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McDonald’s sees market share slip at breakfast

McDonald’s sees market share slip at breakfast

New morning items in the works as chain reports strong 3Q same-store sales

Strong international sales, modernized stores and higher check averages boosted same-store sales at McDonald’s despite another challenging quarter in which the chain saw breakfast sales slip.

“The environment remains competitive especially around value and deal offerings,” CFO Kevin Ozan said Wednesday during a third-quarter conference call.

Global same-store sales for the third quarter ended Sept. 30 increased 4.2 percent, beating analysts’ projections of a 3.72 percent increase, according to Reuters.  International markets drove most of the momentum, especially Canada, France, Australia, Japan and Netherlands.

Domestic same-store sales rose 2.4 percent, compared to a 4.1 percent increase for the same quarter last year. The company said comparable-restaurant sales were lifted by increases in average check. Those transactions grew due to menu price increases and sales tied to a mix of products including the new LTO Sweet N’ Spicy Honey BBQ Glazed Tenders, fresh beef Quarter Pounders and new value offerings. 

The new LTO Sweet N’ Spicy Honey BBQ Glazed Tenders

Stores with kiosks are also seeing higher check averages. Delivery is also seeing momentum, too. It now represents as much as 10 percent of sales for restaurants that offer delivery, the company said.

McDonald’s said initiatives to make the brand more relevant are paying off such as its aggressive rollout of its Experience of the Future store update. By the end of the year, the company plans to have 15,000 stores remodeled. Of its nearly 14,000 U.S. units, half will be modernized by the end of the year.

“We’re taking on a really ambitious plan in the U.S.,” CEO Steve Easterbrook said.

Still, he said guest counts remain a challenge for the company, which has seen its market share at breakfast slip. That forced the Chicago-based chain to quickly pivot in early fall by pushing new breakfast deals to its $1 $2 $3 Dollar Menu, introduced in early 2018.

In September, the company added any size McCafé brewed coffee, the Sausage McMuffin and the Sausage Biscuit for $1 at participating restaurants. 

“It’s a market share fight, and our teams are responding,” Easterbrook said of the breakfast battleground.

He said the company has not offered any new food at breakfast in a long time. That, combined with no tailwind when it comes to guest traffic, has left the brand vulnerable. For years, McDonald’s has been the dominant quick-service player at breakfast. But over the last five years, it has been challenged by revamped morning grub menus at Taco Bell and Del Taco.

Later this year, McDonald’s plans to introduce new breakfast items to bring back lapsed customers. Officials on the call didn’t reveal specifics of the new items.

“We’ve got to do better at breakfast,” Easterbrook said.

In other value strategy moves, the company said that the Happy Meal is no longer part of the advertised $1 $2 $3 Dollar Menu, noting that it is still available for $3 at some U.S. restaurants.

Easterbrook also briefly addressed the movement made this month by more than 400 U.S.-based franchisees to form a self-funded alliance to represent their interests. The so-called National Owners Association has stated that they want more control over menu pricing.

Easterbrook said McDonald’s is always “wide open” when it comes to talking to operators on “how we execute a plan.”

“We’ve always had a very proactive positive relationship with our operators,” he said.

Net income fell 13 percent to $1.64 billion, or $2.10 per share, down from $1.88 billion, or $2.32 per share, from the same quarter a year earlier. Revenue decreased 7 percent to nearly $5.4 billion. The decrease was tied to the company’s refranchising strategy.

For the quarter, the company returned $1.7 billion to shareholders through share repurchases and dividends.

“Third quarter results once again demonstrated the global strength of the McDonald's brand and the momentum the company is enjoying,” BTIG analyst Peter Saleh said after the chain released its earnings.

Easterbrook called the company’s overall performance solid.

“In addition to achieving 13 consecutive quarters of positive global comparable sales, we have made substantial progress modernizing restaurants around the world, enhancing hospitality and elevating the experience for the millions of customers we serve every day,” he said in a statement. “We remain confident that our strategy will drive long-term, profitable growth.”  

This year, McDonald’s completed the rollout of fresh, not frozen, beef to its legacy Quarter Pounder sandwich. In September, the chain also went “clean” with its line of seven classic burgers. Those core burgers no longer contain artificial ingredients. 

The company ended the quarter with 13,948 U.S. restaurants, down from 14,063 from the same period a year earlier.

Contact Nancy Luna at [email protected] 

Follow her on Twitter: @FastFoodMaven

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