McD Outlines Three-Part Growth Strategy

McDonald's Corp. said Thursday it would increase capital expenditures next year to $2.9 billion, accelerating growth domestically and abroad with the openings of more than 1,300 restaurants, as well as continued remodeling efforts on established units.

Its menu also continues to be a major focus, with items from new burgers to additional desserts planned for test in 2012.

Chief executive Jim Skinner told attendees at its Investor Day conference Thursday that McDonald's was "succeeding through the same principles that spurred our revitalization," and that continually refreshing the menu and the in-store experience at McDonald's have increased not only sales but also traffic this year.

Chief operating officer Don Thompson said increased guest counts, which rose 3.3 percent so far this year, have driven nearly 70 percent of the brand's global sales growth.

"Our ability to stay close to customers during these times results from our Plan to Win," Thompson said. "We're using better data, have deeper consumer insight, and we're focused on executing at the highest levels."

Three ways to grow

Thompson said McDonald's would focus on three key opportunities within its Plan to Win in the United States and around the world.

"Our emphasis on menu, modernizing the customer experience, and broadening access will move the needle in the right direction," he said.

McDonald's is targeting sales growth through menu innovation, Thompson said, specifically in beef, chicken, beverage, breakfast and dessert products. McDonald's plans to test or soon import from foreign markets for U.S. testing the Pub Burger, the 1955 Burger, large chicken wraps, McBites popcorn chicken, the Cherry Berry Chiller frozen beverage, the Magnum McFlurry and blueberry–banana oatmeal.

The plan to broaden the brand's accessibility involves hitting not only multiple menu dayparts, but also offering items across several price tiers, Thompson said.

"Price value leadership is critical to our strategy," he said. "We apply the price value screen to menu development in every area of the world and every product category."

McDonald's also can achieve all three goals by improving through-put at its restaurants, Thompson said, noting that about 80 percent of U.S. restaurants could increase capacity at peak hours by adjusting labor scheduling and positioning. Mobile ordering, delivery and self-serve kiosks also would be deployed around the world to further these efforts.

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Invest when you're winning

McDonald's expects to increase its capital expenditure to $2.9 billion in fiscal 2012, which would allow for accelerated growth and reimaging. Even as its competitive set changes, with traditional quick-service rivals struggling and "better burger" upstarts ascending, McDonald's is concentrating only on what it could do better and on a bigger scale, Skinner said.

"Relative to the competitive landscape, it's about focusing on what we can do best for our customers around the world, and that will continue to separate us from competitors," Skinner said. "There are some opportunities in some markets around real estate, but that's not a strategy; it's an opportunity. We focus only on strategies that will grow our business over the long term."

Executives said the increased investment in the system, even during a time of economic uncertainty in the United States and major markets like Europe, was warranted and would allow for more unit openings, more remodels around the world, and faster adoption of a new technologies.

The company said $800 million of that capital expenditure would be spent in the United States. Half the total investment would go toward opening new locations and the other half would go toward reimaging, said chief financial officer Pete Bensen. Of the 1,300 new restaurants to be built in 2012, slightly more than half would open in the Asia-Pacific, Middle East, and Africa, or APMEA, division, with up to 250 of those in China alone.

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Total remodels across the world would increase to 2,400 units for McDonald's next year, including 800 in the United States, 150 in Canada, 950 in Europe and 450 in APMEA. Forty-five percent of the global system's interiors already are remodeled, and McDonald's hopes to reach 50 percent of all exteriors in a few years, Thompson said.

"We're still stingy," Skinner said. "Capital expenditure is $2.9 billion this year, and it was $2.7 billion last year, but we still need to meet our hurdle rates. I do the same checklist every year and ask, 'Are we getting weaker, and are we letting people have capital they didn't earn?' The answer is always 'no.'"

Bensen said 80 percent of the remodels planned for the United States include some kind of capacity-expanding move, principally the building of a side-by-side drive-thru. McDonald's would continue to use its cash to beef up its real estate holdings as well, he said.

"As we've gone through revitalization and seen our average unit volumes grow, the opportunity for us to get in and purchase sites is better than it's ever been," Bensen said. "Part of the increase in capital expenditures has been a movement toward more freestanding drive-thrus, but also purchasing more land."

Oak Brook, Ill.-based McDonald's operates or franchises more than 33,000 quick-service restaurants worldwide, including more than 14,000 in the United States.

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN