McDonald’s Corporation (NYSE:MCD) former CEO Jim Skinner once said: “It is not rocket science to figure out how to make a profit in the industry.” But maybe at that time he had not factored in the facts that restaurant visits could be on the decline for consecutive months, consumer spending could be weak across the nation, and people would rather spend on healthy food offered by the likes of Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA).
But these are currently the harsh realities of all fast-food chains, and McDonald’s Corporation (NYSE:MCD) is not an exception. Let us see how Big Mac is battling along and what its chances are.
McDonald’s Corporation (NYSE:MCD) has always targeted the common man’s plate. In other words, it knows that in this weak restaurant environment offering value for money is possibly the only way that it can get people through its doors. That’s why it came up with its dollar menu, which offers cheeseburger, fries, wraps and drinks at a dollar a piece. Toward the beginning of this year, it added another novelty in the form of a cheddar-onion burger to this menu.
Despite these efforts, Americans still remained reluctant even to spend $1 on a McDonald’s Corporation (NYSE:MCD) cheeseburger. The first quarter saw a decline of 1.2% in the US same-store sales. Still undeterred, McDonald’s started promoting it dollar menu more than ever. In April, it surprised analysts by posting a 0.7% positive comps in the US against the 0.5% negative comp that analysts were expecting.
Not only that, but the company has also been gaining market share. It is common business prudence that when the going is bad, the territory (read market share) has to be defended and in good times the results have to be reaped. This is exactly what Big Mac is doing.
McDonald’s Corporation (NYSE:MCD) keeps reminding its customers that it is still the trend setter as far as new menu items are concerned. This year it has already introduced premium items like McWraps, Egg White McMuffins, blueberry pomegranate smoothies, etc. It also has brought back the McRib, which is arguably one of the best fast-food items created ever.
The company deliberately puts this up as a limited time item to build up the excitement. McDonald’s spokesperson Ofelia Casillas once said: “We know our customers love McRib and we won’t disappoint them! It will be returning.” Meanwhile, the Golden Arches has160 new items in its pipeline.
McDonald’s Corporation (NYSE:MCD) is deliberating offering its breakfast menu all day long. To the hordes of Egg McMuffin, McGriddles, and pancake fans, this is welcome news and has created considerable buzz in the industry. There are serious logistical issues that need to be resolved before this can become operational. But once Big Mac figures out a way, it could be a huge competitive advantage. According to a 2012 study by Scarborough and reported by Bloomberg BusinessWeek, McDonald’s already has a 48% share of the fast-food breakfast market.
The company is also experimenting with its delivery services. These services are presently available at around 20% of outlets, and McDonald’s Corporation (NYSE:MCD) is planning to expand this. Delivery services score big at places where the drive-through windows are somewhat spaced out.