McDonald's 2013 plans include strong product pipeline

Jan. 23, 2013 | by Alicia Kelso

McDonald's turned in positive global same-store sales of 0.1 percent for Q4, narrowly avoiding its first drop in global comp sales in 10 years.

The company was lifted by a stronger-than-expected U.S. performance thanks in part to the delayed launch of the cult-favorite McRib in December, as well as the decision made by many operators to stay open on Christmas Day.

In the U.S., comp sales were up 0.3 percent, while operating income was relatively flat against strong prior-year results. For the full year, McDonald's U.S. comps were up 2 percent.

Although the company finished in the black, CEO Don Thompson admitted it was a struggle as growth in the informal eating out category was flat or declining around the world.

"2012 was challenging for a number of reasons and we expect that to continue. The focus on customers is critical in this uncertain market. We have adapted our plans to be more aggressive and to ensure long-term value despite pressures of the short-term environment," he said.

Those short-term pressures are expected to affect McDonald's January sales, which Thompson predicted to be negative.

Adapted plans

To navigate the fragile economy, Thompson discussed how McDonald's is adapting its plans to maintain positive momentum. Namely, the company will continue optimizing its menu, modernizing the customer experience and broadening customer accessibility.

"We are going to place a greater emphasis on the drivers that excite our consumers," he said.

For the menu, that means offering value at every price tier. "We have an affordable entry point and will leverage our mid- and higher-tier products to encourage trade up and higher average checks," Thompson added. "We have also intensified our focus on fundamentals, the operations, service leadership, marketing and merchandising."

In 2013, McDonald's will balance its menu pipeline with the soon-to-be-launched Fish McBites, as well as new beef sandwiches, chicken entrées, breakfast items and beverages that are experiencing strong results in test markets.

McDonald's also plans to enhance its advertising support for value in 2013, balancing large-scale food events, value, ongoing entrée news and local activities, according to Thompson.

Beyond the menu and the marketing calendar, McDonald's anticipates expanding hours to broaden accessibility. Currently, about 44 percent of the U.S. system is open 24 hours, while 60 percent of the APMEA system and 26 percent of the European system is open 24 hours.

Other service enhancements include adding more second drive-thru lanes and a continuation of the brand's restaurant remodeling efforts. In the U.S., about 35 percent of the system has completed interiors and exteriors.

Remodeled restaurants are showing strong results, particularly in their second year versus their first year. According to CFO Peter Benson, this is likely because customers are more used to the "relevant and modern" settings and staff has had time to adjust to the new efficiencies such as the dual drive-thru.

Responding to QSR competition

One of McDonald's thorns during 2012 was the increased competitive pressure from Burger King and Wendy's (among other QSRs) particularly as those brands aggressively rolled out new menu and marketing initiatives.

During today's call, however, the mood seemed a bit more optimistic.

"In December, we had a 1.1 percent gap compared to our competition and that is after being slightly negative in October and November. We feel good about our pipeline and it is much more robust than it was at this time last year," said COO Tim Fenton.

That pipeline includes more than 180 products McDonald's can pull from menus globally. The chain has done just that recently, with its recently-introduced Cheddar Bacon Onion burger, which came out of Europe, and its Chicken McBites, which originated in Australia.

"A lot of our items travel quite well," Fenton added.

Outside of the U.S.

During the fourth quarter, Europe's operating income rose 5 percent while comparable sales were down 0.6 percent due to negative comparable guest counts and strong prior year performance. The United Kingdom and Russia were key contributors to the segment's operating income performance for both periods. Emphasis on unique promotional food events, expanded value offerings and the restaurant reimaging effort supported the segment's results.

McDonald's also announced its plans to create 2,500 jobs within its U.K. system this year, which builds on its 3,500 jobs created by the company in 2012.

"The United Kingdom continues to be a bright spot and we're executing premium products that resonate with customers. Across Europe, we're building the capacity of our existing restaurants by extending hours and technology, such as handheld order takers and self-serve kiosks," Thompson said.

The APMEA system was down 1.7 percent for the quarter and up 1.4 percent for the year. Visits declined because of a slow down in eating out behaviors from low consumer confidence, as well as Japan's slow recovery and China's economic slowdown. McDonald's is aiming to drive visits and checks through new convenience initiatives in China, including a new web ordering system for delivery that lowers the cost of operations. This system is already in place in more than 500 hubs.

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Topics: Business Strategy and Profitability , Food & Beverage , Marketing / Branding / Promotion , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with, and has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, and Franchise Asia magazine.
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