McDonald's Sounds Upbeat, Yet Restaurant Visits Keep Sliding

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McDonald's Egg McMuffin
McDonald's Egg McMuffin Credit: McDonald's

McDonald's Corp. is kicking its overhaul plans into higher gear as it tries to get diners to visit its restaurants more often, particularly in the United States.

McDonald's wrapped up 2016, which CEO Steve Easterbrook dubbed "a year of purposeful change," with sales growth at longstanding international locations. U.S. same-store sales slipped one year after the launch of All Day Breakfast.

While the overall sales gains are promising, McDonald's needs to address the longstanding concern that fewer people are coming to its restaurants. Comparable guest counts, or the number of transactions at longstanding restaurants, fell in 2016 both in the United States and globally for the fourth year in a row.

McDonald's is nearly two years into the turnaround plan spearheaded by Mr. Easterbrook, who became its CEO in March 2015.

"We're now in a position to prioritize initiatives so we can further accelerate our momentum," Mr. Easterbrook said during the company's quarterly conference call Monday.

Lately, McDonald's has pinned some of its hopes in the United States on technology. For example, the company is updating more restaurants to include kiosk ordering. It is testing efforts including ordering and paying ahead and curbside check-in, which allows people who order ahead to bypass its main drive-thru lanes. It has also been promoting its mobile app, which has various offers but does not yet allow everyone to order ahead. The app now has 18 million downloads and more than 11 million registered users, Mr. Easterbrook said. While December brought the greatest contribution to sales via the app that McDonald's has seen to date, "it's noticeable now, but not material," Mr. Easterbrook said. "Clearly, our ambition is to make that a material number."

McDonald's has yet to roll out any massive new marketing pushes with its new U.S. creative agency, Omnicom's We Are Unlimited. Many of the ads the company has been running in recent days focus on value plays such as $1 coffee and $2 small specialty McCafe drinks, or the McPick 2 platform, which offers a rotating choice of two items for a set price.

The value pricing focus shows that McDonald's, like its smaller competitors, is seeing pressure as diners make more food at home and dine out less often. Rival Burger King saw its North American same-store sales decline 0.5% in the third quarter, the latest period it has reported.

To boost sales to more affluent consumers and those looking for new options, McDonald's has started selling larger and smaller sizes in its Big Mac platform, a plan that was announced in 2016. It has also been testing a chicken version of the McGriddles sandwich in some locations, delivery in parts of Florida, and adding bacon to the Big Mac in Canada.

Earlier this month, McDonald's hinted via social media that something new would be coming on Jan. 26. No details of that plan were shared during Monday's call.

For investors, the bigger news day is likely to be March 1. That's when McDonald's will hold an investor day meeting. Topics at the meeting are set to include the company's 2017 financial guidance, longer-term strategies and financial targets, and a look at some of the customer-facing changes the fast feeder is working on.

Overall same-store sales rose 2.7% in the fourth quarter but U.S. same-store sales fell 1.3% after four consecutive quarters in positive territory. McDonald's pegged the U.S. decline largely on the anniversary of the successful launch of All Day Breakfast. Analysts had been anticipating a 1.4% decline in U.S. same-store sales, according to Consensus Metrix.

Profit also came in ahead of analysts' expectations.

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