Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Remember how diners were going to shun fast food at the likes of McDonald's Corp. in favor of healthier fare at, say, Chipotle Mexican Grill Inc.?

It turns out the calculus around consumer eating habits is far simpler: A lot of people still just care about getting a quick meal that fills them up, as cheaply as possible. When McDonald's tried to go the other way, getting rid of its value menu and offering healthy salads, customers stopped coming. 

And just like pundits got that wrong, they are also missing the over-arching reason why shares in McDonald's rose by 4 percent Tuesday after the chain blew past analyst expectations and posted its seventh straight quarter of sales gains. 

Lovin' It
McDonald's shares have outperformed the S&P 500 over the last few years
Source: Bloomberg

Analysts tried to explain the upside surprise by talking about promotions that were more successful than expected, such as new Big Mac sizes and $1 and $2 drink deals. Others gushed over the promise of technology such as touch-screen kiosks and mobile ordering and payment.

And those all helped. But the real reason things are going the chain's way right now is because when CEO Steve Easterbrook took over McDonald's, he got it to stop pretending to be something it's not.

It went back to providing quick meals at dirt-cheap prices that customers knew would fill their stomachs. In other words, McDonald's got back to basics -- a lesson other struggling chains such as Chipotle and Whole Foods Market Inc. would be wise to heed. 

Big Mac
McDonald's sales have outperformed the rest of the industry for more than a year
Source: Bloomberg
Note: Industry-wide figures for Q1 same-store sales haven't come in yet, as many companies haven't reported earnings yet

True, McDonald's is following trends by catering to customers who want healthier fare such as cage-free eggs and fresh beef patties. But McDonald's says it changed the menu only to make the food taste better. 

And the company's supply-chain muscle lets it offer fresher food at prices on par with or lower than those of its competitors. It can also tack on attention-grabbing deals that bring customers in the door, such as $1 sodas and $2 McCafe specialty drinks across the U.S.

Likewise, McDonald's embrace of technology simply helps get its food into customers' hands more quickly -- a promise sometimes lost on rival chains when they start introducing all sorts of new products and offers to boost traffic. 

Analysts have framed the company's push toward moving more restaurants under franchise leadership as a way to reduce risk and boost profits. But in many cases, local leadership has also led to a better customer experience more tailored to regional tastes.

Don't get me wrong; McDonald's still has plenty of work to do. U.S. traffic is still down from a year ago. Year-over-year comparisons will get tougher when the company starts measuring itself against the boost from introducing all-day breakfast.

And just as Starbucks has learned, the added complexity that comes with delivery and mobile ordering could slow down sales growth.

Traffic Jam
Customer traffic at McDonald's U.S. stores remains challenged
Source: Bloomberg, company filings

McDonald's is also under price pressure from competitors and grocery stores, especially as recently stabilized gas prices take a bite out of sales across the industry.

But McDonald's is right to stick to its strategy. Though fickle tastes change, diners will always be drawn to McDonald's for the basics of taste and price -- regardless of what kind of Big Mac it serves. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net