McDonald's third quarter results exceed expectations: improving quality and attaching importance to Coffee Business

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McDonald's delivered a better-than-expected Q3 financial report and hit back hard at its rivals Burger King and Chipotle.

On the evening of the 24th Beijing time, McDonald's released its Q3 results. As a result of the sale of Chinese mainland and Hong Kong franchises, revenue from Chinese mainland and Hong Kong stores will no longer be included in McDonald's overall revenue in the three months to September 30. as a result, the company's overall revenue fell 10 per cent to $5.75 billion. Specifically, revenue from proprietary stores fell by 23%, while revenue from franchised stores increased by 10% for McDonald's.

However, due to the 850 million revenue from the sale, the restaurant operating and management expenses have been reduced, so that its operating profit and net profit have made a significant increase, up 44% and 48% respectively compared with the same period last year, both exceeding Wall Street expectations. Even excluding the impact of selling franchises, McDonald's operating profit increased by 5% year-on-year.

In the US market, where the fast food industry has been in the doldrums, McDonald's comparable sales are gradually improving, with its Q1 comparable sales growing by only 1.7% compared with the same period last year. The growth rate of Q2 has risen to 3.9%, while Q3 has hit a new high of 4.1% this year. Compared with comparable sales that struggled on the edge of growth in 2015 and 2016, McDonald's in 2017 can be said to have made a big improvement and began to "come back from the dead".

What exactly did McDonald's do right? We made a simple summary:

Learn from Starbucks and attach importance to coffee business

In recent months, McDonald's has been refurbishing its McCafe and updating its coffee drink list, much like Starbucks (feature Reading). At the beginning of the transformation, the measure caused a great deal of controversy among franchisees, many of whom believed that updating the beverage line would only lead to additional costs, such as the purchase of expensive equipment, but would not actually increase sales. However, it turns out that after months of testing, McCafe's sales completely cover the cost at that time, and also make a profit.

McDonald's US regional president Chris Kempczinski said that the profit margin of coffee drinks is very high, and the modified McCafe has become a scene to attract new consumers. Currently, most of McCafe's coffee drinks are still on sale, with a large caramel macchiato for $2 and a Starbucks for at least $2.95. In other words, even if McDonald's sells coffee so cheaply, it still makes a lot of money, which shows the profit margin of the coffee business.

Improve quality, update menu

An important reason for the downturn in the fast food industry is "unhealthy", especially under the trend of healthy eating, it feels guilty to take a bite of a hamburger full of fat and calories. For fast food companies, the top priority is to make themselves look and eat healthier. McDonald's has also made a big breakthrough in this area, launching a lot of new menus and making a lot of money by the way.

According to McDonald's, the "Signature crafted" classic handmade products with fresh raw materials have received a good response from consumers, although their prices are much higher than those of other products. The introduction of fresh beef burgers so far this year has also driven sales growth. According to previous data, hamburger sales at three Dallas restaurants have increased by 20% and 50% since they started selling fresh beef burgers. McDonald's has been looking for a balance between "health" and "speed".

A big promotion of $1 drinks and $5 hamburgers

After canceling the $1 menu in 2014, McDonald's finally found a new menu in 2017, extending the big promotion. Judging from the current situation, McDonald's discount promotion is not at the expense of operating profit. Since April and May this year, carbonated drinks, big or small, have been sold for only $1 in all McDonald's restaurants in the United States, and some coffee and milkshakes have been promoted for a limited time of $2. The new three-story handmade hamburger costs only $5. A $1 drink is hugely attractive to the low-income class, with two 2-liter colas costing $15 at the grocery store or Amazon. In 2018, McDonald's will continue its discount promotion with a brand new menu, which will be cheaper for as little as $1, $2, and $3.

Digital strategy is recognized

McDonald's announced in June that it would launch mobile ordering food in 14000 US stores and electronic buffet machines in 2500 stores by the end of the year, and its steadily advancing "digital" strategy has also been recognized. The introduction of a la carte in the United States has several advantages: it saves manpower and greatly reduces the operating costs of restaurants. Consumers' experience can be upgraded, and ordering and picking up can be carried out quickly. Saunders, director of retail management, said that by the end of 2020, most McDonald's restaurants will be "strengthened" with digital upgrades. Hottovy, an analyst at Morningstar, believes the move will push same-store sales in the United States even higher.

The takeout business in cooperation with UberEATS is highly praised

In May this year, McDonald's and UberEats reached a partnership. It is expected that by the end of this year, 5000 McDonald's across the United States will offer delivery service. McDonald's executives believe that the further development of the takeout business has exposed McDonald's to many new consumers, especially young people and residents living in suburban areas.

The core of McDonald's change is to expand the consumption scene and radiate more consumers. Fast food giants have been trying to combine "fast" with other growing needs of users, such as quality, health, performance-to-price ratio, etc., to provide a variety of consumption scenarios as far as possible, takeout, car restaurant, table service, social McCafe, to meet the needs of different consumer groups. On the other hand, digitization and discount have become an important means to attract new people to enter the store and old fans to continue to buy under the new consumption scene.