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McDonald's turned in its Q3 results this morning, including a 0.7 comp sales increase in the U.S. market, and a 0.9 percent comp sales increase globally.
CEO Don Thompson said that while these numbers aren't as high as the company would like, operating income grew 6 percent. McDonald's expects challenging macroeconomic and competitive pressures to continue into Q4.
The Mighty Wings limited time offer fell in line with the company's expectations during the quarter, however they were on the lower end of those expectations, Thompson said. The premium product led to an increase in average check, but the promotion wasn't strong enough to offset lower guest count trends.
"There's a couple of things we can improve on. One, there's still affordability; $1 per wing was still not considered to be the most competitive in the current environment. The flavor profile was slightly spicy for some consumers," Thompson said. "We can address the challenges with spice, or as we look forward, price. We'll see wings again in the U.S. business. It has been successful for us. But it is at a time when the overall environment is a bit softer. It did create trade-up as most of the products that we've introduced have done."
During Q3, McDonald's also accelerated the timing of its Monopoly promotion to increase awareness and encourage trial of recent introductions, including the McWraps and the new Quarter Pounder lineup. Monopoly, Thompson said, drives traffic and builds average check for the company.
Dollar menu changes are also on the horizon. The chain's Dollar Menu is transitioning into a Dollar Menu and More platform, designed to provide value beyond the $1 price point. The lineup will be supported by national advertising and will include options ranging from $1 to $2. Thompson expects these items to generate an average of 13 to 15 percent of total sales, similar to the traditional Dollar Menu.
Having a $2 price point added supports additional margin growth for operators and allows customers a "value ladder," Thompson said, so they have multiple choices based on their discretionary spending.
"We also have a $5 price point, and so there's varying levels of affordability. We still continue to have our Extra Value Meals and premium-based products. We've definitely not forgotten our core, and the core classics. We haven't forgotten the innovative food pipeline. All of those things will play well together as we continue to come up with the most compelling menu offerings and compelling calendar for customers moving forward," he said.
"What needs to change?"
The quarterly results remain relatively flat compared to the company's results in recent years, including through the Recession. Thompson was asked by an analyst what needed to change to improve on these numbers. He replied by saying a continued focus on the customer experience and customer service is necessary, as well as modernizing the brand through reimaging and digital initiatives, and communicating transparency about McDonald's menu items.
"Technology is going to be a big part of our future, particularly digital engagement with consumers. And so you'll hear us and see us talk much more about digital engagement with consumers. The other thing that you'll see change a bit is we are being much stronger relative to communicating about our brand, communicating about our food. Customers want to hear more about transparency. They want to hear about where the food is from," he said.
Other quarterly highlights from the call include:
Europe's operating income grew 8 percent, driven by strong performances in the UK and Russia, as well as France. Germany remains sluggish due to a decline in the informal-eating-out category.
Japan's negative comparable sales and traffic trends continue. To remedy, McDonald's is introducing new products and promotions and focusing more on its value platform to appeal to price-sensitive consumers.
Comp sales in China were down 3.2 percent for the quarter. As a key emerging market, China has significant long term opportunities across our growth priorities, Thompson said.
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