McDonald’s system sales hit $100B last year

Delivery, kiosks and core menu items helped the chain generate its best comparable-store sales in more than a decade, but traffic remains elusive.
Photograph courtesy of McDonald's Corp.

Delivery and kiosks helped McDonald’s Corp. generate its strongest global same-store sales in more than a decade last year, pushing its total worldwide system sales past $100 billion for the first time in company history.

Same-store sales rose 5.9% worldwide in 2019, the company said Wednesday, as the Chicago-based burger giant generated strong sales in all of its major markets.

That included the U.S., which generated 5.1% same-store sales growth in the fourth quarter ended Dec. 31, closing out a strong year for the company’s largest market. The chain, which operates nearly 14,000 domestic locations, has been generating strong sales by convincing customers to make larger orders and pay higher prices.

Same-store sales have risen for 12 straight quarters.

Yet traffic remains a challenge. Full-year U.S. traffic declined 1.9% in 2019. McDonald’s U.S. traffic has declined all but one year since 2012.

The company saw some improvement in traffic toward the end of the year, executives said Wednesday, but it’s too early to call that a trend.

“Sluggish industry traffic growth and unit expansion continue to fuel an aggressive battle for market share,” CFO Kevin Ozan said on McDonald’s fourth-quarter earnings call. The problem appears to be especially acute in the mornings, where the company has faced intensifying competition in recent years.

That is only going to get worse later in 2020 when rival Wendy’s is expected to join the competitive fray.

“Breakfast is the only daypart in the industry that’s seeing traffic growth,” CEO Chris Kempczinski said on the call. “We have to win at breakfast.”

He said the company has “a pretty strong breakfast plan,” with a combination of new menu items, service and value. McDonald’s earlier this week, for instance, announced a pair of new breakfast chicken sandwiches in the McChicken Biscuit and the Chicken McGriddle.

“I think you’ll see us staying strong on breakfast,” Kempczinski said. “But it’s not going to be at the expense of the rest of the day.”

McDonald’s has been focused on speed in the drive-thru, which generates 70% of the company’s U.S. business. The company cut 20 seconds from its average drive-thru time but Kempczinski said there are another “20 to 30 seconds” to be had from additional improvements in the lane.

Delivery has been a big sales driver for the chain, generating more than $4 billion in global sales for the company and its franchisees. McDonald’s has delivery in more than 25,000 locations. And while delivery hasn’t been as strong in the U.S. as it has been in countries such as China, it was a key driver of the company’s same-store sales last quarter.

McDonald’s said that its sales last quarter were driven largely by its core products, particularly using promotions. It also said its kiosk-focused “experience of the future” restaurants have helped drive sales. Customers who make their orders at the kiosk tend to make larger orders, which is helping increase average check.

The higher average check has helped franchisees generate more profits. McDonald’s U.S. operators generated “record cash flow” in 2019—by a significant margin, Kempczinski said.

“It’s exciting when you see the system set a record for franchisee cash flow,” he said. “And in 2019, they did so in a resounding way. They blew through the prior cash flow record and surpassed that by probably another $50,000.”

Kempczinski noted that most of the company’s U.S. franchisees are family-owned businesses. So while operators are satisfied with the higher profits, they are also concerned about the declining traffic.

“Over half of our franchisees are second-, third-generation franchisees,” he said. “For them, they completely recognize that no family business survives or thrives by passing on fewer customers from one generation to the next.”

UPDATE: This story has been updated to add information from McDonald's earnings call on Wednesday.

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