McDonald's Plans Marketing Push as Profit Slides -- 3rd Update

By Julie Jargon 

McDonald's Corp. plans a marketing push to emphasize its fresh-cooked breakfasts as it battles growing competition for the morning meal.

Competition at breakfast has heated up recently as Yum Brands Inc.'s Taco Bell entered the business with its new Waffle Taco last month and other rivals have added or discounted breakfast items.

McDonald's Chief Executive Don Thompson said it hasn't yet noticed an impact from Taco Bell's breakfast debut, but that the overall increased competition "forces us to focus even more on being aggressive in breakfast."

Mr. Thompson's comments came after McDonald's on Tuesday reported that its profit for the first three months of 2014 dropped 5.2% from a year earlier, weaker than analysts' expectations. Comparable sales at U.S. restaurants open more than a year declined 1.7% for the quarter and 0.6% for March, the fifth straight month of declines in the company's biggest market. Global same-store sales rose 0.5% for both the quarter and month.

Mr. Thompson acknowledged again that the company has lost relevance with some customers and needs to strengthen its menu offerings. He emphasized Tuesday that McDonald's is focused on stabilizing key markets, including the U.S., Germany, Australia and Japan.

The CEO said McDonald's has dominated the fast-food breakfast business for 35 years, and "we don't plan on giving that up."

The company plans in upcoming ads to inform customers that it cooks its breakfast, unlike some rivals.

"We crack fresh eggs, grill sausage and bacon," Mr. Thompson said. "This is not a microwave deal."

Beyond breakfast, McDonald's also plans to boost marketing of core menu items such as Big Macs and french fries, since those core products make up 40% of total sales.

To serve customers more quickly, the chain is working to optimize staffing, and is adding new prep tables that let workers more efficiently add new toppings when guests want to customize orders.

McDonald's also said it aims to sell more company-owned restaurants outside the U.S. to franchisees. Currently, 81% of its restaurants around the world are franchised. Collecting royalties from franchisees provides a stable source of income for a restaurant company and removes the cost of operating them.

McDonald's reported a first-quarter profit of $1.2 billion, or $1.21 a share, down from $1.27 billion, or $1.26 a share, a year earlier. The company partly attributed the decline to the effect of income-tax benefits in the prior year.

Total revenue for the quarter edged up 1.4% to $6.7 billion, though costs rose faster, at 2.3%.

Analysts polled by Thomson Reuters forecast earnings of $1.24 a share on revenue of $6.72 billion.

Ben Fox Rubin contributed to this article.

Write to Julie Jargon at [e-mail]

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