McDonald's turns around sales woes with all-day breakfast
McDonald's hit sales pay dirt in 2015 thanks to cheap gas, good weather, and the introduction of an all-day breakfast menu. If there's a problem with all-day breakfast, it's that customers want the full morning meal lineup 24/7.
If there’s a problem with McDonald’s introduction of a limited all-day breakfast menu it’s that some customers want the full morning meal lineup 24/7. The problem isn’t sales. Nomura restaurant analyst Mark Kalinowski’s survey of 26 domestic franchisees (accounting for 209 stores) finds a much more upbeat attitude than in the past. These operators say they see improved sales and an improved brand image. One says of the breakfast program, “Raised the brand profile. Brought in some people who had become bored with McDonald’s.”
“We note that the U.S. franchisees’ quantification of their six-month business outlook has dramatically improved from their outlook they cited only three months ago,” Kalinowski writes in a report to clients, released today. The operators polled indicate McDonald’s Q4 2015 same-store sales were up by 4.1%. The outlook for Q1 2016 is almost as good: 3.8% gain in comp sales. We’ll see if the mainstream media reports good news about McDonald’s with the same speed that bad news in Kalinowski’s reports was related. McDonald’s Corp. will announce its Q4 2015 sales on Monday.
Good weather, cheap gas and all-day breakfast are reasons for the Q4 sales commonly cited by operators. “Weather last year, All-Day Breakfast, more positive coverage by the media,” one operator told Kalinowski. Not all those surveyed were totally upbeat: some operators remain critical of corporate leadership. Said one, “The momentum has been more positive in recent months, yet I anticipate that we will see recent sales slide with the McPick 2 transactions. The competition, such as Burger King, will react with equally ridiculous promotions. The individual franchisees will be those that will suffer with weak margins. I feel like when talking with other franchisees throughout the country that the company is still grasping and does not seem to have addressed the core issues affecting our negative results over the past few years.”
Many customers clamor for a full breakfast menu all day.
Asked what has been the most beneficial aspect of the all-day breakfast program, operators cite improved sales and brand perception. “Old users returning,” said one. Another added, “Added 3% to 5% to sales, customers like it, customers would like the entire breakfast menu all day.” “New customers and sales. Positive conversation from customers,” is another operator’s assessment.
So have been the most challenging aspects? “Increased operational complexity,” is how one operator succinctly puts it. Another agrees: “Somewhat slower service times as a lot of time it is cook to order.”
And then there’s the biscuit/muffin problem (markets serve one or the other all day, but rarely both) and consumers’ interest in having it all, all day. “We are a biscuit market, no muffin products, and some customer expect a full menu,” says one operator. “Explaining to irate customers why the breakfast menu is so limited,” is another comment. One franchisee blames marketing: “Advertising that leads consumers to believe that we have all breakfast items all day, and disappoints them when they cannot get all items when they come in—customers, say they are being misled.”
If breakfast is a hit, the McPick value program is not, at least with a few of the operators surveyed. One jabbed at CEO Steve Easterbrook’s favorite line, saying, “How can we make McDonald’s ‘modern and progressive’ when all we are doing is going back to 2002 promotional prices and again selling sandwiches for $1 each?” Added another, “We are not ‘turned around;’ we had a good fourth quarter basically because of the weather and menu price increases. We are still the low-cost provider in the industry. McPick 2 for $2 must die.”
This article first appeared in BurgerBusiness.