How McDonald's Hit the Spot

McDonald's Corp. lately is as hot as French fries straight from the fryer.

Ever since it adopted a strategy in 2003 that focuses on improving existing restaurants and adding new menu items, the burger giant has been on a tear.

Even during the latest economic downturn, its growth barely slowed, and in the third quarter, its revenue and profit exceeded analysts¹' expectations. McDonald's shares are up more than 63% in the last three years, having closed Monday at $98.48, and many analysts expect its stock to break $100 soon. The company beat the Street again last week, when it posted its 103rd month of positive global same-store sales.

So what's McDonald's secret sauce? For one thing, the Oak Brook², Ill.-based chain is leaning heavily on emerging markets such as China for new-restaurant growth. The company last week reported that its Asia/Pacific, Middle East and Africa division posted the strongest same-store sales growth last month of all its business units, with sales up 8.1% from the year before.

The company cited 'compelling customer conveniences' as one of the growth drivers at work. Delivering food by motorbike is one of those conveniences in countries like China, Egypt and South Korea. Another is adding dessert 'kiosks, ' or windows on the exterior³ of existing restaurants where pedestrians⁴ can order an ice-cream cone⁵, bypassing the lunch line inside.

All over the world, the company is updating its restaurants, modernizing⁶ the décor and adding such amenities⁷ as free wi-fi and flat-screen televisions. It has also extended restaurant hours to attract customers who don't dine during the traditional work day, and added double-lane drive-throughs to get more customers through the line more quickly.

Domestically, McDonald's is taking advantage of Americans' proclivity⁸ to graze by offering snack items such as chicken wraps and small desserts throughout most of the day. That allows the chain to attract customers during the otherwise slow periods between breakfast, lunch and dinner.

The company also has added a slew⁹ of new menu items that are priced relatively¹⁰ high, low and in-between to appeal to a broad swath of consumers. That enables the chain to appeal to everyone from the traditional fast-food junkie who loves burgers to salad-chomping moms to the employee on the go who wants to grab a bowl of oatmeal for breakfast. Meanwhile, the high-margin items, such as strawberry lemonade, fruit smoothies, and fancy coffee drinks, have protected profits by offsetting¹¹ cheaper items like $1 hamburgers.