News
McDonald's to put 'pedal to the metal' on value positioning
January 24, 2010
McDonald's will continue its emphasis on value as it expects the challenging economic environment to continue, with January U.S. sales expected to remain flat and positive in other markets, McDonald's CEO James A. Skinner told investors and analysts during the company's fourth quarter earnings call.
"We expect to keep the pedal to the metal, if you will, relative to value everywhere in the world because I don't see much changing," he said.
The company's global same-store sales were up 2.3 percent for the fourth quarter ended Dec. 31, 2009, with all segments reporting positive results. For the year, global comps were up 3.8 percent: U.S. comps were up 2.6 percent, Europe up 5.2 percent, and Asia/Pacificm Middle East and Africa (APMEA) up 3.4 percent.
The chain's new breakfast dollar menu and the new Mac Snack Wrap, which debuted nationwide in January, will be a strong part of that focus. U.S. breakfast sales grew in 2009, "which was not an easy feat considering the fact that we were faced with the unemployment," Skinner said. The company also had very strong prior year numbers to overcome thanks to the strong McSkillet and the Chicken Biscuit introductions. The company expects the dollar menu and its messaging to help breakfast growth in 2010.
Peter Bensen, McDonald's chief financial officer, said on the call that the Mac Snack Wrap is an important component in the company's fight for market share and to maintain its average check. The new offering is "both a transaction driver and also something that can either trade people up from the dollar menu or add on to an extra value meal is a margin enhancer. Both of these highlight our commitment to keep modernizing our menu and provide the products that our customers are looking for."
The chain's premium products, such as Angus Third Pounders and McCafe, help balance out the check average. For 2010, the company is moving forward on its frappe and smoothie rollout, with both expected to be in stores and supported by messaging by the summer. In tests, the frappes and smoothies help provide sales lift in the afternoon/snack daypart, while the McCafe beverages are strong in the breakfast daypart, Bensen said.
The chain also launched free wireless Internet access at nearly all of its U.S. stores, making McDonald's the largest provider of free Internet in the country and improving on the value of the the company's restaurant experience, Skinner said.
Traffic growth
Skinner said traffic continued to grow systemwide in 2009, and he expects that to improve in the United States this month after factoring out the impact of the weather. He estimated the impact about 3 percent a day in sales over the first two weeks of the month when the nation was gripped in an arctic freeze.
McDonald's Europe delivered strong comparable sales for the fourth quarter against robust prior year results. The U.K., France and Russia led the segment's operating income growth for the quarter. Emphasis on fourth-tier menu development, premium product innovation, daypart expansion and restaurant reimaging continued to provide an appealing restaurant experience and drive market share gains.
In the fourth quarter, APMEA delivered impressive double-digit operating income growth fueled by results in Australia, expansion in China and operating efficiencies and lower commodity costs in many markets. Strong execution in convenience, value, core menu and breakfast continued to drive APMEA's performance.
Capital improvements
In 2010 the company will invest about $2.4 billion in capital expenditures, Bensen said. "Our goal is to elevate our brand to drive sustainable growth while continuing to earn strong returns."
The plans include opening about 1,000 new restaurants around the world including roughly 500 in Asia Pacific, 250 in Europe and 150 in the United States. The remaining portion will go toward reimaging more than 2,000 existing locations, with most in Europe, 600 in Asia Pacific and 500 in the United States. "Reimaging has a direct positive impact on sales and market share as our experience in the U.S., France and Australia demonstrates," he said.
For the fourth quarter, the company reported total revenues of $5.97 billion, up 7 percent compared to $5.57 billion in the same period last year, as the company benefited from improved currency translations. For the year, revenues were down 3 percent at $22.7 billion, compared to $23.5 billion last year.
Net income for the quarter was up 23 percent at $1.2 billion, compared to $985 million in the same quarter last year. For the year, income was up 6 percent at $4.6 billion, compared to $4.3 billion last year.
"McDonald's 2009 results reflect the broad-based strength of our global business," said Skinner in a news release. "Our in-demand food and beverages, unparalleled convenience and superior value at every level of our menu enabled us to serve 60 million customers per day during 2009, up 2 million per day over the prior year. In addition, McDonald's profitability increased as we marked our sixth consecutive year of positive comparable sales in every geographic segment and generated higher global revenues, operating income and earnings per share in constant currencies — all tremendous accomplishments given the tough global economy."
A replay of the company's earnings call will be available on the company's investor Web site for a limited time. McDonald's will release January's sales results on Feb. 9.
Related Media
Subscribe
Get the latest news and resources from QSR Web.
