McDonald’s aims to beef up operating margins
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McDonald’s promised to deliver sharply higher operating margins starting from 2019, as the world’s largest fast-food company outlined plans to better compete with rivals, particularly in the US, where it said it has lost 500m transactions since 2012.
The company said at an investor day on Wednesday that it expects operating margins to rise to the “mid 40 per cent” range starting in 2019, as it benefits from the sale of its restaurants across the globe to franchisees, reducing its operating expenses and capital expenditures. Its margins currently stand at nearly 30 per cent, it said.
McDonald’s also pledged to increase earnings per share in the “high-single digits” from 2019. This is slower than 2016′s 13 per cent increase. However, last year’s sharp increase came after two years of declines. It added that it will grow “system-wide sales” between 3 and 5 per cent from the same period.
The new targets came on the two-year anniversary of Steve Easterbrook’s taking the top leadership role at McDonald’s. He has been guiding the company through a turnaround to make it more relevant, particularly to younger consumers.
The company said that it had conducted its biggest consumer survey in its history and had found that it had not lost customers to newer fast-casual rivals but to more traditional rivals, and had the opportunity to win those back through offering value, convenience and experience. It added that while offering value meals was important, it would not engage in a “race to the bottom”, and quality was just as key.
It played up the importance of digital and aims to build out its presence in the global $100bn delivery market. It claimed that in its “top five markets of the US, UK, France, Germany and Canada”, nearly 75 per cent of the population lives within three miles of a McDonald’s, giving it a huge pool to tap.
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