How McDonald’s plans to lure back lost customers

NEW YORK - McDonald’s (MCD) acknowledged on Wednesday that it lost 500 million customer transactions in the U.S. since 2012 and laid out its plans to get more people back into its restaurants -- including by letting them order and pay on their mobile phones by the end of the year.

The world’s biggest burger chain said during its investor day in Chicago that it lost some of its most loyal fans to other major fast-food chains, rather than to newer, smaller rivals. It also said it will more aggressively market items such as coffee and pastries to draw customers, and hinted that it’s looking to expand delivery in major markets.

McDonald’s outlined its plans after having recorded its fourth straight year of declining guest counts at established U.S. locations in 2016, despite the fanfare over the rollout of an all-day breakfast menu. The company also trimmed its domestic store base for the second year in a row.

The chain has said it needs to do a better job of making ordering convenient, but it hadn’t previously specified when it would make mobile order-and-pay and curbside pickup available. Starbucks (SBUX) already offers mobile order-and-pay, an option the coffee chain has hailed as a success but also blamed for creating congestion at pickup counters.

In addition to letting customers order on their phones, McDonald’s noted it’s transforming restaurants so that they incorporate elements such as ordering kiosks and table service. CEO Steve Easterbrook, who took over in March 2015, also noted Wednesday the potential for delivery, with 75 percent of the population in the company’s top five markets — including the U.S. — living within three miles of a McDonald’s.

The company has touted the changes it’s making to improve its core menu, such as making its Chicken McNuggets without artificial preservatives and testing fresh beef for some burgers. In April, a limited-time offer for $1 sodas of any size could also be quicker fix for driving customers into stores.

McDonald’s faces competition not just from other big fast-food players, but from newer rivals that largely emphasize freshness and taste, as well as the availability of food at convenience stores like 7-Eleven and supermarkets. NPD Group has said it expects overall customer traffic in the restaurant industry to remain “stalled” this year, as it was last year.

For 2019 and beyond, McDonald’s said it expects to expand its operating margin from the high-20 percent range to the mid-40 percent range, as it sells more of its restaurants to franchisees and relies more heavily on royalty fees. By the end of this year, the company expects 93 percent of its restaurants to be franchised.

Other chains such as Burger King (QSR) and Dunkin’ Donuts (DNKN) are almost entirely franchised, while Starbucks and Chipotle (CMG) own most their restaurants.

After having been halted before the company’s announcements, shares in McDonald’s gained $1.74, or about 1.4 percent, to $129.30.

However, that could be about as high as the stock goes. In a note, UBS analysts -- who’ve put a target price of $130 on the shares -- said McDonald’s “Global momentum and outlook are much improved, but at ~13x EBITDA it’s difficult to see further multiple expansion.” Given that consensus expectations have increased in recent quarters, the note added, “we see less opportunity for meaningful upside in shares.”