Image source: www.mcdonalds.com.
In early 2015, McDonald's Corporation (MCD 0.37%) reduced the number of offerings on its menu, trimming off items that didn't have vibrant enough sales to justify their intricate preparation. Simultaneously, the burger giant invigorated the marketing of its core menu gladiators, such as the Big Mac, Quarter Pounder With Cheese, and World Famous Fries. That's McDonald's term for its fries, incidentally; not mine, although it's hard to argue with.
These steps, initiated under previous CEO Donald Thompson, were the first in a year-long effort to sharpen the company's focus. McDonald's is making a tentative foray into the competitive fast-casual sector via its "Taste Crafted" customizable burgers, which are currently under test marketing in southern California in over 600 restaurants.
But the company's primary mission in 2015 has been to convince skeptical customers to return to its restaurants, using a simplified menu, "speed, friendliness and accuracy" (in the words of current CEO Steve Easterbrook), and the promise of tastier food.
It appears that so far, delivering tastier food means developing the Taste Crafted menu, rolling out micro-improvements like longer toasting times for sandwich buns, and experimenting with limited-time offerings, or LTOs. In particular, the "Southern Style Buttermilk Crispy Chicken Sandwich," a not very subtly disguised challenger to privately held Chick-fil-A's flagship sandwich, has been lauded by management for its successful August launch and climbing popularity.
The warm customer reception greeting this new crispy (i.e., fried!) chicken sandwich contrasts vividly against the last big chicken LTO, "Mighty Wings," from two years ago. You may remember reading about this fiasco, in which McDonald's found itself left with 10 million pounds of frozen chicken wing inventory after patrons rejected the "premium" item en masse.
Due to its relative success, as well as its elegant presentation and credible deliciousness, I'm tempted to name the new buttermilk chicken sandwich as McDonald's best menu item in 2015. However, since this isn't a taste test, but a piece of analysis regarding an investment in McDonald's stock, the title must be bestowed elsewhere on the menu.
A joint acceptance speech?
In endeavors requiring complex problem solving, it often takes a dedicated team to achieve a breakthrough. Just as this year's Noble Prize in Chemistry was handed to three joint winners, McDonald's best menu item in 2015 is awarded to a group, the "All Day Breakfast Menu," for both its immediate and potential long-term impact on the company's revenue and earnings.
Earlier this fall, I wrote that McDonald's declining U.S. sales weren't due solely due to the rise of fast casual chains; rather, that operational miscues were sending loyal patrons into the arms of other quick-service competitors. In this analysis, which you can read here, I offered that McDonald's sales woes were really throughput issues (throughput is the rate at which a system generates money through sales).
I also argued that throughput could be hastened by way of incremental operational improvements. Fix certain bottlenecks, especially in the drive-through, and sales could rise by allowing McDonald's capacity to fill latent demand from core customers. Some of these customers could be enticed back from smaller fast-food rivals. I singled out McDonald's all-day breakfast menu, not launched nationally at the time, as having the potential to increase throughput, and thus overall sales.
It's early yet, but data suggests that all-day breakfast, a pared-down version of the full breakfast menu that shrewdly skews toward easily prepared items, is indeed increasing throughput at McDonald's.
According to The NDP Group, which released a two-month study last week based on checkout receipts, one-third of purchasers of all-day breakfast menu items outside of traditional breakfast hours have been new or lapsed customers. The study found that buyers of all-day breakfast items were most interested in ordering these items during lunch.
In another sign that throughput is increasing, and that fears that all day breakfast will cannibalize McDonald's lunch items are unfounded, 61% of breakfast item purchasers at lunch time also added non-breakfast items to their orders, resulting in a higher average lunch ticket.
More data on all-day breakfast to come soon
When McDonald's reports fiscal Q4 2015 earnings at the end of January, we'll have a much clearer view of the contribution of all-day breakfast to a comparable sales increase, which promises to well exceed the 0.9% U.S. "comps" rise recorded last quarter. But it's already clear that this menu innovation is shifting traffic back to the Golden Arches. All-day breakfast, despite being launched nationwide only very recently (on October 6th), has jump-started the company's formerly tired menu in 2015. It's also been one of the prime movers behind the investor enthusiasm that has pushed the MCD symbol up nearly 20% since the beginning of October. I'm usually not one to make sweeping predictions, but today, I'll wager that all-day breakfast will continue to lift U.S. comparable sales over at least the next four quarters.
As for the Southern Style Buttermilk Crispy Chicken Sandwich, perhaps 2016 will be its year. And if you'd like to propose a "best menu item" candidate based on taste, company economics, or any other criteria, don't hesitate to leave a comment below.
