Growth at McDonald’s missed some expectations in the third quarter, suggesting that the chain is feeling the heat from competitors who are getting aggressive on breakfast and plant-based menu items.
McDonald’s (MCD) shares dropped about 5% on the news Tuesday.
The company reported that sales at US restaurants open at least 13 months grew 4.8% in the third quarter, but Wall Street expected that figure to be closer to 5.2%, according to data from Refinitiv.
Sales growth was down from 5.7% in the second quarter, but up from the same period a year ago. In 2018, third-quarter sales rose just 2.4% at US restaurants open at least 13 months.
Internationally, the chain fared better, posting 5.9% sales growth at stores open at least 13 months and beating expectations. Total revenue for the quarter grew to $5.43 billion, up 1% from last year, while net income fell about 2%.
To improve growth, McDonald’s has been adding digital menu boards to stores, expanding delivery options and investing in AI tech for its drive-thrus, among other things.
Focusing on technology is a long-term growth strategy for McDonald’s, but that may mean that it misses out on sales opportunities in the short term, explained Kevin Ozan, the company’s chief financial officer, during an earnings call.
CEO Steve Easterbrook also explained that some menu changes, like removing Signature Crafted sandwiches from the menu, may have disappointed customers. “Some of the work we’ve done of simplifying our menu — we had a little bit of resistance,” he said during the call. But those changes, he added, helped improve drive-thru speeds and increased efficiencies in stores and ultimately should help boost sales.
Unlike some of its rivals, McDonald’s has been playing it safe with its menu. It has brought back seasonal favorites, like the McRib, and international items like the Stroopwafel McFlurry, for a limited time. Breakfast sales ticked up for the quarter.
“We are encouraged,” Easterbook said, adding “we are in a competitive market whether it’s breakfast or rest of day, we are fighting for our share.”
Meanwhile, Wendy’s is adding breakfast to its menu, investing $20 million and adding about 20,000 employees for the initiative.
Others, like Burger King, are exploring plant-based menu options. The Impossible Whopper is now available throughout the United States. And Dunkin (DNKN)’ recently said it will make its Beyond Meat (BYND) breakfast sandwich nationally available next month after a successful test in New York City.
McDonald’s has plant-based options, but only in its international locations. While it is testing a Beyond Burger in Canada, the company has yet to test a meat substitute in the United States.
“We’re interested in this, clearly,” Easterbook in response to an analyst question about the opportunity for a plant-based menu item in the United States. “There’s a number of important factors we are learning quickly,” he added. “So, more to come.”