McDonald’s dual strategies of emphasizing its value platforms and rearranging limited-time offerings throughout the fourth quarter and beginning of 2013 should help the Golden Arches differentiate and defend its position in a tough market, industry watchers said.
In the United States, where same-store sales have risen 4.8 percent through August, but face daunting comparisons from 2011 in the coming months, McDonald’s will put more advertising emphasis back on its Dollar Menu and will shift the nationwide limited release of its popular McRib to December, according to separate reports released this week.
In a research note published this week by Barclays Capital, analyst Jeffrey Bernstein noted that McDonald’s chief executive Don Thompson and others acknowledged a lack of marketing focus on the chain’s value platforms contributing to underperforming sales in the first part of 2012. Meanwhile, a memo from the McDonald’s Operators National Advertising Fund leaked to Advertising Age disclosed McDonald’s decision to move the national McRib promotion back to mid-December, from an earlier scheduled window of mid-October to mid-November.
Sources in the Ad Age report noted that McDonald’s faces a same-store sales comparison from December 2011 of a 9.8-percent increase in the United States, which benefited from last year’s unseasonably warm weather. Moving the McRib promotion from November, where it had been on the marketing calendar the past two years, to December feasibly could smooth out the spike in sales from a year earlier.
“It might be a positive move for them, and it’s worth testing,” said Darren Tristano, executive vice president of Chicago-based market research firm Technomic Inc. “Results will dictate how [McDonald’s does] it in the future, but it’s not a surprise they’re shaking things up. They have a new CEO, and maybe this is a way for him to put his own signature on what they’re doing.”
The reports also found that McDonald’s plans to launch a premium burger, the Cheddar Bacon Onion Angus Third Pounder, in McRib’s former autumn slot, in addition to a similar Cheddar Bacon Onionsandwich. The Operators Fund’s leaked memo also said Fish McBites, which had been test-marketed last February, would roll out nationally next February for Lenten season. Ash Wednesday is Feb. 13, 2013.
Those planned release dates also coincide with big same-store sales months from a year earlier. In November 2011, a national McRib promotion, as well as peppermint McCafe beverages and a 0.75-percent price, hike drove an increase of 6.5 percent in McDonald’s domestic same-store sales. The brand’s February 2012 same-store sales soared 11.1 percent, benefiting from mild weather, a favorable calendar shift, and sales of the Filet-O-Fish and the nationwide limited-time offer of Chicken McBites.
Building on international success
Every restaurant company needs to balance its marketing with long-term value and periodic new-product news, as McDonald’s and its quick-service peers already do, but McDonald’s has a greater imperative to differentiate itself further because of Burger King’s recent menu moves, Tristano said.
“Burger King has taken a ‘me-too’ strategy and added items typically found at McDonald’s,” he said, “and as a result, McDonald’s is less differentiated if you can get a snack wrap and a smoothie at Burger King too. McDonald’s has to strengthen its difference to maintain its market share by creating more innovative LTOs that create craveability and a reason to go specifically to McDonald’s.”
The way for McDonald’s to maintain market share in a manner that Burger King, Wendy’s or other rivals can’t is to import successful items and flavors from its many international markets, Tristano added.
The Cheddar Bacon Onion sandwiches have done well over the past few years in several European markets, particularly the Chicken Bacon Onion sandwich. Chicken McBites, which have been a premier limited-time offer for McDonald’s this year and laid the groundwork for next year’s Fish McBites, originally were developed in Australia. The chain’s most recent premium food event in the United States, large McWraps, got its start in Europe as well.
“If you look at some of their biggest successes, McCafe started outside the U.S., and I believe the salads were popularized in France,” he explained. “McDonald’s is in more than 100 countries, and you’re going to learn something in every country. If you have the advantage of 130 countries doing research and development for you, you’ll find some very clear winners that have a very broad application back here in the U.S.”
One exception to that trend may be the English Pub Burger, which was tested in the United States in the summer of 2011 and was a variant of the Angus Third Pounders with hickory-smoked bacon, grilled onions, steak sauce and Dijon mustard. Bernstein wrote in his research note that McDonald’s decided not to roll out the Pub Burger as a national limited-time offer after disappointing feedback in test, even after Thompson pointed to the sandwich in previous earnings calls as a possible winner.
Culver’s recently introduced its own such limited-time offer, the Colby Jack Pub Burger. But McDonald’s officials told Bernstein during his recent meeting with them that they are confident they could withstand competition from Culver’s or larger rivals who have been growing their sales this year as well.
“The largest of those peers would need to generate an incremental 4 percentage points of comparable-sales gains to negatively impact McDonald’s by 1 percentage point, all else equal,” Bernstein wrote.
Oak Brook, Ill.-based McDonald’s operates or franchises more than 33,500 restaurants worldwide, including more than 14,000 in the United States.