McDonald’s Sees Strong Results Amid Market Share ‘Street Fight’
The big number from McDonald’s today is 5.7. That’s the striking same-store sales growth the company reported for the second quarter and the best the company has seen in four years. But beyond that number is a lot of context that shows how the QSR giant is evolving in an incredibly competitive market share “street fight.”
The second-quarter results come at the two-and-a-half year mark for the grand Velocity Growth Plan that started in March 2017. The plan is a multi-prong approach to retain customers, regain lapsed customers and convert new guests, especially around coffee and snacks. It also includes a handful of “accelerators,” including digital, delivery and the major update program dubbed Experience of the Future (EOTF).
McDonald’s CEO Steve Easterbrook credited the strategic path for a lot of the good results seen in the second quarter.
“With these efforts, we’re focused on actions that provide the biggest impact to the most customers in the least amount of time, that’s the path to a better McDonald’s,” Easterbrook said during the quarterly earnings call.
He said there has been a lot of work to speed up drive-thru times, keeping guests happy. He said in the U.S., the system has shaved about 15 seconds off order times year over year with some especially competitive operators shedding as much as 40 seconds. That keeps current guests happy. Menu innovation from the popular World Favorite offerings to savvy discounts and new categories like fresh beef encourage new visits for those lapsed or infrequent customers. And the marketing push around breakfast and shoulder-hour snacking has helped convert new customers, as CFO Kevin Ozan said during the call.
“There is more of a focus on what do we do in different day parts, with breakfast being our greatest opportunity to regain those guests,” said Ozan. “If we can get them coming back that would be a huge benefit.”
He also noted a nice bump in Happy Meal business with Disney toys in the box.
As for the accelerators, that’s where a lot of work is happening. The big change continues to be the rollout of EOTF. The company has already completed 1,000 conversions this year, with a target of 2,000 through 2019. About 60 percent of the system has already been converted. And now that these updates are more routine, the negative impact of construction and closing the restaurant has been softened.
“The downtime of the projects is about two to four days better than we were in 2018,” said Easterbrook. “The time to recover the sales, that recovery time is quicker. And the dip during the closure is a little less, so our execution is sharper which builds confidence in operators that it will be a stronger outcome.”
Delivery is getting a lot of attention, too. Recently, the company announced a new partnership with DoorDash to go beyond its Uber Eats delivery operations. DoorDash is in about 200 McDonald's restaurants in and around Houston, and it will roll out to 9,000 restaurants sometime in August.
As for Dynamic Yield, the predictive ordering firm acquired by McDonald’s in March of this year, it seems to be working very well, increasing product mix and ticket size.
“The most rewarding elements, as well as the business results, it makes the manager and crew life easier. The order taking is a little quicker because the technology sells so you don’t have to,” said Easterbrook. “We know the technology works, so we’re going from about 800 to 8,000 in about two weeks time.”
It also works globally, which was a big test over the last quarter. Because many international territories operate with different software and database structure, making sure that could integrate around the world was a key thing to prove.
All this, however, comes at a time of intense market competition that Ozan likened to a “street fight.”
“Strong average check growth from product mix and price growth continues to grow our topline sales,” said Ozan. “Returning to guest count growth remains a top priority in the street fight for market share.”
Of the 5.7 percent same-store sales growth, it was all product mix and price increases.
“Regarding guest counts in the second quarter, I wouldn’t say there is a meaningful change in the guest counts. The actual number was less negative than the first quarter,” said Ozan.
That’s some really brilliant corporate speak for, “traffic is still falling.”
But, because of all the efforts, margins are growing in the U.S., ticking up to 18.1 percent for the quarter at corporate-run locations. And franchisees have seen cash flow grow, “fully covering the decline we saw in 2018,” said Easterbrook.