Commentary

Easterbrook's Initiatives Turn Positive For McDonald's

McDonald’s said yesterday that quarterly same-store sales in the U.S. were up for the first time in two years, confirming not only the wisdom of frying Egg McMuffins in butter rather than margarine — as nature intended — but also that keeping the menu simpler speeds service. And the results don’t even reflect the fact that the company instituted all-day breakfasts earlier this month.

“‘We’re running better restaurants than we were a year ago,’ McDonald's CEO Steve Easterbrook told analysts,” reportsUSA Today’s Aamer Madhani. “I have strong conviction around simplifying our restaurant operation, because I believe the customer is the ultimate beneficiary. We got to take more complexity out through our decision making than we ever put in.”

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With comparable sales in the U.S. for the quarter ending Sept. 30 up 0.9%, the company also credited the introduction of its Premium Buttermilk Crispy Chicken Deluxe sandwich for spurring the rebound. Performance was even stronger globally, with sales rising 4.0%. China led the surge, with operating income increasing 39% (68% in constant currencies).

Investors took note.

“After years of being chastised for not being hip and fast-growing like burrito chain Chipotle, McDonald's has turned the table and is now the fast-casual stock investors crave,” writesUSA Today’s Matt Krantz. “Shares of McDonald's closed up 8.1% to $110.87 Thursday — making it a driving force of the Dow [up 1.9% on the day] — and a stark contrast with the performance at Chipotle,” which was down after missing expectations.

“Mad Money” host Jim Cramer was effusive. “‘It is only just beginning and while I don't like to chase stocks that are up eight points and trading at their 52-week highs, I think the pinions are in place for a multiyear move,’ he told his audience,” reports CNBC’s Abigail Stevenson.

She credits Easterbrook’s success in getting franchisees to rally to his causes as being crucial to the turnaround. “Once the franchises were excited, they added more workers, started cleaning up better and contributing more money,” Stevenson writes.

And that’s not all.

“In his nearly eight months at the helm, Mr. Easterbrook has announced a stream of initiatives — from curbing antibiotics use in its chicken supply to creating a new global corporate structure — to refresh McDonald’s image and end a sales slump that started three years ago,” observes Julie Jargon for the Wall Street Journal.

Easterbrook said “customer satisfaction scores indicate service is improving, with order accuracy showing the greatest advance. Restaurants are shaving seconds off average service times at drive-throughs, thanks to simpler menu boards, he said,” Jargon writes.

And the customer is at the center of its efforts. 

“Consumers have more choices than ever about where to dine, and our operational growth-led turnaround is focused on appealing to customers in the areas that matter most to them — great-tasting, high-quality food, convenience and value,” Easterbrook says at the top of the release about the results.

More innovations — some of them rooted in past success — are being tested or contemplated. 

It’s serving two versions of the highly caffeinated Monster energy drinks in about 20 locations including “the so-called Rock N' Roll McDonald's at 600 N. Clark St.” in Chicago, reports Samantha Bomkamp for the Chicago Tribune

It’s also “testing sweet potato fries at restaurants in Amarillo, Texas, it revealed in a tweet on Wednesday,” writes Chris Perez for the New York Post. “If enough people bite, the fries could go nationwide.” 

And, as Nation’s Restaurant News’ Jonathan Maze reported Wednesday, sources confirm that the company “is planning to offer a ‘Pick 2’ menu that includes some items that had been on the company’s Dollar Menu in the past, including the McDouble, McChicken and small fries,” if franchisees approve in a vote later this month. 

“The effort demonstrates the company’s seriousness in getting a permanent value offer onto its menu after the chain shifted away from the Dollar Menu three years ago,” Maze writes, revealing that the Operator's National Advertising Fund members have already approved the initiative.

Easterbrook also put a positive spin yesterday on bumping wages and benefits for workers in the 1,400 restaurants it owns, reports Stephanie Strom for the New York Times. Although it “put a slight dent in operating profits … Easterbook insisted the investments would pay off in the long run by reducing turnover, which in turn would improve customer experience because employees would be more experienced and motivated,” she writes.

Happy counselors make for happy campers, IOW — and investors.

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