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New McDonald’s chief aims to eat rivals’ lunch to drive growth

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Via Financial Times

The new chief executive of McDonald’s has said the fast-food group will need to take market share from competitors to sustain growth as the industry battles “pretty muted” customer footfall.

Chris Kempczinski — who took charge last November after his predecessor, Steve Easterbrook, was fired for having a relationship with a colleague — said on Wednesday that McDonald’s had “broad-based momentum” but could do more to better serve customers.

Despite the pressures on the sector, results on Wednesday underlined the successes McDonald’s had under Mr Easterbrook. Like-for-like sales jumped 5.9 per cent in 2019 — the biggest rise in at least a decade.

Still, in the US, the company’s biggest market, the number of transactions at outlets open at least 13 months slipped 1.9 per cent over the past year.

“We need to get to transaction growth, and that’s what everybody in the US is working toward right now,” Mr Kempczinski said.

He said breakfast — the only time of day when industry footfall trends were improving — was a particular focus for McDonald’s. Competitors from Wendy’s to Dunkin’ have been rolling out new menu items in recent months.

This week McDonald’s moved to strengthen its breakfast offering with the introduction of Chicken McGriddles and McChicken Biscuit.

“Growth in this industry at this point is going to have to come through stealing share — traffic in the industry is pretty muted,” Mr Kempczinski told analysts during his first results presentation since his promotion from president of McDonald’s USA.

He said McDonald’s also had to overcome other challenges including “growing labour costs [and] continuous technological disruption”.

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Despite the US footfall decline last year, Americans spent more on average per visit — in part because of the rollout of self-order kiosks. “People tend to have larger orders” when they use them, Mr Kempczinski said. Comparable sales in the group’s domestic market rose 5 per cent in 2019.

In its “international operated” division — overseas markets in which McDonald’s both operates its own restaurants and has licensees — comparable sales were up 6.1 per cent.

Across the group, net income in the fourth quarter rose 11 per cent from a year ago to $1.57bn on revenues of $5.4bn.

Among the other challenges facing Mr Kempczinski is the deadly nCoV coronavirus that originated in China’s Hubei province.

McDonald’s said on Wednesday that it had closed all its restaurants in Hubei, which amounted to “several hundred” outlets, but still had 3,000 open throughout China.

Mr Kempczinski said the company had enacted an “epidemic prevention and control task force” with local authorities, including using kitchens to provide meals for healthcare workers and giving medical screening for customers. “It’s really an all-hands-on-deck effort,” he said.

The chief executive said that while China accounted for 9 per cent of McDonald’s outlets worldwide, they produced less than 5 per cent of its revenues and about 3 per cent of operating income.

“While China is a critical market for us, and we’re very concerned about the situation over there, its actual impact on our business is going to be fairly small, assuming . . . that it stays contained to China,” he said.

Shares in McDonald’s were up 1.5 per cent by early afternoon in New York.

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