Earnings

What McDonald’s Figures Tell Us About Restaurants’ Road To Recovery

McDonald's

As the world’s largest quick-service restaurant (QSR) chain, McDonald’s has unsurprisingly been hit hard by coronavirus-related shutdowns. The firm reported Tuesday (June 16) that same-stores sale fell 5.1 percent year over year in May as the chain began the process of reopening its dining rooms nationwide. That’s actually an improvement from April’s 19 percent year-over-year decline.

Globally, same-store sales fell 3.4 percent in 2020’s first three months, including a particularly punishing 22 percent plunge in March. But now, McDonald’s is hoping to mount a comeback while walking what looks like it will be a particularly treacherous recovery road.

Between April and May, same store sales actually improved in all three of its main business lines — U.S. Sales, International-Operated Markets and International Developmental-Licensed Markets & Corporate. That last segment has been the hardest hit, with same store sales tumbling 66.7 percent year on year in April.

International-operated markets fell so much because they include the United Kingdom, France, Italy and Spain — all countries that enacted strict COVID-19 limitations that shut down not only dining rooms but drive-thru service as well. The segment saw same store sales fall in May as well, but “only” by 40.5 percent year over year.

Same-store sales on international developmental-licensed markets dropped by roughly a third (32. 3 percent) in April before improving to a 20 percent fall-off in May. That segment’s sales particularly suffered due to weak results in China and site closures in Latin America.

So what comes next?

According to McDonald’s CEO Chris Kempczinski, the numbers are likely to get a bit worse before they start turning around. While pandemic-related losses started in the first quarter, it wasn’t until the period’s last few weeks in March that the situation blossomed into a global pandemic that shut down McDonald’s dining rooms and drive-thrus around the world.

“Looking at comparable sales, we expect the second quarter as a whole to be significantly worse than what we experienced for the full month of March,” Kempczinski told analysts on a conference call following the chain’s first-quarter earnings release. Thus far, second-quarter U.S. same-store sales have shrunk 12 percent as of May 31, while, global same-store sales are down 29.8 percent.

The good(ish) news for McDonald’s is that the era of closed dining rooms and drive-thrus is nearing its conclusion. The chain reported that as of this week, 90 percent of its locations are once again open for business and able to serve customers. The firm believes this will boost its sales recovery.

However, there are areas in which it seems other structural factors will continue to act as headwinds. For example, U.S. breakfast sales have been hit particularly despite the fact that many drive-thru windows have remained open.

That fall-off seems likely to remain in place as long as U.S. workers continue to eschew their office buildings in favor of working from home. Without a morning commute to the office, they’re less likely to hit a McDonald’s drive-thru and will instead simply prepare their own morning meals.

According to data from Nielsen, breakfast cereal sales have enjoyed a sudden boom after years of declines, with a sales up 34 percent between March and April. Analysts believe this new home-cooked breakfast routine will likely remain a facet of consumer dietary habits for the foreseeable future.

That means McDonald’s and most other QSR chains will have to adapt to customers’ different way of life in the post-pandemic world. According to CEO Kempczinski, that’s why the chain recently invested in supporting franchise owners, expanded delivery and the released a 59-page manual for franchise operators on how to safely reopen. The document reportedly outlines what minimum sanitation and social-distancing requirements will allow franchisees to reopen dining rooms.

“The steps we are taking in response to the pandemic and to accelerate recovery while continuing to serve the great and familiar taste of a meal from McDonald’s will position us well for the next phase of this crisis,” Kempczinski noted in Tuesday’s sales figure release.

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