McDonald's, a Matter of Balance

The Wall Street Journal highlights McDonald's (NYSE:MCD) menu evolution. It touches on why retail is so exciting: it is so dynamic and you never know what might happen. 

A few themes of note:

Same store sales trends and number of menu items; the Technomic chart shows MCD, Burger King and Wendy's number of distinct lunch/dinner menu items which roughly shows rising MCD items and flat to lower items at Wendy's and Burger King, and seems to correlate to MCD's recent same store sales increases. We are convinced that MCD's sales gains have came from their new total dayparts coverage--no matter what time of day, McDonalds has it covered. But the chart must be updated for breakfast (Wendy's is still testing theirs and Burger King finally rolled out an breakfast rehab this fall) as breakfast is 20-25% of the should be QSR sales base now.

Some stores and franchisees underperforming: without a doubt.  Franchisees have higher cost of capital than the corporate entities and pay royalties that company stores do not. And 24 hour operations don't make sense everywhere. To its credit, MCD did partially subsidize McCafe and other capital expenditures, unlike the other QSR Majors.  

Interestingly though, at its 2010 Investor day, MCD reported franchisee average cash flow at all time record levels. But free cash flow, which subtracts capital expenditures, is a superior metric. We suspect that is not as positive.

Operational Complexity and Customer Confusion: these are real issues of concern and they must be balanced by a real culture of staff learning and development and a balanced marketing execution. MCD did have problems before. But they have the luxury of the world's largest restaurtant ad fund expenditure base ($1 billion plus) and being able to talk to new products, price, value, the barbell and lifestyle through both national and local co-op fund execution.    

New products, new news  is essential for the international (and national) QSR players. The store penetration level demands it . However, It works for IN N Out to still to have just 4 major items on the menu, or for Chipotle to not have added a new menu item in 17 years, they both have lots of runway left for development.  

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Upselling Beverages

John; I thought this part of the story was interesting,

"Several years ago, the company noticed that a lot of drive-through customers already had drinks when they arrived. Limited choices and outdated packaging were among the reasons people weren't purchasing McDonald's beverages with their meals, McDonald's discovered."

The limited choices I get, but what was the author referring to by "outdated packaging"?

McDonald's packaging

Michael: I'll confirm this, but believe this referred to the durability and portability of the beverage containers--heat and cold retention, the lids and ability to sip while moving, and whether the drink containers actually fit into the standard beverage carry slots built into vehicles.   

Coke and Upselling

Thanks, John.

There was a very interesting article about Coke regarding the beverage upsell and packaging in QSR, several months ago.

They reported:

"Does packaging play a role in the decision to buy a beverage at all? I’m going to give you a little insight that we picked up that tells us that consumers also want to be able to have their food and beverage handling from point of purchase to point of consumption significantly easier.

If you think this through, they place the order in the drive thru, then get out of the car with a bag of food and beverages somehow. You still have your keys or your cell phone or your purse or your briefcase or your gym bag or your two-year-old, but you only have two hands. One of the things that we know consumers have a desire for going forward is even more ease of handling from point of purchase to point of consumption."

Big opportunity here for some multi-unit QSR's to learn more.