New Breakfast Products, McWrap Fuel McDonald's Sales Gains

Value Promotion Also Key to Boosting Sales After Period of Decline

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McDonald's in May posted a 2.6% increase in global comparable sales, pinning much of the U.S. sales spike on value promotion, its new McWrap and breakfast, a platform that includes its lower-calorie Egg White Delight McMuffin.

McDonald's McWrap
McDonald's McWrap

The chain reported a 2.4% gain in the U.S., a 2% gain in Europe and a 0.9% increase in the Asia/Pacific, Middle East and Africa region.

McDonald's said that breakfast led the U.S. sales increase, but that a focus on value promotion and chicken products, including the McWrap "demonstrated the U.S.' ongoing focus on strategically expanding its established menu categories of chicken, beef, breakfast and beverages."

The chain gave credit to the U.K., and, to a lesser extent, Russia, for bolstering its European performance, given their summertime promotions featuring premium burgers and specialty menu options. McDonald's across Europe has been focusing on value promotion.

The spike in sales indicates the chain is doing something right, be it rolling out big new products like the McWrap and the Egg White Delight, or luring customers into the stores through dollar-menu marketing, or some combination of those. In April, McDonald's launched its biggest product of the year, the McWrap, which the chain hopes resonates with millennials. It's also experimenting with dayparts, including a test to sell breakfast items after midnight in certain markets.

The sales increase comes after months of decline following the chain's first global comparable sales decline in nearly a decade last fall, and sales had been decelerating since February 2012. In the U.S., the chain quickly retooled its marketing late in 2012 and into 2013 to focus heavily on value in its marketing, and urged franchisees to stay open on Thanksgiving and Christmas -- days that were not traditionally ones in which McDonald's stayed open.

That heavy value promotion didn't appear to help much, at least in the first quarter. The chain's first quarter U.S. same store sales were down. Global comparable sales decreased 1.0% during the first quarter, while U.S. same-store sales dropped 1.2%. At that time, though, most fast-food chains faced an uphill battle, as last year's winter same-store sales were much higher than usual given the unseasonably mild winter.

The aggressive attention placed on value promotion, particularly for its dollar menu and aggressive couponing for new products such as the McWrap, has led to unrest among some franchisees, who are concerned that continued focus on value promotion will eat away at profits.

Aside from the unusually mild winter in 2012, McDOnald's has also cited increased competition from rivals and flagging consumer confidence in Europe, as well as Avian flu concerns in Asia, as reasons for its sales woes.

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