Finally -- finally! -- McDonald's (NYSE:MCD) gets it.
After many misguided attempts at pandering to millennial consumers and attempting to fulfill CEO Steve Easterbrook's vision of the fast-food chain becoming a "modern, progressive burger company," McDonald's is at last doing the one thing that can permanently end the skid in sales it's suffered the past two years: paying attention to the value end of its menu.
Investors in the burger joint have endured the chain's quixotic attempts at changing its image with customers from a place where you could get a hot meal at a good price to one that competes against "better burger" restaurants like Five Guys and Shake Shack.
To woo back some mythic consumer who supposedly wandered away for fresher, higher-priced fare, McDonald's introduced kale salad bowls, "artisan" grilled chicken sandwiches, lobster rolls, and premium sirloin burgers. It's added ordering kiosks to allow for greater customization, experimented with table-side food delivery, put fries in metal baskets instead of cardboard containers, and allowed franchisees to select a few regional items for their menus. The result? A continuous, sustained collapse in same-restaurant sales.
Easterbrook's paid lip service to the notion the chain was off on the wrong foot. He said McDonald's wouldn't be pursuing millennials; he promised to cut down on the number of menu options and new product introductions; and he said the restaurant has been weak on giving customers value items. Yet he still maintained that very same course. Until now. And now may be the time McDonald's is able to finally bounce back.
In the space of a week, McDonald's announced it was adding $1 mozzarella sticks and was introducing a 2-for-$2 menu, giving customers the chance to pick two out of four value menu items.
Sure, it might seem a pretty humble start to a turnaround, but it's at last the realization that McDonald's real value to customers was not in being some knock-off fast-casual chain, but rather returning to its origins as a value leader.
Two years ago, McDonald's did away with its Dollar Menu and didn't replace it with anything of comparable worth to customers (does anyone else see a correlation with its slide in sales?). Now it's turning its attention to that end of the menu again, and it comes at just the right time. Maybe.
The burger chain just reported its first quarter of higher comps in two years, a turnaround that can now be built upon. While McDonald's claim it was because it reintroduced butter to its McMuffin recipe is a bit specious -- more likely it was the halo effect from the buzz surrounding its introduction of all-day breakfast -- by returning to its roots as a place to get a cheap meal could reignite sales growth, but only if it didn't wait too long to realize what was important.
This past summer, Wendy's (NASDAQ:WEN) also realized there was a lot of opportunity at the value end of the menu and began promoting "value bundles" such as its $1.99 ghost pepper fries followed by its 4 for $4 promotion in October. The result of both efforts was the same: higher same-restaurant sales. In the third quarter, Wendy's saw systemwide comps rise 3.1% in North America leading it to narrow its guidance for full-year comps growth to the high end of its previously issued forecast of 2% to 2.5%.
Restaurant Brands International (NYSE:QSR), the parent of the Burger King chain, also began offering customers 2 for $5 menu items earlier this year. It credited the platform, which included items like its Extra Long Jalapeño Cheeseburger and Chicken Fries, with boosting comps 6.2% in the U.S. and Canada.
So McDonald's is a little late to the party and it still has all that other claptrap Easterbrook added to the menu that hasn't done one whit to change the restaurant's course. But at least he's finally paying attention to what matters most to the chain and to its customers, and if he continues to build up the value end of McDonald's menu, the burger chain may yet again regain its former sales growth trajectory.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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