As McDonald’s works on transforming, $1 sodas boost US sales

OAK BROOK, Ill. — McDonald’s is trying to modernize its image by rolling out delivery and promising fresh beef in Quarter Pounders. But for now, $1 sodas are helping get people in the door.

The company said Tuesday that discounted drinks and a new line of pricier burgers helped boost sales in its flagship U.S. market by 3.9 per cent at existing locations during the second quarter.

CEO Steve Easterbrook has been working on transforming the chain’s menu and stores to get customers visiting more often in an increasingly competitive environment . Customer visits have declined in the U.S. for four straight years at existing locations, and McDonald’s is on track to shrink its domestic footprint for the third year in a row.

The latest quarter showed signs of improvement. McDonald’s said customer visits increased at existing domestic locations, though there were about 100 fewer U.S. locations than a year ago. It did not specify how much customer visits contributed to the sales increase, but Easterbrook has repeatedly laid out plans to get the figure climbing again by making McDonald’s more convenient.

Those efforts in the U.S. include introducing in-store ordering kiosks, expanding delivery through UberEats, and launching a mobile order-and-pay option later this year.

While those plans may boost sales over the long term, the company is relying on deals like $1 sodas and $2 McCafe drinks to attract customers in the short term. Such promotions get people into stores to see other changes and new menu offerings like the “Signature Crafted” burgers, the company said.

Chris Kempczinski, president of McDonald’s USA, noted in an interview last month that about three quarters of the people who come in for the drink deals also end up buying food.

“The typical behaviour is that they will buy other items,” he said.

Bernstein analyst Sara Senatore noted that the company’s “impressive” results came even before the full effect of its digital initiatives have been seen.

And Instinet analyst Mark Kalinowski said that other menu news could help boost sales in the coming quarters. The company plans to sell a Sriracha Mac dipping sauce, he noted, and is testing Loaded Bacon & Cheese fries in parts of four U.S. states.

McDonald’s is also looking beyond its core menu and offering pastries by registers in some locations, and testing “dessert stations” behind the counter that would let employees make an expanded menu of treats.

In the meantime, the U.S. store count is falling. The Oak Brook, Illinois-based company had 14,079 domestic locations at the end of the quarter. Globally, it expanded and had more than 37,000 locations. Sales on a global basis also rose 6.6 per cent at existing locations, with customer visits up in the company’s nine biggest markets.

For the three months that ended June 30, McDonald’s earned $1.4 billion, or $1.70 per share. Earnings adjusted for non-recurring costs came to $1.73 per share, beating analysts forecast for $1.62, according to a poll by Zacks Investment Research.

McDonald’s said total revenue was $6.05 billion, also higher than expected.

Its shares rose more than 4 per cent Tuesday. Before the results the stock had climbed more than 25 per cent since the beginning of the year, while the Standard & Poor’s 500 index has risen 10 per cent.

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