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McDonald’s Answers the Doubters

Filed under Marketing, Premium, Pricing, Promotion, QSR Burgers, Wraps

“The headline is, ‘We’re staying on the move in 2012,’ ” McDonald’s CEO Jim Skinner told analysts today in announcing Q4 and full-year 2011 sales results. But if that was the headline, the subhead was “So operators should stop squawking.”

Chicken McBites were rolled out nationally this week.

Skinner and other McDonald’s executives were addressing Wall Street analysts in their conference call, but their remarks also functioned as a response to those McDonald’s franchisees who complained recently about its menu pricing. A survey of operators by Janney Montgomery Scott analyst Mark Kalinowski found some franchisees dissatisfied with the Dollar Menu especially. “Dollar Menu is a dinosaur,” said one operator. “We are close to hitting the wall on this issue. We need to accept diminishing profits or do something about the Dollar Menu,” said another.

But the Dollar Menu, as Skinner said of Ronald McDonald recently, isn’t going anywhere. The Plan to Win strategy is working, he insisted, and he has the numbers to back that up. The Q4 and full-year 2011 results (read the financial results here) were far better than any other QSR competitor’s. McDonald’s Q4 global comp sales rose 7.5%, with the U.S. up 7.1%, Europe up 7.3% and Asia/Pacific, Middle East and Africa up 6.9% (comp sales for China alone were up 15.6%). Skinner emphasized that the U.S. comp-sales increase was the best since 2006. Skinner singled out the Breakfast Dollar Menu as a reason U.S. sales have been strong.

Premium-price wraps, like these tried in Austria, could come to McDonald’s in the U.S. this year.

Further proof that the corporate strategy is working comes in McDonald’s .5% gain in it’s the U.S. QSR market share, which now stands at 12.5%. Globally, McDonald’s has increased to 68 million from 64 million the number of people it serves daily. In other word, the headline is, “Settle down, the strategy is working.”

But McDonald’s President-COO Don Thompson also gave its franchises a “We feel your pain” acknowledgement by conceding that the chain needs to balance its menu, with higher-margin premium-price food items offsetting the value-price items. Thompson said the U.S. operation has not done as well as Europe on developing premium-price sandwiches and wraps. Some of these (including the 1955 Burger?) likely will be imported to the U.S. menu, he said, as the U.S. continues to export its breakfast and smoothie/frappe items globally.

McDonald’s menu prices rose 3% in 2011, including a less-than-1% bump in November. EVP-CFO Peter Bensen said the chain will “offset some but not all” of expected commodity-cost increases (projected at 4.5% to 5.5% this year) with careful menu-price adjustments this year that do not exceed the inflation rate for food away from home.

Chicken McBites were rolled out nationally yesterday, supported by new TV advertising. Coming later this year are a new Cherry Berry Chiller for McCafé and a Blueberry Banana Nut extension of its breakfast oatmeal. Skinner stressed that McDonald’s still has opportunities to expand its morning menu and sales, now at about 25% of the total.