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Menu Improvements Spice Up McDonald’s

By Chad Fraser on February 5, 2013

McDonald’s (NYSE: MCD) continues to experiment with its menu in a bid to give its sales a lift in a tough global economy.

In the past few years, many of these changes have met with success. As we reported in “McDonald’s Sizzles in November,” the company’s November same-store sales (or sales from outlets that have been open for at least 13 months) rose 2.4% from a year earlier, mainly due to strength in the U.S., where its McCafe beverages and its limited-time Cheddar Bacon Onion sandwiches were hits.

The company rolled out its premium coffee in 2006 as it took aim at chains like Starbucks (NYSE: SBUX). In 2009, it expanded into espresso-based drinks and blended-fruit beverages, such as smoothies. McDonald’s doesn’t break drink sales out separately, but in a July 2012 Smart Money article, Morningstar analyst R.J. Hottovy estimated that coffee now accounts for about 4% of McDonald’s total revenue, double the percentage of five years ago.

McDonald’s McRib Sandwich Has a “Cult-Like” Following

The company’s same-store sales were flat in December, though they rose 0.9% in the U.S. as McDonald’s once again made the most of its menu offerings. To give its year-end sales a boost against a strong year-ago quarter, it shifted the annual return of its McRib sandwich to December. It also took aim at cost-conscious consumers by heavily promoting its Dollar Menu. To further help its sales, the company kept some of its restaurants open on Christmas Day.

The McRib, which Business Insider describes as having a “cult-like following,” is a particularly potent tool for attracting diners. The sandwich made its initial debut in 1981 and was offered consistently until 1985, when the company pulled it from the menu. McDonald’s then reintroduced it in 1994, and it has made periodic appearances on the menu ever since.

The McRib’s unpredictable nature has given the sandwich a strong following, spawning a Twitter account and even a McRib Locator website, where devotees can enter places they’ve seen the sandwich so other addicts can go get their fix. (As of February 4, the site had logged 47 McRib sightings in the previous seven days.)

Timing Is Perfect for McDonald’s Fish McBites to Surface

McDonald’s propensity for picking the right menu item at the right time was on display again yesterday, when it announced its first new Happy Meal in a decade. The new meal, called Fish McBites, will be on sale at McDonald’s restaurants from this week through to the end of March. The meal will include seven bite-sized fried pieces of fish, french fries, apple slices and a drink. The fish will be the same Alaskan pollock that McDonald’s uses in its Filet-O-Fish sandwich.

The move comes after McDonald’s announced in January that it would sell Fish McBites on its regular menu. They are based on McDonald’s Chicken McBites, which it successfully sold on a limited-time basis in 2012.

The timing coincides with the Christian fasting period of Lent, which begins on Ash Wednesday (February 13) and ends on Easter Sunday (March 30). During Lent, Christians are not supposed to eat meat—with the exception of fish—particularly on Fridays. The move should pay off for McDonald’s: according to 2011 figures from Gallup, 76.1% of American adults identify themselves as Christian. The polling firm also found that 55% of Americans said religion was very important to them, while 26% labeled it fairly important.

The move comes as the company takes a more serious approach to food and religion in other countries, as well. As we reported in September, McDonald’s is opening two vegetarian-only restaurants in India, both near important religious sites. The meatless menu is significant because the cow is viewed as sacred in the Hindu religion.

McDonald’s Is Counting on Menu Innovations to Keep Its Sales Aloft

The company has said that products like Fish McBites are part of its wider plan to tempt diners with limited-time items. McDonald’s hopes these moves will help it counter the sluggish global economy, which continues to weigh on its sales.

In the fourth quarter, McDonald’s sales rose 2% from a year earlier, to $6.95 billion. That beat the Street’s expectation of $6.9 billion. Same-store sales gained just 0.1%. The company earned $1.40 billion, or $1.38 a share, up from $1.38 billion, or $1.33. That was well ahead of the consensus forecast of $1.33.

Consumers tend to eat at home when times are tough, and that’s a trend the company is finding difficult to fight. At the same time, it is facing rising competition both at home and abroad from restaurant operators including Yum! Brands (NYSE: YUM), owner of Pizza Hut and KFC, The Wendy’s Company (NYSE: WEN) and others. To top it off, ingredient costs are rising, and McDonald’s also posted strong results a year ago, making it tougher to make gains in more recent quarters.

In light of those pressures, the company also said that it expects negative same-store sales growth in January. For the year, McDonald’s forecast 3% to 5% sales growth and an operating income increase of 6% to 7%. The company also plans to spend $3.2 billion this year to add 1,500 to 1,600 new locations around the world and renovate existing outlets.

McDonald’s will likely continue to face headwinds until the global economy finds a firmer footing, but management’s willingness to take risks on new food items certainly bodes well for the future.

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