How McDonald's keeps winning US customers

The restaurant chain has an uncanny ability to reinvent itself and grow sales.

By Trefis Apr 30, 2012 9:25AM
Image: McDonald’s restaurant © AFP/Getty ImagesMcDonald's (MCD) recently unveiled its first-quarter earnings. Revenue increased by 7%, and net income grow by 5%. The star of the show was not emerging economies but the U.S., where comparable sales grew 8.9%. International comp sales growth was tepid, with European comp sales increasing 5% while the corresponding figure for Asia Pacific, Middle East and Africa was 5.5%.

The ability to keep reinventing itself to appeal to consumers domestically as well as internationally is the reason we think McDonald's deserves a higher price than the current market price.

We look at what steps McDonald's took that led to such impressive comp sales growth rates in the U.S. McDonald's competes with Yum Brands (YUM), Subway, Starbucks (SBUX), Wendy's (WEN), Chipotle Mexican Grill (CMG), among many others.


Most of the growth in comp sales can be attributed to increases in customer traffic or average spending per customer, since menu price increases were subdued in 2011. And since McDonald's seems to be omnipresent in the U.S., achieving either of the two is a herculean task. This says a lot about the company's ability to adapt to changing consumer demand and economic environment.


McDonald's was able to increase customer traffic through a combination of factors.


Extended hours

First, McDonald's extended the timing of its outlets or kept them open for the whole day. More than 89% of McDonald's outlets in the U.S. open by 5 a.m., and 40% are open 24/7.


McDonald's Annual Customers per Restaurant

New menu items

Second, the fast-food chain added menu products that helped attract a greater number of customers. In 2011, the company launched Fruit & Mango oatmeal, Mango Pineapple Smoothies, Peppermint Mocha as well as other items. The new menu additions continued in 2012 with the introduction of Chicken McBites and the experimentation with bakery products.


Such constant innovation is possible because McDonald's spends a great deal on research, development and testing of new products to ensure they appeal to American consumers.


McDonald's Average Spend per Customer Visit at Company-Operated Restaurant

Refurbishing/re-imaging existing restaurants

Third, McDonald's upgraded its restaurants to include more comfortable seating, free Wi-Fi and even McTV. In fact, the company plans to spend half of its capital expenditure in 2012, estimated at a whopping $2.9 billion, to re-image and upgrade its existing U.S. restaurants to make them appear more upscale.


McDonald's Capex as percent of Revenues

This will help the company compete directly with Chipotle, Starbucks, etc., that fall into fast-casual or casual restaurant segment. Moreover, this will also help the company to some extent to cast off the stereotype of being a large scale, inexpensive burger serving restaurant chain and appeal to a wider range of consumers.

14Comments
May 7, 2012 7:53PM
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They are also one of the lowest paying in the fast food market.  It certainly isn't going to the workers. It all goes to the top.  An okay first job for someone in high school but a single mother of 1 or 2 children, working 40 hours a week while she continues to try to find better employment doesn't even it close to overcoming the poverty line.  I know, I've lived it. 
May 1, 2012 2:44PM
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their food quality is horrible and the service sucks during late night! I personally love burger kings quality
Apr 30, 2012 7:24PM
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I'm not crazy about McDonalds, but I do like the dollar menu.    The McDonalds a block away from me always stays packed.   A lot of retired people go there, because they are on a limited budget.   The same for a lot of college students.   I personally like Burger King much better.
Apr 30, 2012 9:41PM
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Mcdonalds' isn't too bad, but I think maybe they should try to offer some options on their menu like maybe a frysauce for their fries instead of just ketchup.  And maybe they should push extra onions, lettuce and tomatoe to bulkd up sales.  When I go to subway for example I like to get as much vegetables as I can and extra meat sometimes,...the vegetables help slow the digestion(the fiber in them) of the food and gives you a full feeling longer.  At Mcdonalds it's only 25cents for a tomato slice on a mcchicken or a mcdouble (which is a dollar).  I have been thinking about maybe ordering those with lettuce and onions(extra onions on the mcdouble is free for example).  Some of the special sauces like at Burgerville and bakers burger (single unit place?) are really good on their hamburgers.

 

May 7, 2012 8:15PM
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They sure haven't won me over.  If I do go one one of those places, it's Wendy's or Subways -- I gave up on McDonald's a long time ago.  Watered down drinks, shakes look like somebody doesn't know how to make them right, the so-called burgers are too fattening -- I could go on.  So don't count me as a won over costomer -- I'm not!  # # #
May 7, 2012 9:59PM
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Fruit and mango oatmeal? I don't know about anyone else but I'd rather have fruit and maple oatmeal...just a personal preference.
May 7, 2012 9:15PM
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I Think Mcdonald"s is great!!! I can't stand Burger King at all. McDonalds has come along way and they will keep going. I stop at McDonalds everytime I travel. Sure I have seen some bad ones but the good far out weigh the bad ones!!! I think that McDonalds is a great place to work speaking from experience.
May 7, 2012 9:54PM
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is because they are making a fortune off of americans,overseas is dirt cheap for a big mac or filet of fish
Apr 30, 2012 1:31PM
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And Food Quality varies wildly...... between Stores and also time of  Day... what's up with that
May 1, 2012 1:00PM
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That's right JOHN, you don't get it that's why Mcdonalds got it.
May 8, 2012 1:40AM
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mcdonald's are a franchised company and some locations are owned alone! the fact that there food is bad is due to personal choice and what a person is used to eating, but they do need to look at what sales and at what does not and focus on that.

the facts are true about customer service! if you do not injoy going there you should tell a manager,the owner or not come back.

May 7, 2012 10:04PM
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In the early near mid 1970's popped up Carols "aka Burger King" they were okay.

Then McDonald's came to town and Carols soon disappeared. McD's fast food tasted pretty darn good for awhile.  Burger King entered the market " Have It Your Way " and they made their trademark. Eventually Wendy's came. Bit more expensive but a tastier burger and thicker fries you couldn't beat.

 For your Dollar can opt to get the Cheap stuff at McD's or for an extra 20 cents on a Dollar get food that was Satisfying at Wendy's.

 With so many people Budget Minded and Cheap it was easy to say McDonalds and still is. (Cheap and low end quality).

The better tasting and quality food is at Wendy's and still the same case today.

McDonald's is #1 cause it's cheap and fast and with so many Welfare recepients/ Poverty/ Low-Income that why they have Highest Numbers of customers.

 The better Fast Food chain is Wendy's and always has been.

Mc Donald's being Number 1 in Quantity and a FARCE when it comes to QUALITY.

 

Eat at Wendy's and you'll be glad you did. Eat at McDonalds and your stomach turns and aches at every corner till you take a dump or barf it up.

Apr 30, 2012 1:28PM
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Yeah they have fixed up stores... but they don' keep them up.... nice one near me now looks dirty.
Apr 30, 2012 1:20PM
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McDonalds has got to be cooking their books! They can't cook anything else. I can't believe they are even still in business let alone expanding. They have absolutely the worst food on the market. Every person I talk to ( young and old) hates their food!....How can they keep making so much money???? Out side of the fact that they are EVERYWHERE.....I just don't get it. 
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