McDonald’s Struggles to Repeat Success of All-Day Breakfast Launch
A year ago, McDonald’s was basking in the glory of a successful all-day breakfast launch that boosted sales at the fast-food purveyor’s U.S. restaurants. That savvy move is becoming a bit of a burden early in 2017.
McDonald’s (MCD) first debuted its all-day breakfast menu in October 2015 and an immediate sales jolt helped boost sales in the U.S. In the fourth quarter of 2015, comparable sales increased 5.7%—the best quarter McDonald’s had reported in nearly four years. Throughout most of 2016, sales continued to hum along smoothly as all-day breakfast lured customers that were persuaded to buy the company’s Egg McMuffin or hash browns for lunch or other parts of the day.
But on Monday, McDonald’s reported a comparable sales decline of 1.3% in the U.S., which the company said reflected “the challenging comparison against the prior year launch of the very successful All-Day Breakfast.” Analysts had anticipated the decline: they projected a slightly steeper 1.4% drop. Looking to 2017, McDonald’s says it will focus on growing guest traffic in the U.S. That’s been problematic across the restaurant industry, as economic uncertainty and falling grocery prices have hurt the sector.
McDonald’s results were again propped up by strong growth abroad, with sales growing in the United Kingdom, China, Japan and some markets in Latin America. Globally, comparable sales were up 2.7%. Total revenue hit $6.03 billion while per-share earnings were $1.44, both above Wall Street’s expectations. While revenue declined from a year ago, it was due to refranchising.
President and CEO Steve Easterbrook struck a bullish tone while discussing the results with analysts, touting last year’s launch of all-day breakfast 2.0—an update that saw the addition of McGriddle and other items—as having lived up to expectations. He said McDonald’s executive team had more strategies in mind to boost traffic in 2017, though those plans won’t be disclosed until the company’s March 1 investor meeting. That’s when McDonald’s will also unveil full-year guidance targets.
When asked about how McDonald’s can reverse persistent traffic declines that have been an issue the past several years, Easterbrook said the topic was something that had dominated conversations internally. “This is all about getting the balance right,” he said, lauding cash-flow generation at McDonald’s but saying that needed to be balanced with some investments into restaurants. Some initiatives that could help: giving customers more options on how they order and pay (that would likely be automation).
Easterbrook also talked about how promotions can be helpful, which is often a popular strategy to boost traffic at fast-food chains like McDonald’s. Looking ahead to 2017, McDonald’s says it will be more competitive in terms of offering guests greater value deals. Some of those offers can be a mix of national launches, as well as regional launches that make sense for those markets.