Where the challenges lie
As has been the case for several periods now, McDonald’s battle for breakfast share continues to idle. CFO Kevin Ozan said the chain is doing well with average check growth but “we really want the customer to come back and more often.”
“To be very specific,” he added earlier, “we continue to lose traffic at a greater level than we want at breakfast.”
Ozan said McDonald’s shift into local breakfast value from national would help it combat local competition. The chain noted last quarter that it was moving some of its marketing spend to regional and letting co-ops choose which items and what deals were best suited for their markets. The company is also looking at staffing levels across busy dayparts. Breakfast generally accounts for about 25 percent of McDonald’s sales.
Ozan added that a more personalized digital experience would drive breakfast business as users elect for the convenience of mobile pay and more tailored offers from McDonald’s app—something local eateries can’t compete with.
So will menu innovation. “We believe there are a lot more legs still left in McCafe and the McCafe brand, both in coffee and premium coffee,” Ozan said.
The brand is fine-tuning value in its deal promotions. The 4 for $6 and 2 for $5, as well as the $1 $2 $3 Dollar Menu serve as entry level platforms for value seekers in addition to deal combinations capable of pushing average check up. In September, McDonald’s expanded its $1 $2 $3 menu offerings with any size coffee for a $1 and adapted two customer favorite breakfast sandwiches at the $1 price point. A month later, McDonald's unveiled Triple Breakfast Stacks—its first new breakfast sandwiches available nationally since the Egg White Delight McMuffin in 2013.
“We're going to continue working on product availability or product offers within those combinations. I think we can get more competitive as we juice that up,” Ozan said.
Improving drive-thru operations (more on this later) is another area that could help with breakfast. Ozan said McDonald’s needs to make sure it’s sorting through the demand.
“I think there's a number of areas where we believe we can get the guest count traffic growing and all of that is within our control,” he said. “So that feels good.”
While McDonald’s recently loosened its remodel timeline a bit, giving operators another two years (until 2022 to refresh stores), the program continues to progress rapidly. Easterbrook called it “the most ambitious program” McDoanld’s U.S. market has ever undertaken. In 2018, the brand spent nearly $1.5 billion to convert about 4,500 restaurants to the Experience of the Future design. That amounts to more than 10 new restaurants each day throughout the year. Currently, about 8,000 U.S. restaurants and half of McDonald’s locations worldwide are converted.
Ozan said McDonald’s would dedicate close to $1 billion of capital in 2019 to complete another 2,000 EOTF U.S. projects. He added the recent slowdown allows McDonald’s to more evenly balance its remaining projects between 2019 and 2020.