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Pricing, Promotions Push McD’s Growth

Filed under breakfast, Quarterly Call

A rich mix of ingredients—higher menu prices, lower commodity costs, continued customer enthusiasm for All Day Breakfast and McPick 2—combined to produce Q3 results for McDonald’s Corp. that exceeded the predictions of The Street and the brand’s doubters.

For the quarter ended Sept. 30, 2016, global comparable sales increased 3.5%, with U.S. same-store sales up 1.3%. The company pointed to All Day Breakfast—introduced in Q4 2015 and lapping it expected to present an impediment to solid growth this year—the McPick 2 value platform and introduction of new Chicken McNuggets free of preservatives (which brought a 10% jump initially in McNugget sales) as reasons for the growth. Of course, a 3.5% year-over-year increase in menu pricing provided a base for growth.

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CFO Kevin Ozan suggested price increases in the next 12 months might be lower. Easterbrook noted that 3.5% pricing increase was ahead of the 2.6% increase in price-away-from-home for the year charted by the Consumer Price Index. With food-at-home prices at -1.3% for the year, the gap between supermarket and restaurant prices is at its greatest divide in 30 years, Easterbrook said. That, he said, can have an impact on consume dining decisions.mcd_pick2triple300

CEO Steve Easterbrook said he didn’t want McDonald’s strategy to be “price-led” but value always will be a component. McPick 2 for $5 likely will be a national promotion two or three times in the year. But he stressed that the McPick 2 variations at the local level are a value push that is “always on.”

Growing customer traffic is the near-term focus, Easterbrook said, along with a continuing intention to run better stores and improve unit-level profitability. Aided by a 6% decline in commodity costs, the company said operating margins improved in the quarter but warned that margins continue to be at risk from rising labor costs.

Asked about recent retirements by several key executives, Easterbrook called management changes “an anticipated part of the process.” He said the company is “confident in the recent selections we’ve made” to replace those who are leaving.