McDonald’s diners lovin’ burgers, stock surges
Fox Business Outlook: McDonald's now offering fresh beef rather than frozen patties in some burgers.
Consumers appear to have an increased appetite for McDonald’s new menu offerings, as U.S. diners are spending more during visits to the iconic burger chain.
The company reported on Monday that domestic comparable same-store sales rose 2.9%.
“Sales were fueled by higher average checks driven by ... menu price increases ... and favorable shifts in the product mix,” Kevin Ozan, McDonald’s executive vice president and chief financial officer, said during the company’s first-quarter earnings call. Ozan added that more consumers were trading up to premium products and ordering more items per visit, thanks to a recently launched $1, $2, $3 Dollar Menu.
Ozan said people tend to use the $1, $2, $3 Dollar Menu in different ways, whether they add on a product to a combo meal or create a meal using different items from the available options. All of this contributes to a higher average transaction price when compared with customers who don’t use the promotion.
The U.S. sales increase comes despite a drop in guest count at U.S. locations during the first quarter and lower breakfast sales. McDonald’s CEO Steve Easterbrook said the new value menu promotion has proven that it can increase average customer check, but the company plans to continue “finessing” it in order to bring more customers into store locations.
In an attempt to cater to shifting consumer tastes, the burger franchise also launched higher-quality premium products, like the Garlic White Cheddar with Artisan Grilled Chicken or the Sweet BBQ Bacon Burger, which can cost up to $7.
Easterbrook said the “permissibility” they get on price is related to consumers’ interpretation of their experience, so nicer stores, quality products and a more pleasant atmosphere means people are willing to pay a little more.
Global sales rose more than 5.5%, led by Germany, France and the United Kingdom, largely triggered by many of the same factors.
Easterbrook, who took the reins of the company in 2015, implemented a turnaround plan amid declining sales and profitability as customers’ food preferences shifted toward healthier, higher-quality options. Part of the plan was to simplify the menu, focus on international growth markets and improve product quality.
McDonald’s maintained confidence in the continued, sustained growth of its business owing to the addition of new technology, the roll-out of delivery in certain markets and the modernization of store locations. While delivery engagement remains low, company executives did note that the average online order costs customers 1.5 to 2 times the amount of the average in-store check.
McDonald’s shares surged more than 4% in midday trading Monday. So far this year, the stock is trading more than 3% lower.