How fast food and even faster thinking have restored McDonald's fortunes

McDonald's shares have being performing well over the past two years. Photo / 123RF

McDonald's Szechuan McNugget sauce was not perhaps the best known of the company's products. A plum concoction, it was produced in 1998 as part of a Disney promotion and then long forgotten until this past April, when a few bottles were rustled up following an appeal from one of the characters in Rick and Morty, a cartoon show.

Of course, it was little more than a PR stunt, but it was also a demonstration of how the fast food behemoth, serving nearly 70 million customers a day around the world, has become rather nimble on its feet.

McDonald's is once again the darling of Wall Street and most observers say this is thanks to Steve Easterbrook, the company's Watford-supporting, British-born chief executive. When he took over as McDonald's chief executive, Easterbrook did not pull any punches.

"The reality is our recent business performance has been poor. The numbers don't lie," he said in a corporate video. The figures were pretty horrific.

In the US, sales had fallen 3.3pc in the previous six years, in Europe by 1.4pc and in Asia, the Middle East and Africa, once considered a growth region, a rather frightening 9.9pc.

McDonald's was contracting, ­announcing for the first time in 45 years that it had closed more outlets than it had opened.

What a difference a couple of years makes. In July the company's shares hit an all-time high. It announced its biggest surge in sales at its restaurants in five years - outstripping analysts' predictions.

Business was being won back from traditional competitors and an ­investment in improving ingredients saw the company move its tanks into the drive-throughs of more upmarket ­rivals.

Greg Francfort, a restaurant analyst with Bank of America, says: "Fast food has benefited by an ­increasing tightness in the low-income job market. Wages are up by 5pc and people are taking those dollars and spending them in these quick service restaurants. But at the same time the fast food sector has responded by raising the bar, using better ingredients such as higher quality chicken or cage-free eggs."

Easterbrook has obviously reaped the benefit of traditional McDonald's customers having more money in their pockets. But he has been shrewd enough to realise that to expand, McDonald's has had to go beyond the traditional Big Mac and Fries-devouring customer.

He has not been afraid to rip up much of the formula that had served McDonald's well for more than five decades. In March, the company announced that its quarter pound burgers would be made out of fresh beef at most of its restaurants - rather than frozen patties.

The burgers and a range of sandwiches are billed as being "signature crafted". Exactly what that means is a matter of debate - but it does send a message to the public that McDonald's is a rather different beast than it was a few years ago.

Another radical change that Easterbrook has presided over came from his belief that, rather than the traditional model, diners might be happier if they were able to sit at a table, not hang about at a counter.

But instead of waiter service, his solution was to put in hi-tech self-ordering stations where customers punched in what they wanted and the food was brought to them. The technology, which has been deployed outside the US, will eventually appear in all 14,000 restaurants across its home market.

McDonald's has also launched a mobile phone app, enabling diners to order and pay for their food before they even arrive at the counter. Those who cannot face making the trip to a McDonald's branch can even get their food delivered by Uber. Louis Dale, an analyst with Standard Life Investments, has been impressed by the work Easterbrook has done.

"Performance for McDonald's shares has been great over the last two years, up 50pc, driven by changes in the organisation, the company's business model and how it operates," he says. "Investors like the business model changes, which have seen the proportion of franchised restaurants increase.

Steve Easterbrook has done a great job decentralising the company's operations to improve decision-making. The company has increased its focus on delivering a great customer experience. "I think we've seen this execution from the introduction of All Day Breakfast, partnering with UberEats and the announcement of the use of fresh beef starting in 2018, which seems to have brought some enthusiasm back to the brand."