Egg McMuffins to the rescue.
McDonald's cracked open its best sales performance in four years on Monday, lending credibility to a turnaround plan, hatched by Steve Easterbrook when he took over as CEO nearly a year ago, that includes serving all-day breakfast and revamping the burger chain's value meals. Shares rose as much as 4 percent.
All-day breakfast boosts sales, but more importantly brings in a new group of customers who may never have set foot into the fast-food chain otherwise. It's also winning back customers after two years of giving up market share to its competitors.
You can just hear the health-conscious millennials now: "Fresh coffee, yogurt parfaits, oatmeal, Egg McMuffins -- those aren't really fast-food." Plus, the items are cheap. And an onslaught of marketing since the company rolled it out nationwide in October has put all-day breakfast top of mind for many consumers, according to data from YouGov Brand Index.
By the end of December, 45 percent of people who eat breakfast out said they would consider buying McDonald's the next time they went out for fast food, up from 40 percent of people surveyed at the end of August, according to YouGov Brand Index. That's helped stem a decline in customer transactions: The number of transactions at McDonald's fell by 2.3 percent in 2015 from the year before, compared to a 3.6 percent year-over-year drop in 2014.
Behind the scenes, the boost from breakfast sales seems to have curried favor with McDonald's franchisees, who are now cooperating with the company to launch a new, national value program called the McPick 2, which lets customers bundle their choice of two items for $2, such as mozzarella sticks and double cheeseburgers. As the company looks to transform 4,000 locations from company-owned restaurants to franchise-owned restaurants by 2018, a good relationship with their franchisees will only become more important.
And it should continue to help the burger chain win back customers and eat into the competition, particularly the once-soaring fast-casual dining chains, where sales have been slowing.
The run-up in the share price, helped along by generous share repurchases, has brought McDonald's relative valuation more in line with its peers: McDonald's stock is trading at 22.1 times forecast earnings, compared to an average multiple of 22.6 among its peers, according to data compiled by Bloomberg.
Now that McDonald's is posting positive sales at established stores, the question is whether it can sustain the initial burst of energy and start also growing the number of customer transactions in major markets like the U.S., Germany and France. Slowing economies across the globe, including China and Europe, along with headwinds from foreign currency, will continue to be challenging.
But if McDonald's can keep customers coming in for breakfast and deliver on the rest of the company's turnaround promises, even if its momentum slows a bit, then it can keep clawing back market share and rewarding investors.
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