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McDonald’s Earnings Miss Market Expectations, Scales Back On Promotions

McDonald’s Earnings Miss Market Expectations, Scales Back On Promotions
Despite spending heavily in promotional activities through the quarter, the largest fast food chain of the world McDonald’s did not manage to draw enough US consumers away from the competition and consequently performed worse than expected in the quarter. This was the first such performance of the company in two years.
The earnings report resulted in a 3 per cent drop in shares of the company. However so far this year, the share value of McDonald’s is up by 14 per cent and has a market value of $156 billion. However in comparison to its rival Burger King’s parent company Restaurant Brands International, which has gained 31 per cent so far this year and market value of $31 billion, the gains have been lower. In the same period, the shares of Wendy’s have also risen by 38 per cent.
Based on a survey of analysts by Refinitiv, the results of McDonald’s were not with what Wall Street was expecting. After ending one of its nationwide limited-time value deals, the American business of the company dropped significantly and this became important for the company because revenues from this market accounts for more than a third of the company’s total revenue. Promotion was identified as its key sales driver by the company during the first half of the year.
In mid-August another promotion — buy one, get one for $1— for core menu items like Big Macs and Filet-O-Fish, was launched by the burger chain. According to SunTrust analyst Jake Bartlett, the deal tends to be pricier than the 2 for $5 promotion.
A line of spicy barbecue chicken products was introduced by the company in September, the last month of the quarter. However for its home market of US, that menu addition was not identified to be one of the significant reasons for increase in sales.
Rather, the company said that its growth in its domestic same-store sales was drive by tech-focused upgrades, national and local promotions, and menu price increases. A number of new additions such as self-order kiosks and digital menu boards which, according to the company, encourage consumers to spend more, have been included in a number of stores that the company had renovated so far in the US market.
During the quarter, there was a 4.8 per cent increase in the US same-store sales, the company said. However hat growth rate was lower than the market expectations of 5.2 per cent. There was also a continued drop in traffic to US locations.
With respect to menu additions, there is quite a buzz because of McDonald’s competition. After its launch this summer, its chicken sandwich was sold out in less than a month by Popeyes Louisiana Kitchen, which is owned by Restaurant Brands International, accompanied by an aggressive social media campaign.  
The launch of plant-based Impossible Whopper throughout the US by Burger King has gained more attention recently compared to McDonald’s. Plans for test a burger made with a Beyond Meat patty was announced by McDonald’s in September. The company plans to introduce it in select restaurants in Ontario, Canada.

Christopher J. Mitchell

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