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McDonald’s Idea Proposal (MCD)

McDonald’s Idea Proposal (MCD)
 

Will McDonald’s be able to combat high comps in the second half of 2016?

Report Available: October 13, 2016

 

Blueshift’s initial research showed MCD entering the second half of 2016 against high comparable sales numbers from 2015, when the company successfully launched its all-day breakfast. Coupled with a slowing restaurant industry this summer, MCD faces challenges that may require deeper and broader promotions and new food innovations to keep its momentum from slowing. If it resonates once again with customers, MCD could find itself having a banner second half just like the prior year.

 

Observations

  1. MCD’s Q2 results were disappointing, especially given the success of the previous three quarters when it was seeing the effects of the launch of all-day breakfast and several meal promotions. In Q2, MCD’s U.S. same-store sales increased 1.8%, below analyst estimates. MCD’s Q1 U.S. comp sales grew 5.4%, while Q415 same-store U.S. sales increased 5.7%. MCD reported a same-store U.S. sales increase of 0.9% in Q315, its first quarterly increase in two years, beating analyst expectations. With Q3 and Q4 results on the horizon, MCD is lapping its strong performance in the second half of 2015, leaving some questions about whether it can duplicate the previous year’s success.
  2. Of additional concern for MCD has to be sluggish overall restaurant sales spurred by diners eating more at home because of lower food and fuel costs, as well as grocers offering more grab-and-go meals. One survey said August same store sales in the restaurant industry were down 0.6% with traffic down 2.7% from a year ago, though average customer check was up 2.3%.
  3. In a move that could keep momentum high for all-day breakfast in the second half of the year, MCD is expanding its all-day breakfast menu this month to include both biscuits and McMuffins at all of its locations to have one menu nationwide. The popular McGriddle will also be on the menu all-day in all stores.  It has also started introducing more automated kiosks nationally, with a potential payoff being higher ticket averages.
  4. MCD installed changes to make its food cleaner, removing high-fructose corn syrup from buns, taking artificial preservatives out of its chicken, pork, and eggs. The company is also using only chicken not treated with antibiotics, implementing the move seven months earlier than originally planned.
  5. Blueshift Research’s July 14 report said MCD’s run of success with its turnaround efforts continued in the second quarter. Both franchise owners and five of seven store personnel interviewed by Blueshift Research reported year-to-year sales growth, including five who said sales exceeded expectations. This supported our April 7 findings. One of the franchise owner sources, however, said the second half of the year would be challenging based on difficult comps: “Q3 will be a struggle. We had such a major turnaround in that quarter a year ago, and it happened so fast. We went from the bottom to a charging rise. It’ll be tough to sustain. I would love for the next six months to be plus 2%. Q4 will be the tell-tale quarter because we were so strong last year. Q4 [2015] and Q1 [2016] were two of the best quarters ever, so it’s going to be interesting how we compare.”

 

How are customers responding to the expanded all-day breakfast menu? What is McDonald’s doing to keep sales and traffic from dropping off? How has the slowdown in the restaurant industry affected McDonald’s? Will McDonald’s have to promote more to keep pace with last year’s sales results? Which initiatives and food innovations are working? To answer these and other questions, Blueshift will issue a market research report by gathering data from Franchise owners, Supply chain, Store personnel, and Industry specialists.

 

Companies: McDonald’s (MCD), Restaurant Brands International (QSR), Wendy’s (WEN), Dunkin’ Donuts (DNKN)

 

Research Begins: September 26, 2016