Industry News | January 25, 2012 | QSR Exclusive Brief

New Products, Store Changes to Drive McDonald’s in 2012

McDonald's Chicken McBites
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McDonald's experienced big sales gains in 2011, and company officials announced during an earnings call that the brand will use new products and store enhancements to build on that growth in 2012.

McDonald’s global comparable sales were up 5.6 percent in 2011 over 2010, with positive comparable sales across all geographic segments for every quarter. Fourth-quarter results were even stronger, as global comparable sales were up 7.5 percent and U.S. comparable sales were up 7.1 percent.

Consolidated revenues were up 12 percent in 2011 to a record $27 billion.

Peter J. Benson, chief financial officer of McDonald's, said during the company’s fourth-quarter earnings call yesterday that the company has “the financial capacity and talent to invest when many others cannot. This is a competitive advantage that we intend to leverage to further differentiate the McDonald's experience.”

One way the company hopes to do that is with new product development. Donald Thompson, chief operating officer of McDonald's, said the company is seeing more momentum in the breakfast and evening dayparts. He told investors that “breakfast is beginning to circulate around the world, and there's a lot of room [for growth] still in breakfast products.”

The company's seasonal Peppermint Mocha promotion in December increased total McCafé specialty coffee units by nearly 20 percent over last year, said James Skinner, CEO of McDonald’s.

The company will add a Cherry Berry Chiller to the McCafé blended ice lineup later this year, and plans to build on last year's successful launch of oatmeal with the addition of Blueberry Banana Nut Oatmeal.

Aisling Balfe, a retail analyst with Planet Retail, a global provider of intelligence on the global retail and foodservice industries, said in a statement that breakfast is offering McDonald’s a big opportunity to earn more market share.

“Sales have been buoyed by McDonald’s huge share of the $57 billion U.S. breakfast industry, enabling them to boast strong results across the entire 24-hour opening period,” Balfe said. “Since entering the breakfast market 40 years ago, McDonald’s has continued to dominate the sector, having that crucial first mover status and staying ahead of the curve with new product innovation. In comparison, its major rivals Burger King and Wendy’s still struggle to make a significant competitive impact in the breakfast market.”

Skinner also said during McDonald’s earnings call that Chicken McBites, which have previously been served internationally, will soon roll out in the U.S. and serve as a complement to McDonald’s popular Chicken McNuggets.

“In 2012 we will leverage our success with line extensions and new flavors, as well as promotional food events to build sales,” Skinner told investors on the call.

Store reimaging efforts will also be important to McDonald’s growth in 2012, officials said. The company previously anticipated completing more than 600 store revamps in the U.S. in 2011, but Benson said more than 900 were reimaged last year, exceeding company predictions. In 2012, the company expects to see 2,175 stores updated, with 800 of those stores in the U.S.

The reimaging has proven especially successful in international markets, Skinner said.

“Europe's reimaging efforts will continue to be a key differentiator, providing our customers with a fresh, inviting, and relevant experience,” he said. “We plan to broaden that reach, with 90 percent of interiors, and two-thirds of exteriors [in Europe] reimaged by the end of 2012.”

Skinner said the company also intends to focus on building capacity to serve more customers during times of peak demand.

“We know that most of our restaurants can increase throughput with successful labor and operations solutions,” he said. “Increasing capacity, particularly during peak hours in our restaurants, is critical for us to be able to continue to grow.” He said the company has already seen positive results from stores that have multiple ordering points, such as hand-held ordering devices or dual drive thrus. More than 1,100 U.S. stores are already using handheld order technology to improve throughput, he said.

“Scheduling, planning, and positioning … with an attitude of serving more customers during those peak hours is probably the most important thing [to growing business],” Skinner said. He added that McDonald’s will implement its updated POS ordering system over the next three years, a system that he said enhances accuracy and service.

Benson said the global enterprise plans to open more than 1,300 restaurants in 2012, with 175 of those located in the U.S. and 225­–250 in China.

By Jan Fletcher