But these are currently the harsh realities of all fast-food chains, and McDonald’s Corporation (NYSE:MCD) is not an exception. Let us see how Big Mac is battling along and what its chances are.
Value menu
McDonald’s Corporation (NYSE:MCD) has always targeted the common man’s plate. In other words, it knows that in this weak restaurant environment offering value for money is possibly the only way that it can get people through its doors. That’s why it came up with its dollar menu, which offers cheeseburger, fries, wraps and drinks at a dollar a piece. Toward the beginning of this year, it added another novelty in the form of a cheddar-onion burger to this menu.
Despite these efforts, Americans still remained reluctant even to spend $1 on a McDonald’s Corporation (NYSE:MCD) cheeseburger. The first quarter saw a decline of 1.2% in the US same-store sales. Still undeterred, McDonald’s started promoting it dollar menu more than ever. In April, it surprised analysts by posting a 0.7% positive comps in the US against the 0.5% negative comp that analysts were expecting.
Not only that, but the company has also been gaining market share. It is common business prudence that when the going is bad, the territory (read market share) has to be defended and in good times the results have to be reaped. This is exactly what Big Mac is doing.
Innovations
McDonald’s Corporation (NYSE:MCD) keeps reminding its customers that it is still the trend setter as far as new menu items are concerned. This year it has already introduced premium items like McWraps, Egg White McMuffins, blueberry pomegranate smoothies, etc. It also has brought back the McRib, which is arguably one of the best fast-food items created ever.
The company deliberately puts this up as a limited time item to build up the excitement. McDonald’s spokesperson Ofelia Casillas once said: “We know our customers love McRib and we won’t disappoint them! It will be returning.” Meanwhile, the Golden Arches has160 new items in its pipeline.
New strategies
McDonald’s Corporation (NYSE:MCD) is deliberating offering its breakfast menu all day long. To the hordes of Egg McMuffin, McGriddles, and pancake fans, this is welcome news and has created considerable buzz in the industry. There are serious logistical issues that need to be resolved before this can become operational. But once Big Mac figures out a way, it could be a huge competitive advantage. According to a 2012 study by Scarborough and reported by Bloomberg BusinessWeek, McDonald’s already has a 48% share of the fast-food breakfast market.
The company is also experimenting with its delivery services. These services are presently available at around 20% of outlets, and McDonald’s Corporation (NYSE:MCD) is planning to expand this. Delivery services score big at places where the drive-through windows are somewhat spaced out.
Competition
Now, let’s take a look at the competition. The main competitors of McDonald’s in the US market are Burger King Worldwide Inc (NYSE:BKW) and The Wendy’s Co (NASDAQ:WEN).
Following McDonald’s Corporation (NYSE:MCD) footsteps, Burger King Worldwide Inc (NYSE:BKW) started offering Whopper Junior sandwiches for only $1.29, which is almost $0.40 less than the normal retail price, for a limited period. The company has used this pricing strategy to attract more budget-minded customers toward Burger King, some of whom might also end up ordering high-priced items once they are in the restaurant.
Though the above strategy showed a good result via a 2.7% increase in same-store sales in the last quarter of 2012, the good times didn’t last. Burger King Worldwide Inc (NYSE:BKW) reported a decline of 1.4% in the comparable-store sales in the first quarter of 2013. Despite a decline in comp sales, the burger giant delivered growth of 49% in earnings per share due to the trimming of several restaurant-related expenses.
Also, Burger King Worldwide Inc (NYSE:BKW) has announced its summer menu. It includes the return of the old items, like Carolina BBQ Whopper/Chicken, Memphis Pulled Pork sandwiches, and sweet-potato fries. Also there is another surprise; the BK rib sandwich, which can be a tough competitor for the McRib.
Meanwhile, The Wendy’s Co (NASDAQ:WEN) had a “99 cents” menu. But now it has decided to replace the same with “Right Price Right Size” menu options, which are items with prices ranging from $0.99 cents to $1.99. Their new menu offers four different cheeseburgers, three types of chicken wraps, two side salad options, chili, and a chicken sandwich.
The idea behind this is to give budget-minded diners more options without harming the company’s flexibility on pricing. The Wendy’s Co (NASDAQ:WEN) reported a 1% increase in same-stores sales in the first quarter of 2013. The “Right Price Right Size” menu not only boosted customer traffic, but also increased the average check size.
Concluding words
Despite challenges, the Golden Arches are still shining bright. The company has more than an ace up its sleeve. Through its value menu, new offerings, premium products and other new strategies, the company is out there to beat the odds. It is true that with Burger King Worldwide Inc (NYSE:BKW) and The Wendy’s Co (NASDAQ:WEN) are stepping up their games in the value scene and thus competition will be tough. But McDonald’s has always found a way to stay on top, and the same is expected from the fast food maker in the future also.
The article This Fast Food Retailer Is Born to Beat the Odds originally appeared on Fool.com.
Rahul is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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