Speaking at the Morgan Stanley Global Consumer Conference Tuesday, McDonald’s Corp. chief executive Don Thompson admitted that the quick-service brand is facing severe economic headwinds, but he expressed confidence that the brand’s continued investments in menu innovation and modernized restaurants would enable growth now and in the future.
He said McDonald’s immediate plans to grow traffic and market share through a dual focus on value and premium menu items would ensure that the chain would serve its guests more often, making them more loyal customers and making each McDonald’s restaurant more profitable.
“Moving forward, our challenge is to learn quicker, to share quicker and to scale quicker,” Thompson said. “We do have the right strategy in place and are making the appropriate adjustments in the near term, however, to be successful in this environment and to be successful in the future.”
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The current environment he referenced includes a slow-growth recovery in the United States, austerity in several key European countries, and decelerating growth in once-hot markets in its Asia/Pacific, Middle East and Africa, or APMEA, division.
“When the economic crisis began in 2008, no one thought the environment would still be as uncertain and as fragile as it is today,” Thompson said. “It has been clear, however, for some time that this operating environment we’re in now is most definitely the new normal.”
Despite reporting its first monthly same-store sales decline in nine years this October McDonald’s is still positioned to achieve all its average annual growth projections, he said. The chain should still hit systemwide sales growth between 3 percent and 5 percent and operating-income growth between 6 percent and 7 percent, he added.
Global menu innovation
Thompson was adamant that opportunity to grow sales and market share remains for McDonald’s, whose 34,000 locations around the world represents less than 10 percent of all meals eaten away from home worldwide. For the rest of the year, all three major divisions would increase their advertising focus toward everyday value.
“When it comes to price-value, our underlying strategy continues to revolve around a high-low approach that provides exceptional value across the menu, beginning with an affordable entry price point,” Thompson said. “Our tiered-menu system is about more than low prices. It’s about good value at the entry, at the midpoint and the premium price points.”
Premium limited-time offers meant to encourage trade-up and build the average check start with local menu innovation but quickly travel the world, he added, citing the Cheddar Bacon Onion sandwich currently offered in the United States, which was a popular European item first.
“Our markets don’t have to invent everything from scratch,” he said. “They pull from a pipeline of more than 160 proven products that have been developed in our local markets and have global potential, particularly in beef, chicken, breakfast and beverages.”
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Other areas of the world are rolling out new items as well, Thompson shared, including products meant for the value and premium ends.
Australia, for example, has driven traffic most of the year with a Loose Change Menu for value-conscious customers, but recently offered two lamb offerings, the Serious Lamb Burger and the Serious Lamb Taster Wrap. China is supplementing its value menus at all three dayparts with Bubble Tea beverages and the Black and White Sandwich lineup. Japan also will reprise its 100-Yen value menu.
In Europe, France rolled out a barbecue variant of its Royale sandwich and increased marketing around its Petit Plaisirs value menu. Thompson also noted Germany’s rollout of the McDeal Extra Value Menu, which offered combos built around smaller sandwiches for a price slightly lower than traditional value meals. But the complementary move yielded record sales for all value meals in Germany this year, Thompson said.
Several unspecified countries will roll out favorites from the United States, like McCafe blended-ice beverages and large wraps, he added.
Reimaged, relevant restaurants
McDonald’s ongoing quest to modernize its guest experience and broaden accessibility to the brand would continue to yield hundreds of remodels for the next several years, Thompson said.
McDonald’s is on track to reimage more than 2,400 restaurants this year, including more than 800 in the United States, 900 in Europe and 475 in APMEA. Half the chain’s interiors have been remodeled globally, and the brand expects to reach 50 percent for all exteriors in the next few years.
Reimaged restaurants average a sales lift between 6 percent and 7 percent above the local market after one full year, Thompson added.
Fully one-third of McDonald’s restaurants now have multiple order points in their drive-thrus, Thompson said, citing dual-lane drive-thrus or handheld order takers as examples.
More than 1,300 new restaurants will be built this year, he added.
“[The investment program] will never be done,” Thompson said. “We expect that…by the end of 2017 we should be pretty close to all of the assets done that we wanted to have in the first go-round. Having said that, we know that some of our franchisees will continue because some of our markets in Europe began this quite a while ago. They’ll continue to invest, but on a much smaller scale.”
Oak Brook, Ill.-based McDonald’s operates or franchises more than 34,000 restaurants worldwide, including more than 14,000 locations in the United States.
Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN