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New burgers and $1 soda helps McDonald's lure back diners in U.S., Canada and China

business.financialpost.com Oct 25, 2017

The changes, part of a turnaround plan under Chief Executive Steve Easterbrook, came after Chipotle, Wendy's Co and other chains raised the bar on what consumers can expect from fast food
McDonald’s Corp reported strong restaurant sales on Tuesday, as US$1 soda deals and build-your-own burgers helped it lure more customers for the third straight quarter and beat back rivals in an intense battle for market share.

The world’s largest restaurant chain by revenue has been working to boost flagging traffic at its U.S. restaurants, where it gets most of its profit, after customers defected to fast-food rivals as well as pricier fast-casual options like Chipotle Mexican Grill Inc.

An overhaul in the past year has introduced cook-to-order, fresh beef Quarter Pounders, new items with a variety of buns and sauces such as the Signature Sriracha sandwich, as well as mobile ordering and delivery.

Global sales at restaurants open at least 13 months rose 6 per cent for the third quarter, beating the 4.5 per cent increase expected by analysts polled by research firm Consensus Metrix.

Those sales rose a better-than-expected 4.1 per cent in the United States. China, the U.K. and Canada also turned in strong performances.

“Given that the fast food and casual dining segments as a whole struggled over the third quarter, this is an encouraging set of results which suggests McDonald’s is gaining both market and customer share,” GlobalData Retail’s Managing Director Neil Saunders said.

The company’s shares, which had risen 4 per cent this month, were last up 1.1 per cent in morning trading, having hit a record high on Friday.

Aggressive promotions in the United States included soft drinks of all sizes for US$1, McCafe beverages such as smoothies and espresso drinks for US$2, and the McPick 2 offer of two menu items for US$5.

The changes, part of a turnaround plan under Chief Executive Steve Easterbrook, came after Chipotle, Wendy’s Co and other chains raised the bar on what consumers can expect from fast food.

McDonald’s shares have climbed 65 per cent since Easterbrook was named CEO in March 2015, outperforming a 22 per cent rise in the S&P 500.

Lower priced fast-food chains seem to be benefiting from last year’s sharp slowdown in customer traffic to fast-casual chains including Chipotle, which is still trying to recover from a string of food safety incidents in 2015, Bernstein analyst Sara Senatore said in a recent report.

“I think it’s safe to say that the reports of fast food’s death were greatly exaggerated,” said Senatore, who added that McDonald’s and its fast-food peers have posted the best fundamental results and stock returns than the broader industry since late 2015.

Excluding items, McDonald’s earned a profit of US$1.76 per share, just missing an average analyst estimate of US$1.77 per share, according to Thomson Reuters I/B/E/S.

During the quarter, McDonald’s had higher taxes and expenses, but also sold its businesses in China and Hong Kong.

Total revenue was down 10 per cent at US$5.75 billion, due to restaurant sales to franchisees and strategic partners. Doing so eliminates the cost of operating those units and replaces restaurant sales with more predictable rent and royalty payments.