As an iconic American industry, we have been following McDonald’s and its struggle to deal with minimum wage requirements and greedy unions.
Now, after a series of bad quarterly reports, the corporate accountants are serving Happy Meals:
The struggling fast food giant announced Thursday that global same-store sales grew 4% in the third quarter of 2015, with the gains driven by growth in several international markets.The burger chain even ended a seven-quarter losing streak in the U.S., where same-store sales grew 0.9% compared to the same period last year. Overall, McDonald’s profit climbed to $1.3 billion for the quarter, up from $1.07 billion for the same quarter a year earlier.The Oak Brook, Ill., hamburger chain surpassed analysts’ expectations with earnings of $1.40 per share. Analysts had projected net income of $1.27 per share, according to Thomson Reuters, compared with $1.09 reported a year earlier. McDonald’s reported they spent $3.1 billion on share buybacks and dividends during the last quarter, a move that helped boost earnings per share“We’re running better restaurants than we were a year ago,” McDonald’s CEO Steve Easterbrook told analysts Thursday.
One reason for the success may be that the firm is relying more on customer satisfaction than progressive food demagoguery in its menu choices.
The return of butter to the Egg McMuffin is an example of an epic free market decision:
If you want to understand McDonald’s MCD 1.55% nascent turnaround, consider a recent change it made to its breakfast classic, the Egg McMuffin.Earlier this year, the world’s largest restaurant chain replaced margarine and reverted back to its original recipe that used butter. That back-to-basics approached led to an immediate double-digit percentage increase in sales of the Egg McMuffin, executives said on a conference call on Thursday.That is just one of many examples of the changes McDonald’s has made to its food to end a years-long slide in its U.S. business. And there are promising signs: McDonald’s reported same-store U.S. sales growth of 0.9% in the third quarter, its first quarterly increase in two years, beating analysts’ projection of a 0.2% decline, according to Consensus Metrix. The news sent McDonald’s shares to an all-time high.Other efforts have included using 100% chicken breast meat and milk when it introduced its butter milk chicken sandwich this summer. And McDonald’s has been toasting its buns for longer, and changing how it sears and grills burger patties.
However, franchises report that its new “all day breakfast” concept is laying an egg.
The new menu is slowing down service, reducing average ticket costs, and causing chaos in the kitchens, franchisees told Nomura analyst Mark Kalinowski in a new survey.”In small stores, the problems are vast with people falling over each other and equipment jammed in everywhere,” one franchisee wrote in response to the survey.Another wrote, “All-day breakfast is a non-starter. We are trading customers down from regular menu to lower-priced breakfast items. Not generating new traffic.”A third called it “erratic, distorted, disorganized direction from McDonald’s,” while nearly a dozen more franchisees complained that it slowed down service and added complexity to the kitchens.
The corporation is still also experimenting with new food items, such as sweet potato fries. Perhaps this is an effort to shift to “healthier” food options?
However, as we have chronicled, the government’s idea of what is “healthy food” has changed significantly . . . and not necessarily based on reality. Based on Egg McMuffin sales, I would argue that the best path for McDondald’s success is to ignore the progressives and return to basics.
[Featured image via McDonald’s Museum]
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