As McDonald's Sales Slide, Chain Focuses on Value, Coffee

Company Says It Will Also Improve Operations

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McDonald's Corp., the world's largest restaurant chain, posted fourth-quarter profit that was little changed from a year earlier as U.S. same-store sales fell amid shaky consumer confidence and increased competition. But as its sales slide, the chain reaffirmed its marketing focus on coffee and evolving value messaging, along with product-rollout operational improvements.

For the full year, global same-store sales increased 0.2%. For the fourth quarter, global comparable sales decreased 0.1%, with a 1.4% decrease in the U.S. Third-quarter 2013 U.S. same-store sales rose 0.7%. Global same-store sales were up 0.9%. January sales are expected to be relatively flat.

Don Thompson
Don Thompson Credit: McDonald's

McDonald's had a challenging 2013 in the U.S. The chain saw increased competition on the value front, and reworked its 2013 marketing calendar to promote more value and dollar-menu marketing. In October, McDonald's announced its Dollar Menu & More, which gave the chain the flexibility to add pricier items to its value menu -- a move that came after chains like Wendy's revamped its value offering and other competitors like Burger King were heavily promoting value offerings like a 2-for-$5 sandwich deal.

That value competition has been especially fierce on the dollar-menu front. Burger King in November announced it was selling a new barbecue rib sandwich for $1, while Wendy's last month started selling 99-cent spicy chipotle burgers and chicken sandwiches.

"The recent evolution to Dollar Menu & More is intended to drive customer visits by offering greater value and variety while improving restaurant profitability," said CEO Don Thompson. "And today, results are in line with initial expectations."

The company said on its earnings call today that it's working to evolve its value messaging, and is also working to improve the operations and rollout of new products after introducing too many products last year -- including the McWrap -- in quick succession.

Mr. Thompson said that "our U.S. 2013 results fell short of our expectations. We introduced a number of significant new products and limited time offers at a quick pace that challenged more effective restaurant and marketing execution. Our 2014 menu and marketing strategies better balance affordability with core products, new choices and limited-time offers."

McDonald's last year didn't advertise its McRib sandwich nationally, leaving the decision up to franchisees. Instead, it touted new chicken wings, McWraps and coffee flavors.

The company also reiterated its earlier announcement from November that coffee will be a focus this year, especially around breakfast. Mr. Thompson said the company is enhancing the breakfast experience by pairing coffee products with food, adding that additional change is underway for brand strategy to "better resonate with our customers," but did not provide more detail.

The company has more than 34,900 restaurants worldwide and 81 percent of those are franchised. McDonald's plans to open as many as 1,600 new stores this year and remodel more than 1,000.

~~With Bloomberg News~~~

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