If you want to understand McDonald’s
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.
For years, McDonald’s U.S. business has been thrashed by the perception that its food is of low quality, leading to a loss of market share to a slew of burger chains as well as non-traditional rivals like Chipotle Mexican Grill
In the eight months since Steve Easterbrook took the reins, the company has pledged to, among other things, serve only antibiotic free chicken. The company also has been testing all sorts of concepts, from kale dishes to premium burgers with a third of a pound of meat.
“People have more choices than ever about where to dine,” Easterbrook told analysts on the call. “We want to give them more reasons to dine at McDonald’s by recommitting to hot fresh food, fast friendly service and a contemporary restaurant experience.”
Other steps have included streamlining its menu to speed up service and allowing regional markets to offer their own products. And in May, Easterbrook announced $300 million in cost cuts, including refranchising 3,500 of its 36,290 stores worldwide and shutting down another 700.
The improvement came before McDonald’s reintroduced all-day breakfast this month, giving credence to Easterbrook’s projection that McDonald’s U.S. business will continue to heal in the current quarter.
Earlier this week, Fortune guest columnist Howard Penney, a managing director and restaurants analyst for Hedgeye, an independent investment research, said all-day breakfast “could be another game changer for McDonald’s,” citing proprietary research showing 33.3% of people would go to McDonald’s more often if they could get breakfast for lunch.
Easterbrook cautioned investors that McDonald’s turnaround was still in the early stages but said customers “are beginning to respond” to its move. Still, it takes a long time to change customer perceptions. And besides, the U.S. comparable increase was not even 1%, showing how much more McDonald’s has to go.