McDonald’s challenging US market mitigated by international sales

Strong international sales ensured respectable McDonald’s results in the latest quarter as the fast-food giant encountered challenges in its core US market. Global sales slipped 3 per cent in the three months to December, to US$5.16 billion, although this was largely due to currency translations, without which sales would have been flat. While the company did not break out Asian performance, it said international same-store revenue rose 5.2 per cent.

Same-store sales in the US rose 2.3 per cent, primarily due to increased prices, given foot traffic in stores fell by 2.2 per cent. Global visitor numbers crept up by a mere 0.2 per cent.

Breakfast remains its most challenging category, with the chain struggling to attract diners in the mornings. While that mealtime accounts for about a quarter of its total sales, the breakfast market is experiencing fierce competition among rival chains.

“We’re doing well with average check growth but we really want the customer to come back and more often,” CEO Steve Easterbrook said in an investor presentation about the McDonald’s results.

He said McDonald’s is trying to recover breakfast customers by trialling different price promotions, launching localised advertising campaigns and improving the drive-through service.

More stores, more kiosks

Globally, McDonald’s plans to open a net 750 new stores this year. It will also speed up the rollout of its digital touchscreen ordering systems. Easterbrook says stores with self-ordering kiosks were achieving higher sales than those without.

Commenting on the McDonald’s results, Neil Saunders, MD of GlobalData Retail, said the kiosks and order-by-app services need to be rolled out faster.

“This isn’t just a case of installing and implementing the technology, it is about getting customers to actually use it. Consumers need to be given more incentives to use the new ways of ordering, especially mobile, as many still shun the technology,” said Saunders.

“Longer term, more automation in the kitchen is also critical – something that will be particularly beneficial now McDonald’s menu options are more varied and complex.”

Saunders described the latest McDonald’s results as “reasonable”. But he said a 6.7 per cent decline in operating income suggests that McDonald’s is having to work harder for much slimmer rewards.

“In our view, this does not sit well with the increasing complexity and higher levels of capital expenditure the company is introducing into the business.”

Saunders believes McDonald’s is on the right track. “However, this year will be a more challenging year than last and it will be a balancing act between keeping both customers and franchisees happy.”