So the obvious question is how McDonald’s can report a 5.3% increase in third-quarter same-store sales when competitor Jack in the Box is down 9.4% for the latest quarter, Sonic is down 6.4%, Carl’s Jr. is down 7.4, Wendy’s is down 1.7% (Q2), and the National Restaurant Association’s Restaurant Performance Index has been flat for three months. The chain’s global same-store sales rose 6% and operating income rose 8%.
“We’re innovating and we’re executing,” McDonald’s CEO Jim Skinner said in today’s quarterly analysts call. He’s too well-mannered to say “Keep it simple, stupid,” but a focus on simplicity and quality is what’s working for them.
McDonald’s defines innovation creating broad-appeal products and to improving perceived quality more so than creating something out of the box like Jack in Box’s Pastrami Grilled Sandwich, Carl’s Jr.’s Philly Cheesesteak Burger or Burger King’s NY Pizza Burger and Breakfast Bowls. McDonald’s, meanwhile, scored in the third quarter with simpler, broad-appeal items such as Strawberry Banana Smoothies and Angus Snack Wrap. The strategy continues: The McRib begins a short run as a national LTO on Nov. 2; in January, oatmeal joins the menu nationally as an all-day item. Both are simple; both will sell.
These are simple, high-quality products that work well as drive-thru items, and 67% of the chain’s domestic units have those side windows, the company said today. CFO Peter Bensen also disclosed that rising commodity prices could require a net 2% to 3% price increase in 2011.
In Europe, which posted a 4.1% gain in third-quarter same-store sales, drive-thru sales now are up to 45% of the total as McDonald’s expands beyond center-city locations. In the UK, France and Germany especially, McDonald’s has followed a menu philosophy of simple innovation coupled with evident quality. In Germany, you’ll recall, McDonald’s boosted sales by adding cupcakes. It also has added bratwurst (the “Nurnburger”) and simple McWraps. The rising number of easily-eaten wraps at McDonald’s in Europe is a result of the increase in drive-thru business. Skinner also noted the recent successful introduction of the upscale “M” burger (where a high-quality bakery roll makes all the difference) in England and Ireland.
Asia/Pacific/Middle East/Africa posted the strongest third-quarter same-store sales performance: 8.1%. The explanation remains the same. In Australia, the limited-time Angus the Third burger differed from the other Angus burgers there simply by inclusion of a Tomato-Chile Relish topper, but it sold well. Value-priced lunches buoyed sales in China. Japan was helped by a Salt & Lemon Chicken sandwich that outperformed Burger King’s more-audacious three-patty Rodeo Whopper.
In Hong Kong, McDonald’s has introduced the fancy “M Selections” menu category it added earlier in Australia, although items differ. In Hong Kong the menu includes a new CBD: Chicken Bacon Deluxe (at right), which is being advertised as “a real taste of Americana.” A fleet of New York-style Yellow cabs is cruising around Hong Kong, offering free rides to McDonald’s plus coupons for a free sandwich.
McDonald’s reimaging program adheres to a theory similar to its menu approach: that consumers value quality improvements above bells and whistles (see Burger King’s flame-theme interior designs). However, McDonald’s executives say it has slowed the pace of remodeling in order to be certain the designs are right and the payback is there. Some 40 U.S. stores have been remodeled with perhaps 225 more to be done by yearend and 350 within six months. Results are in line with the 6% to 7% sales lift estimate” the company says. About 500 European stores have been remodeled, 2,000 expect to have been reimaged there by 2012.