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McDonald's Relies on Technology and Beef to Drive Growth

By Daniel B. Kline - Oct 23, 2019 at 3:28PM

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The fast-food chain has focused on execution and selective menu changes and the results are showing up in its latest earnings.

McDonald's (MCD -0.09%) knows what you're probably going to order before you do. The company has been employing new technology that helps it predict orders, allowing it to fill those orders faster and increase customer satisfaction.

CEO Steve Easterbrook said during the chain's third-quarter earnings call:

We continue to move quickly to deploy Dynamic Yield, technology which improves our ability to offer customers what they are likely to want using machine learning to make suggestions based on time of day, weather and popular menu items. 

Technology, including Dynamic Yield, computerized ordering kiosks, digital menu boards, and app-based delivery, has helped the company drive a 4.8% increase in same-store sales in the United States and a 5.9% increase globally. The fast-food giant has delivered 17 consecutive quarters of global sales growth, and on Tuesday morning the CEO attributed part of Q3's increase to "gains in global guest counts."

The exterior of a McDonald's

McDonald's has posted another quarter of strong growth. Image source: McDonald's.

Technology and fresh beef

McDonald's executives spent much of the latest earnings call talking about technology. Easterbrook explained that those efforts are focused on driving positive customer experience.

"With digital, we are working hard to fill customers' desire for simpler, smoother, and more personal engagement over our digital platforms, including kiosks, drive-throughs, and our mobile app," he said, continuing:

Nowhere was the power of our emerging digital ecosystem more on display during the third quarter than in China. The market drove strong comp sales growth in part by delivering tangible members-only benefits to our digital community, which now stands at 100 million registered members.

Digital, he added, also promotes delivery, which is another growth driver for the restaurant stock. In the U.S., digital sales have helped increase check size, which led to the comparable-store sales increase even in a quarter when foot traffic was down.

Food was also part of the company's success story. CFO Kevin Ozan explained what was working during his remarks:

Our iconic core menu continues to fuel results from the fresh beef QPC [Quarter Pounder with Cheese] and QPC deluxe line ... Our customers are showing us that our investment in fresh beef is paying off, as we continue to grow burger share. Additionally, our Worldwide Favorites promotion that launched in quarter two and carried into quarter three resonated well, and customers especially love the Stroopwafel McFlurry.

Execute well and pick your spots

The success of fresh beef is interesting because of how McDonald's added it to its menu. The chain did not drop frozen beef on most of its burgers. Instead, it added fresh beef to the Quarter Pounder line. That gives the customers who care an option but keeps prices down for those who don't.

When it comes to technology and digital, the company has focused on changes that improve the consumer's experience and drive higher sales. Customers can see the app and ordering kiosks, but they may not notice behind-the-scenes technology, such as drive-through timers, which have improved order delivery speeds.

They also may not be aware of Dynamic Yield, but they are increasingly being affected by these changes. That's a strong plus for the company, which could post major gains if it can increase customer counts to its U.S. stores.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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