McDonald's to stress value in marketing strategy

This is in response to a decline in the second quarter

McDonald’s Corp. will respond to the company’s decline in profit in the second quarter with increased marketing around value, company officials said in a call with analysts on Monday.

McDonald’s has managed its business through sluggish economies in its largest markets before, said new chief executive Don Thompson, but the second quarter of 2012 was one of the first times in recent memory that such a severe slowdown seemed to spread everywhere the brand operates.

“Now is the time to focus on guest count growth and market share gain,” Thompson said. “We go hard at that in times like these, even though it means an investment.”

Shifting focus to value could result in short-term pressure on the brand’s average check, McDonald’s officials acknowledged, but shoring up traffic now would allow the chain to hold on to its customers and coax them into buying regular-price items as the global economy improves over the long term.

“What we’ve employed historically is [a strategy where] we have to be in the best position to drive traffic and trade people up,” Thompson said. “We’re seeing results in guest count movement, but we won’t see sales flow down to the bottom line until we’ve gotten in a position to trade those guest counts up.”

Competition heats up in U.S.

With same-store sales slowing sequentially from an 8.9-percent increase in the first quarter of 2012 to a 3.6-percent gain in the second quarter, McDonald’s would need to hit value harder in its domestic marketing, Thompson said.

“Value is not a new thing, the question is how much you address it in your media mix,” he said. “You have to also have a premium product message in the marketplace, and we haven’t given up on that. It’s a tweak in our marketing mix.”

Thompson attributed a deceleration in same-store sales growth in the United States more to increased marketing from competitors like Burger King or Taco Bell than to McDonald’s customers shifting their spending down toward the Dollar Menu.

“That isn’t new — we go through competitor resurgences and ebbs and flows — but we have to be focused on our business plan and execute at the highest levels,” Thompson said. “There is an increase in marketing spending by many folks in our competitive set, and we need to make sure our share of voice is still resonating.”

Value would always be a major factor, he added, but the company would continue to balance that message with new product news like the Cherry Berry Chiller beverage and Spicy McBites offers of the past quarter. He said consumers could expect some premium sandwiches similar to the recently tested Pub Burger “next year for sure” and possibly as soon as the latter half of 2012.

Year-to-date, McDonald’s has remodeled 330 restaurants in the United States, which produce a significant lift to those locations’ same-store sales.

Confidence wanes in Europe

Chief financial officer Pete Bensen said McDonald’s global diversification across the United States, Europe and emerging markets usually would hedge the company against a faltering economy somewhere, but this did not materialize in the second quarter due to a widespread decrease in consumer confidence around the world and especially in Europe.

“We’re employing different tactics in each market, but the common theme is increasing value in the short term to drive traffic, a critical element to sustaining long-term growth,” Bensen said.

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