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Big Burger is out to win.
Reuters/Robert Galbraith
Big Burger is out to win.
A BETTER BURGER

Charted: McDonald’s is hungry to prove fast food can compete with fresh food

By Chase Purdy

It’s a tricky problem to solve: convincing people the poster child for the classic American greasy hamburger can also offer up the higher-quality foods today’s consumers crave. But it appears McDonald’s is finding a way.

The fast-food giant’s share price this week hit an all-time high after the company reported first-quarter earnings—a sign McDonald’s is succeeding in its quest to compete against a bevy of fast-casual chains that have threatened to tear away at market share.

It’s no longer enough to serve up decent-tasting burgers. As people seek higher-quality food options and easier ways to buy them, McDonald’s is taking cues from places such as Panera Bread Company, Chipotle Mexican Grill, and Starbucks. McDonald’s announced earlier this month it would begin to serve its quarter-pounders with fresh, unfrozen beef patties. And the company is rolling out a mobile-ordering service that will allow customers to pre-order their food for pick-up.

Those types of moves—spearheaded by CEO Steve Easterbrook—appear to be paying off, and Wall Street has taken notice. So far this year, McDonald’s share price growth has outpaced rivals Taco Bell, KFC, and Pizza Hut (all part of Yum Brands). And it’s positioning the fast-food chain to compete against big players in the fast-casual space such as Panera Bread and Chipotle (which is still recovering from a nasty 2015 food safety crisis). McDonald’s reported this week that same-store sales increased by nearly 2% compared to the same quarter last year.

“Easterbrook and team are starting to unlock [the] pent-up earnings power of brand McDonald’s,” wrote Jason West, a Credit Suisse analyst. “McDonald’s US business has returned to a position of ‘share taker’ from ‘share giver,’ outperforming peers in five of the last six quarters.”

Even better for McDonald’s is that in the last several years it’s managed to keep pace—and generally outperform—the overall restaurant market:

To keep up the momentum, Easterbrook this week told investors he plans to continue improving the quality of McDonald’s food—think cage-free eggs and fresh beef—as well as the technology available to consumers. In Canada, the company has tested ordering-kiosks to replace cashiers—it found that kiosk use more than doubled year-on-year.

“We’ll bring mobile order-and-pay to 20,000 restaurants around the world by the end of this year,” Easterbrook said. “In the US alone, mobile order-and-pay will be in 14,000 restaurants by the end of the year.”

It’s not going to be cheap to stay on track (the company is paying Easterbrook a pretty penny to be its captain), but investors are cautiously optimistic McDonald’s may be cracking the code to today’s consumer tastes.