This isn't the same McDonald's your grandmother knew. By getting hip and up-to-date with its menu and McCafe offerings, McDonald's is executing a very contemporary strategy that's pushing the 71-year-old fast food chain to strong profit growth in a lackluster economy.
Wall Street is certainly impressed. The company's stock closed at $88.56 on Friday, up 2.33 percent, after the company revealed second quarter earnings that were a pleasant McSurprise. The stock is now trading near a 52-week high of $89.57.
McDonald's Corp.'s second-quarter profits rose 15 percent and the chain said it expects four to five percent growth globally in July same-store sales, or sales at restaurants open at least 13 months.
McDonald's (NSYE: MCD) same-store sales rose in the second quarter by 5.6 percent, thanks to particularly strong sales in June, as McDonald's outperformed competitors in the otherwise-flat fast food category with competitive pricing and strong customer response to its McCafe concept.
McDonald's has been aggressively pushing beverages from its McCafes, serving hot and iced coffees and other specialty drinks, and promoting dollar soft drinks to increase traffic and draw customers to other menu items.
Our performance has been driven by a combination of everyday value, the introduction of compelling new menu items, a sustained focus on core favorites and an ongoing emphasis on improving restaurant operations, said Don Thompson, McDonald's President and Chief Operating Officer.
So far, McDonald's has been able to handle its diversified menu and expanded McCafe offerings, as the strong second-quarter earnings report suggested. But the question involving McDonald's into the future involves that very thing: Can McDonald's employees keep up with so many new items?
McDonald's was founded in 1940 and the company found fast growth beginning in 1948 with its Speedee Service System in which the fast food assembly line was invented. By having employees do one task, like cooking hamburger patties or warming buns, McDonald's brought lean production to the hamburger, fries, and soft drinks business. The company was able to lower prices, driving high volume, growth and profits.
More than half a century later, competition and demands from customers for more healthy items and beverages beyond soft drinks and black coffee led McDonald's to an aggressive menu update, adding more salads, wraps, fruit, oatmeal and McCafe products, including mocha, latte, hot chocolate, mocha frappe, frozen strawberry lemonade and banana real fruit smoothie and more.
We'll help you wake up first thing in the morning and unwind at the end of the day with our very own blend of 100% Arabica beans, sourced from around the globe, says McDonald's, in its McCafe promotion.
But adding the products has required McDonald's to abandon some of its previous fast food assembly line strategies. Now, employees have to manage so much more than just making patties, fries and soft drinks. Some of the chain's busier locations deal with never-seen-before chaos as workers scramble to bring together multi-dimensional orders, and frustration by customers is growing as profits rise.
In 2010, for instance, after McDonald's was well underway with its McCafe expansion, begun in 2009, adding multiple espresso-based and other drinks, the company saw a 4.3 percent drop in its customer satisfaction score, as measured by the American Customer Satisfaction Index.
Until 2010, McDonald's satisfaction score had increased every year since 2005. Nationally, the quick service industry scored 75 in the survey results, but McDonald's scored a 67, causing a disconnect between success and customer satisfaction.
McDonald's has said the company is tackling such issues with operations improvements, but the menu and offerings driving the company's sales forward is getting increasingly complicated. How McDonald's meets that challenge will determine where the company's stock goes from this level, currently trading near its 52-week high.