McDonald's beefs up profit

"By putting the franchisee profits first and creating that better food for the ultimate end customer, they made money for the franchisees … whereas before [franchisees] were angry they were losing money or not making a lot of money," Mr. Haskell said.

The Globe and Mail
April 14, 2005

McDonald's beefs up profit
Marketing cited for quarterly rise in sales
Richard Bloom

Burger giant McDonald's Corp. unveiled stronger-than-expected sales and profit data for the first quarter yesterday, fuelling sentiment that recently launched marketing and product initiatives are working.

"Two things: customer-first and morale," said Dean Haskell, an analyst at JMP Securities in San Francisco, referring to the drivers behind McDonald's sales growth. He said a series of new and better tasting products are combining to beef up profits across the board and improve morale among the company's franchisees — which own about 90 per cent of McDonald's locations.

"By putting the franchisee profits first and creating that better food for the ultimate end customer, they made money for the franchisees … whereas before [franchisees] were angry they were losing money or not making a lot of money," Mr. Haskell said.

"Now you've got moms taking the kids and choosing to have that salad or that chicken sandwich, so you have regained your core customer."

Oak Brook, Ill.-based McDonald's Corp. said same-store sales — a key measurement for food service and retail companies, tallying receipts at locations open at least 13 months — rose 6.8 per cent worldwide in March and 4.6 per cent during the first quarter.

Total sales across McDonald's network of 30,000 restaurants shot up 11.2 per cent last month and 8 per cent in the first quarter.

The company did not break out precise Canadian figures.

Preliminary first-quarter profit was about 56 cents (U.S.) a share, which includes a tax gain of 13 cents a share following a "favourable audit settlement" and an expense of 3 cents a share related to share-based compensation, the company said. Analysts were forecasting a profit of 43 cents a share, according to Thomson First Call.

In order to keep sales growing, Mr. Haskell said the company needs to maintain its aggressive marketing and new product promotions, and to "keep their eye on the ball in terms of the customer."

For Peter Oakes, who covers the food services industry for brokerage Piper Jaffray Co. in New York, one thing stands out regarding McDonald's recent success — its marketing.

"At the end of the day, that is what's working well for McDonald's … they've become relevant again," singing the praises of the newest campaign's "forever young" feel that is attracting both kids and adults into its stores.

Another factor working in the company's favour has been its ability to successfully raise prices and charge premium prices for items geared toward health-conscious consumers, such as meal-sized salads, analysts said.

Shares of the food services company, which marks its 50th anniversary tomorrow, rose 32 cents to $31.22 on the New York Stock Exchange yesterday. Only a few years ago, McDonald's shares sat in the mid-teens.


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