After 50 years of operation, McDonald ’ s is revitalizing its products, and pushing innovation
through a variety of initiatives. This foodservice giant with more than 30,000 restaurants
in 100 countries provides food to nearly 50 million customers each day, but decades
of expansion, sales growth, and profi ts made the burger giant complacent. By focusing
on getting bigger, not better, the company stumbled in 2002, recording its fi rst losing
quarter. By 2003, U.S. sales had fl attened, as many consumers were turning to healthier
options and restaurants with more upscale menu items, a segment sometimes referred
to as “ fast – casual ” . Morgan Spurlock ’ s fi lm Super Size Me , released in 2004, also seriously
diminished the public image of the quick – service chain, as moviegoers watched Spurlock
become ill and gain 25 pounds after eating only McDonald ’ s food for one month.
With pressure to get back on track, it was time for McDonald ’ s to rethink the business.
The chain devised a recovery strategy that included new menu items, redesigned restaurants,
and a focus on the consumer experience. Through a program titled “ Plan to Win, ”
McDonald ’ s focused on making a deeper connection with customers through the fi ve
business drivers of people, products, place, price, and promotion. Using its own fi ve P ’ s,
the company is developing and refi ning new strategies to deliver value, offering product
variety, developing updated and contemporary stores, balancing the delivery of value pricing
with more expensive items, and marketing through bold and innovative promotions.
Execution of this strategy has included mystery shoppers and customer surveys, along
with grading restaurants to help the company deliver on its people goals. New menu
items like the Fruit & Walnut Salad in the United States and deli sandwiches in Australia
are part of the commitment to serve high – quality products to satisfy customer demand
for choice and variety. Restaurants are staying open longer, accepting credit and debit
cards, enabling wireless Internet access, and even providing delivery service in parts of
Asia. As part of the program, franchisees and suppliers are asked to provide their opinions
and ideas on facility design, while the company benchmarks retail leaders, such as
Crate & Barrel, to help produce cleaner and smarter restaurants. The company is testing
small handheld devices to use on what it calls “ travel paths, ” a process for checking
operational failures such as the temperature inside the refrigerators. Experiments with
a new grilling concept from Sweden, which grills burgers vertically instead of horizontally,
offers space – saving possibilities for the chain. Product offerings like the McCaf é ,
a concept developed in the Australian market that provides gourmet coffee inside 500
existing restaurants, are proving to be successful.
The trouble experienced in the early part of the millennium has abated, and executives at
McDonald ’ s have declared success after several years of progress under the Plan to Win.
Company revenues are up, and the fi rm plans to remain focused on its core business. One
indication of its commitment to fast food was the divestiture of its seven – year ownership
stake in Chipotle Mexican Grill, a highly successful fast – casual burrito chain. With the
sale of around 5 million shares of Chipotle stock, the burger maker is now refocusing on
Brand McDonald ’ s.
Attracting more customers to McDonald ’ s remains its goal for growth. In the U.S.
market, the strategy is to leverage menu innovation; in Europe, upgrading the customer
experience and enhancing local relevance have driven management efforts; and the
Asia/Pacifi c, Middle East, and Africa markets have focused on building sales through
extended hours. The question remains whether focusing on the core business will yield
maximum return. At McDonald ’ s, the executives are betting on the core brand and hoping
that this strategy will pay off.

3 U.S. restaurant chains beat views, but bottom elusive

LOS ANGELES (Reuters) – Three U.S. restaurant operators, including burrito chain Chipotle Mexican Grill reported quarterly earnings that topped Wall Street expectations on Wednesday, but analysts warned the hard-hit industry had not found a bottom.
Sales at restaurants have softened and even tumbled as diners grappled with vanishing personal wealth and credit, the housing crises and rising unemployment.
Operators are closing weak outlets, paring labor and other costs and slashing plans for new restaurants.
“There were positive surprises all around. It doesn’t mean the business trends are any better, but they’re doing a good job where they can,” RBC Capital Markets analyst Larry Miller said.
“Buffalo Wild Wings was outstanding. Chipotle was good relative to what a lot of us thought. P.F. Chang’s did a good job on cost controls, though they are suffering a lot worse fate on the top line.”
Shares of Buffalo Wild Wings climbed more than 25 percent, and Chipotle rose nearly 20 percent in after-hours trade and P.F. Chang’s gained almost 2 percent at the end of regular trading.
Chipotle’s fourth-quarter net income fell to 52 cents a share as price increases helped cushion eroding sales, but beat analysts’ expectations for 48 cents per share, according to Reuters Estimates.
Sports-themed Buffalo Wild Wings Inc fared better, posting a 28.7 percent rise in fourth-quarter net income to 43 cents a share versus expectations for 39 cents, helped by stepped-up promotional offers and other efforts. [nBNG433108]
Sales at the company’s established restaurants were up 4.5 percent at company-owned locations and 2.5 percent in franchised locations.
Morgan Keegan analyst Destin Tompkins said the company’s business is finding favor with diners who are shying away from higher-priced eateries.
“The value proposition is attractive there and it’s relatively affordable entertainment for the consumer,” he said.
TOPPING EXPECTATIONS
At Chipotle, a burrito chain known for serving premium-priced, naturally raised meats, quarterly profit fell 3.2 percent to $17 million, as price increases helped cushion eroding sales.
Sales at established restaurants rose 3.5 percent at Chipotle, while operating margins declined a bit.
But Chief Financial Officer John Hartung said Chipotle’s days of raising prices without pushback from diners appear to be on the wane.
“Given the economic environment, we have seen resistance to the most recent price increases,” Hartung said.
At P.F. Chang’s China Bistro ,, which has exposure to markets hit by home foreclosures, like California and Arizona, same-store sales fell 7.1 percent during the quarter at the namesake outlets and declined 6.1 percent at Pei Wei, its newer quick-serve restaurants. [nN11526755]
The company’s decline of 22.9 percent in fourth-quarter earnings from continuing operations to 31 cents a share exceeded Wall Street’s view of 26 cents.
Executives said business at its namesake Bistro restaurants was off 10 percent in December.
Tom Forte, an analyst with Telsey Advisory Group, said some investors were hoping that same-restaurant sales may have hit bottom after industry leader Darden Restaurants Inc — owner of chains like Olive Garden and Red Lobster — said October marked the low point in its most recent quarter.
“Some people hoped that October was the bottom. The fact that Bistro (comparable same-store sales) were negative 10 (percent) in December suggests that we haven’t hit bottom,” Forte said.
Buffalo Wild Wing’s stock jumped to $27.50 from its Nasdaq close of $21.91, while shares in Chipotle rose to $52 from their close of $47.42 on the New York Stock Exchange and P.F. Chang’s stock closed up 1.9 percent to $17.92.