McDonald's results confirm Americans like bacon and doughnuts
McDonald’s can thank two of America’s favorite foods, bacon and doughnuts, for helping first-quarter results appear strong despite fewer people visiting the Golden Arches.
McDonald’s cited its “Bacon Event” (bacon is even more exciting when it’s capitalized and it’s offered with a purchase of anything), the value-focused 2 for $5 deal and the introduction of Donut Sticks in reporting strong first-quarter sales at longstanding U.S. restaurants.
McDonald’s U.S. same-store sales rose 4.5 percent, exceeding analysts’ average forecast of 3 percent, according to Consensus Metrix, and a 2.9 percent increase in the same period a year earlier. Global same-store sales were up 5.4 percent, just shy of a 5.5 percent increase posted in the first quarter of 2018. Still, with thousands of restaurant remodels, increased delivery orders and a renewed emphasis on breakfast, McDonald’s continued to see fewer visits in the U.S.
CEO Steve Easterbrook, speaking on a conference call Tuesday, said higher average checks helped cover up the decline in guest counts (aka traffic, aka visits). Guest counts were in line with recent quarters, the company said. In 2018, they fell 2.2 percent. One thing that helps lead to bigger orders is delivery. The average spent per delivery order is 1.5 to 2 times the average spent at a restaurant, Easterbrook pointed out. Plus, as more people begin using those self-order kiosks that keep popping up at restaurants, they also tend to “dwell a little” and that tends to lead to a higher average check, he said. Also, McDonald’s raised prices by 2 percent to help offset the 3 percent increase it saw in commodity costs.
Here are some other takeaways from the first-quarter report.
McDonald’s stays out of plant-based patties for now, while Burger King dives in
Despite the decline in traffic, McDonald’s U.S. same-store sales growth far outpaced results at No. 2 burger chain Burger King, where same-store sales rose a meager 0.4 percent, missing analysts’ average forecast of 1 percent, according to Consensus Metrix.
While the first quarter included several weeks after Burger King’s Super Bowl ad (Andy Warhol starred, in case you’ve forgotten), the quarter ended before its introduction of the plant-based Impossible Whopper. The test run that began April 1 in St. Louis generated more than $6 billion in media impressions, BK said Monday. It’s been such a hit that the home of the Whopper plans to bring the Impossible Whopper to a few more test markets this summer and is preparing for a national launch later in 2019.
When an analyst asked McDonald’s about the plant-based product from a competitor, Easterbrook said the key for McDonald’s is to identify “sustaining consumer trends” and decide that if a trend is indeed sticking around, is there additional complexity to add such a product and is it worth it. So, for now, any plant-based protein product at McDonald’s is in the discussion phase. There may be more to come but there’s “nothing much to say about it at the moment,” Easterbrook said.
Look for even more focus on the drive-thru, especially after McDonald’s bought Dynamic Yield this year to help it change up menu boards based on time of day, weather and which items are trending. The system is already in place at 700 drive-thrus, with thousands more to follow.
Of course, technology is only part of the battle. Staff needs to fill those orders rapidly. So when McDonald’s wanted to speed up the drive-thru, it turned the breakfast rush into a competition among restaurants and service times decreased during the quarter. The winning co-op, Easterbrook said, was Boise/Twin Falls, Idaho.
The breakfast battle is on
McDonald’s admitted months ago that it had to do a better job during breakfast. It remains in a market share fight. Along with Donut Sticks, Easterbrook highlighted the decision to push more local breakfast marketing rather than focusing on national campaigns. That shift in marketing and media buying was made toward the end of 2018 but didn’t go into effect until the latter half of the first quarter.
Others aren’t waiting around. BK is trying to improve its breakfast business with its coffee push. Dunkin’ is now selling two limited-time egg bowls after bringing out its power breakfast sandwich earlier in the year (Dunkin’s first-quarter results are due Thursday.) Plus, Starbucks generated some of its own buzz on Tuesday with the return of the S’mores Frappuccino.