McDonald's interior
McDonald's has lost 500 million transactions since 2012 to other fast-food restaurants.

CHICAGO — Some of McDonald’s best customers aren’t visiting as much as they used to. McDonald’s believes it knows why.

“As customer expectations increased and evolved, our historical advantages of quality, convenience and value didn't keep pace,” said Lucy Brady, senior vice-president of corporate strategy and business development at McDonald’s Corp.

Lucy Brady, McDonald's
Lucy Brady, senior vice-president, Corporate Strategy & Business Development at McDonald’s Corp.

At the company’s investor meeting on March 1 in Chicago, Ms. Brady, along with other McDonald’s executives, laid out plans to recapture share in the quick-serve restaurant market, where McDonald’s has lost 500 million transactions to competitors since 2012.

“Let's start with quality,” Ms. Brady said. “We're making meaningful improvements in our food, particularly our burger and chicken offerings, to rekindle growth and recapture lost share. We will become the go-to destination once again by enhancing the taste and quality of our core classics and by enticing guests back with new menu items and local flavors that reflected their evolving preferences.”


McNuggets and McMuffin


Recent changes on McDonald’s menu include the removal of artificial preservatives from Chicken McNuggets, the switch from margarine to butter on Egg McMuffin sandwiches and a commitment to using 100% cage-free eggs.

The company also is eyeing categories such as coffee and snacking to create new consumption occasions at its restaurants.

“Coffee the beverage is inseparable from coffee the experience, and we only started to tap into this very habitual high frequency occasion,” Ms. Brady said. “There is so much more opportunity. When brands make it easy to get a great cup of coffee, customers reward them with their loyalty, and that's what we've done in Australia.

“Building that daily ritual with high quality coffee, dedicated McCafe baristas in a cafe ambience. That high quality barista-made coffee is also available through the drive-through, giving customers a great cup of coffee with the convenience and speed they expect from McDonald’s. McCafe is now 14% of the business in Australia, and it continues to provide a strong source of growth. Canada is another market with a vibrant coffee business.”


McCafe beverages


In addition to adding more flavors and new branding, the company plans to increase the presence of McCafe in its restaurants, evolving the brand from “merely a product to a place,” said Chris Kempczinski, president of McDonald’s U.S. business.

“This enhanced in-store presence will allow us to merchandise baked goods and desserts under the McCafe line, adding an additional sales layer to the business,” he said.

McDonald’s also has seen success with tailored snacking offers around the world, such as desserts in Latin America and baked goods in France, Ms. Brady said.

“And we'll continue to encourage markets to innovate to meet the untapped demands that exist in the afternoons and in the evenings, and we'll be more purposeful about identifying and scaling winning ideas from our markets,” Ms. Brady said.

Chris Kempczinski, president of McDonald’s U.S. business

Delivery represents another important opportunity for McDonald’s, which already offers delivery service in more than 3,500 restaurants around the world, primarily in Asia and the Middle East.

“Restaurant delivery is a $100 billion market, and it's exploding,” Ms. Brady said. “In my opinion, it's the most significant disruption within the restaurant industry in our lifetime. For delivery, speed and food quality are the two most important factors for customers. To ensure hot food and fast delivery, you can only reach the customers who are reasonably close to the restaurant.

“So consider this. In our top five markets, the U.S., France, U.K., Germany and Canada, nearly 75% of the population lives within three miles of McDonald's, and 85% live within five miles. Globally that translates into 1 billion customers that live five to ten minutes from a McDonald's. We are closer to more customers than any other restaurant company in the world.”

The company is “working aggressively” to define the right model for delivery, exploring both in-house and third-party options, with a number of pilots under way in the United States, Asia and Europe with plans to scale quickly based on results.

“Overall, we're incredibly optimistic about the potential of this business,” Ms. Brady said. “There will be a lot of hard work to achieve the vision we've laid out, but the potential is there, and we are better positioned to capture the opportunity than anyone else.”

Another pillar of McDonald’s plan to win back consumers is value. Mr. Kempczinski said McDonald’s value offering has lagged its nearest competitors in recent years.

“Our initial McPick program helped to slow these losses, but quite honestly it wasn't strong enough,” he said. “While customers love flexibility of McPick, the program offered too many value combinations, which diluted its overall impact in the market.”

Going forward, he added, the company has simplified the McPick program, which allows customers to choose multiple menu items at a discount, with fewer combinations and more options at the lowest price points.

“I do want to point out, however, that while we must be fully competitive on value, we are not trying to win on value,” he said. “That's just a race to the bottom. Instead, we plan to win on two other elements of our plan: food and experience.…

“You should expect us to step up our level of menu innovation the U.S. in the years ahead.”