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McDonald's remains focused on growth
11/13/09 - Christa Hoyland
McDonald's Corp. expects to continue to drive growth in sales, market share and returns through a strategic focus on its customers and restaurants, the company's CEO Jim Skinner announced at McDonald's investor meeting Thursday. Skinner and members of senior management outlined the company's priorities under its successful Plan to Win, including plans to open about 1,000 new restaurants and reimage 2,300 existing locations worldwide in 2010.
"Over the last seven years, we have stayed committed to the Plan to Win and our focus on being better, not just bigger. This focus has delivered results as we have consistently exceeded our growth targets," Skinner said in a news release.
McDonald's constant currency growth targets include:
- Average annual sales growth of 3 percent to 5 percent
- Average annual operating income growth of 6 percent to 7 percent
- Return on incremental invested capital in the high teens
"These targets have aligned our system behind growing sales and profitability to generate strong returns," Skinner said. "They are realistic and sustainable for a company our size and keep us focused on making the best decisions for the long term."
Chief operating officer Ralph Alvarez said that McDonald's will continue to emphasize service enhancements, restaurant reimaging and menu innovation as part of its goal to extend its relevance. "With service, we will leverage technology to make it easier for managers and crew to quickly and accurately serve the customer. To enhance brand perceptions and drive higher sales and returns, we're accelerating our interior and exterior reimaging efforts around the world. And we are innovating at every tier of our menu to sustain our momentum and create excitement for our customers."
Skinner concluded, "Today's market conditions have accentuated our strengths. The time is ideal for us to further differentiate our brand and grow market share. We are determined to keep stretching our business, increasing traffic and becoming more relevant to a growing number of customers around the world."
Challenges ahead
Achieving the company's goals will not be without challenges, particularly as domestic high unemployment continues, especially in the 18-to-34-year-old demographic.
McDonald's chief financial officer Pete Bensen said at the investors meeting that the company's preliminary 2010 outlook is for its overall basket of goods cost to be relatively flat in the United States and Europe. In addition, the company said that currency translation is expected to benefit 2010 earnings per share by 10 to 13 cents based on current exchange rates.
"We continue to achieve returns on incremental invested capital that are significantly above our high-teens target, enabling further reinvestment in our business. Our future opportunities are significant and, given our strong competitive position, we are increasing capital expenditures in 2010 to $2.4 billion for strategic brand differentiating investments, like reimaging.
"Earlier this week, the company reported U.S. same-store sales were essentially flat for October. The NPD Group has reported that restaurant traffic was down 3 percent overall for the three months ending in August.
To combat weaker sales, McDonald's is considering extending the breakfast dollar menu under test in Chicago nationwide for the first six months of 2010. Executives told investors at the Thursday meeting that the plan has cleared some hurdles but has not yet been approved, according to a story by Reuters.
The company also faces challenges as competitors ramp up their advertising and discounts to grab market share. Burger King is not only offering a $1 Double Cheeseburger but touting it as a better tasting value compared to McDonald's. Wendy's is knocking on McDonald's with its Real campaign, comparing its made-from-fresh beef patties to McDonald's from-frozen ones. Smaller chains, from Hardee's and Carl's Jr. to Jack in the Box, have rolled out Big Mac knockoffs.
According to BusinessWeek, McDonald's 26 consecutive quarter of same-store sales are attributable not only to the company's focused Plan to Win, which includes a continual focus on operations improvements, savvy marketing and menu innovations, but in some part to recent menu increases.
From BusinessWeek:
The price increases were a response to soaring costs for such ingredients as meat and cheese in 2008. While those costs have eased, McDonald's, like other fast-food chains, has kept its prices steady in an effort to maintain margins. As a result, says one divisional executive for the chain, "We're pricing ourselves out of the market" as consumers continue to pinch pennies.
McDonald's hopes the breakfast dollar menu will boost sales of the highly marketed McCafe espresso-based coffee line, according to the story. Executives have said McCafe sales were contributing to positive comps since the national rollout.
From BusinessWeek:
Despite the hype so far, insiders say McCafé has not been the game-changer McDonald's had anticipated. "They're not lighting the world on fire," says (a) franchisee. The company plans to expand McCafé next summer to include smoothies.
Upcoming communication
McDonald's tentatively plans to release November sales before the market opens on Dec. 8.
McDonald's has more than 32,000 local restaurants in more than 100 countries. About 80 percent of McDonald's restaurants worldwide are owned and operated by franchisees.
