overcome slump
Chain posts surprisingly strong gain in sales
A revamp of McDonald’s iconic Big Mac hamburger and more aggressive drink promotions are helping the restaurant giant overcome a broader slump in the fast-food industry.
The chain posted a surprisingly strong gain in same-store sales last quarter, with the measure growing four per cent globally. Analysts had estimated a 1.3 per cent rise. Earnings also topped projections.
The results suggest that chief executive officer Steve Easterbrook got a payoff from efforts to overhaul the company’s menu. He rolled out different sizes of the Big Mac and offered $1 and $2 drink deals, a bid to attract customers in a cutthroat U.S. restaurant environment. A switch to all-day breakfast in the U.S. in 2015 also continues to fuel sales.
“U.S. sales showed a nice acceleration in the quarter,” said Michael Halen, an analyst at Bloomberg Intelligence. “They’ve made a lot of positive changes over the last two years, and all of these positive changes are starting to add up.”
The Big Mac strategy represents a case of getting playful with a wellknown product and not irking customers in the process. PepsiCo wasn’t so fortunate when it reformulated Diet Pepsi in 2015, a move that led to a consumer backlash. And Coca-Cola’s launch of “New Coke” in 1985 is considered a legendary failure.
McDonald’s now serves the Big Mac in three sizes: the traditional version, a larger Grand Mac and a smaller Mac Jr.
U.S. same-store sales rose 1.7 per cent last quarter, an unexpected gain. Analysts projected a 0.8 per cent drop.
Earnings amounted to $1.47 a share in the period, handily beating the $1.34 estimate of analysts.
The company also is looking to delivery services and more digital options to help attract diners. It hasn’t been easy. U.S. competitors are advertising steeply discounted food, along with new fare. Industry same-store sales fell 0.6 per cent in March, slipping for the fourth straight month, according to Miller-Pulse data.
McDonald’s also performed well in overseas markets, which provide about two-thirds of revenue. Samestore sales at its high-growth division rose 3.8 per cent, topping the 2.7 per cent estimate. That segment includes China, where the chain is opening locations to compete with Yum China Holdings Inc.’s KFC and Pizza Hut.