McDonald’s (MCD, Financial) reported its sales performance for the month of April. The company continues to see its comparable stores sales plunge, but April stats were the best so far this year. The fast food chain’s newly appointed CEO Steve Easterbrook looks optimistic with the remarkable improvement in the company’s business.
The Big Mac maker recently announced its turnaround plans to revive sales and profits. Its efforts include changing management, going for internal restructuring, and increasing franchise owned restaurants. McDonald’s has been losing business to other players including 5 Guys and Shake Shack (SHAK, Financial) as their offerings seemingly appear to be more aligned with customers’ preferences. As such these chains are eating into McDonald’s market share. Here’s a detailed look at the company’s latest monthly numbers.
Quick glance over the numbers
McDonald’s global comparable-store sales declined 0.6% in April. The fall was lower than analyst expectation of around 1.8%. Same-store sales in U.S. plunged 2.3%. In the previous month, the company reported same-store sales plunge of 3.9% in the domestic market. Regaining market share in the U.S. is very crucial for McDonald’s as it is the company’s key market. The company earns major chunk of its profit from this region.
Commenting on the month’s performance Will Slabaugh, an analyst at Stephens Inc. said: “This is a nice improvement from last month… They’re moving in the right direction, and there’s a very tangible plan in place that people can grab hold of.”
Same-store sales in Europe climbed 1%. The company witnessed gains in the U.K. and Germany, but it was counterbalanced by the poor performance in the key markets of France and Russia. Comparable-store sales in Asia Pacific, Middle East and Africa dropped 3.8%. The key reason behind this is the company’s poor run in China and Japan. McDonald’s witnessed poor customer traffic in these two markets. The food scandal in the two economies continue to be a drag on McDonald’s performance in the region.
Modifying the menu
McDonald’s looks very eager to regain its customers to boost the company’s operating metrics. The company is bringing back the third-pound sirloin burgers. Besides, it’s also testing breakfast bowls in Southern California which includes kale. McDonald’s plans to serve breakfast 24 hours in a few markets and provide a delivery service as well.
This would help the company safeguard its position against breakfast giants such as Starbucks (SBUX, Financial) and Taco Bell. McDonald's growth in the past decade was supported by breakfast and coffee sales, however, it’s presently under pressure. Starbucks and Taco Bell increasing focus on breakfast is hurting McDonald’s breakfast sales.
The company’s found a way out to take on these players. McDonald’s also started testing all-day breakfast at most locations in San Diego. Customers have shown positive response, and as such the company desires to prolong the breakfast time, which otherwise usually ends at 10:30 am. There’s no doubt that this would be a challenging task, but it would be extremely rewarding too. McDonald’s would need to efficiently streamline the process to manage the kitchen for both breakfast and lunch items. Kitchens aren’t big enough to tackle breakfast and lunch simultaneously.
Apart from this, Steve Easterbrook said the company is focusing on hot and fresh food items in its menu with massive improvements in its service. McDonald’s eliminated as many as seven sandwiches from its menu list in the first quarter of the year to simplify its menu. This would also help the company provide quick service.
Last word
The Big Mac maker is all out to return to its good old days. April numbers are an early indication that the company is on the right track and that McDonald’s is preparing for a strong comeback. It would be interesting to keep a watch on the company’s performance over the coming months. Only time would say how effective McDonald’s plans are.
