It’s all about market share, says McDonald’s CEO Don Thompson, and the chain plans to improve share by emphasizing the “entry level” Dollar Menu, Daily Double and Bacon McDouble burgers while encouraging trade-up to premium-price items such as its new pair of CBO (Cheddar Bacon Onion) Angus and chicken sandwiches.
Thompson promised that the CBO will be followed by a “stronger new menu product presence in 2013 than we have had in 2012,” an acknowledgement that the chain has introduced few significant menu items in the U.S. this year beyond Spicy Chicken McBites and Blueberry Banana Nut Oatmeal. Contrast that with the pork-patty McIbérica on offer at McDonald’s in Spain, the Serious Lamb Burger in Australia, McNoodles in Austria, the multi-patty McBaguette in France and other overseas menu innovations.
Calling tough, competitive, “uncertain and fragile” conditions “the new normal” for the $900 billion global Informal Eating Out marketplace, Thompson said the market leader is making “tactical adjustments” intended “to better align our actions with this new normal.” That includes “balancing our value messaging with premium menu news”; which in the U.S. means adding higher-profit items like the CBO to counter the impact of budget-menu items. He claimed McDonald’s market share is flat or positive in all markets where it operates.
These adjustments come in the wake of McDonald’s release of Q3 results that were below Wall Street estimates. Global comp sales rose just 1.9%, the first gain of less than 2% since 2003’s Q2. The chain’s focus on the Summer Olympics and adding nutrition information to menu boards may have taken McDonald’s eye off the ball of day-to-day sales building. But despite some gripes from franchisees about corporate strategies, Thompson said McDonald’s long-term Plan to Win strategy of optimizing menu, modernizing the customer experience and broadening accessibility through longer hours and new stores remains on track.
An improvement in global economic conditions isn’t expected soon, however. Said Thompson, “We expect near-term top- and bottom-line growth to remain pressured as we focus on driving guest traffic and market share by leveraging our strategies and competitive advantages in response to the global economic, operating and competitive challenges. As we begin fourth quarter, October’s global comparable sales are currently trending negative.”
That puts a lot of pressure on the new CBO sandwiches to succeed. But the CBO burger isn’t new. A third-pound Angus beef patty topped with white Cheddar cheese, grilled caramelized onions, hickory-smoked bacon and creamy mustard sauce, it is the final iteration of what was first tested under the English Pub Burger name (with steak sauce that the CBO lacks) in 2011. Earlier this year it was tried again as the Clubhouse Angus. In Europe, McDonald’s has offered a different, chicken-only CBO (Chicken, Bacon, Onion) sandwich for more than two years.
The new, domestic CBO sandwiches are the first time McDonald’s has offered a premium sandwich as either chicken or Angus beef. Revealing the state of commodity costs, the chicken CBO is priced at $4.79, 30¢ above the $4.49 price of the Angus beef version (although prices may vary by market). Combo meals with fries and a beverage are a $2.10 upcharge.
After the CBO pair run their LTO course, McDonald’s in December will bring back the McRib yet again. Thompson promised a “stronger new menu product presence in 2013 than we have had in 2012” in order to continue the drive for larger share and heavier customer traffic. It’s expected that the previously reported McWraps line of full-size wraps testing in Chicago will be part of the 2013 menu.
Thompson promised a return to “the right mix” in its advertising. He said the chain’s marketing push behind the Dollar Menu was intended to help operator profit margins. However, that advertising “did not resonate” with customers, he admitted. In addition to heavy support for the CBOs, McDonald’s will again advertise McCafé beverages such as frappes.
McDonald’s is testing a number of technological improvements, Thompson said, including kiosks, e-couponing, mobile ordering and cellphone-based customer loyalty programs. However, none of these is ready for a systemwide introduction, he said.