MCD McDonalds Corp

By Heather Haddon 

McDonald's Corp. is making changes to its menu and restaurant operations as the coronavirus pandemic persists, including an emphasis on to-go orders and new "McPlant" vegetarian items.

The burger company said Monday that it would test a slate of new plant-based products in some markets next year. McDonald's ran a pilot program earlier this year in Canada to sell patties made by Beyond Meat Inc., a leader in the market to sell new plant-based products that closely mimic meat.

Beyond Meat said it developed a patty for the McPlant line together with McDonald's. McDonald's, which said the McPlant line could include imitation burgers, chicken and breakfast foods, declined to discuss what companies would supply the new items or what ingredients they would include.

McDonald's shares fell 1.5% Monday to $213, while Beyond Meat's shares fell 4.1% to $150.50.

After markets closed, Beyond Meat reported a $19.3 million quarterly loss due to a pandemic-driven slowdown in restaurant sales. Its shares dropped 26% in after-hours trading.

Plant-based meat substitutes have made a splash in the past year as they moved onto more fast-food menus and retail shelves. Imitation meats made by Beyond Meat, Impossible Foods Inc. and other competitors claim to taste and cook more like the genuine article than traditional veggie burgers.

Many chains have cut deals with plant-based meat manufacturers last year, including Burger King's partnership with Impossible Foods and Dunkin' Brands Group Inc.'s deal with Beyond Meat. Beyond Meat and Impossible Foods have both added manufacturing capacity to meet rising demand for their products.

McDonald's Chief Executive Chris Kempczinski said local demand would determine where and when to introduce "McPlant" items. "It's not a matter of if McDonald's gets into plant-based, it's when," he said during an investor event.

Beyond Meat CEO Ethan Brown said his company's relationship with McDonald's is strong. "We're working closely with them on a number of matters," Mr. Brown said.

"We worked hard to develop the burger that was in the PLT and will be in the McPlant," he said, referring to the "plant, lettuce and tomato" sandwich the two companies served for a time this year in Canada.

As a result of the pandemic, Mr. Kempczinski said it is testing automated order taking, dedicated drive-through lanes for online orders and a restaurant design with no dining room. Rivals are also investing in to-go operations. Chipotle Mexican Grill Inc. this year built dozens of drive-through lanes for online orders.

McDonald's said it is also exploring its own delivery service in some markets with high demand, including Australia and Germany.

"The restaurant experience we offer must evolve," Mr. Kempczinski said during an investor event Monday.

The company said Monday that global same-store sales fell 2.2% during its third quarter from a year earlier, a slightly better result than analysts had expected and a sizable improvement from a 24% drop in the second quarter. Sales improved as countries allowed restaurants to reopen during the summer and autumn after initial lockdowns, McDonald's said.

Rising numbers of coronavirus cases are closing dining rooms in some places again. McDonald's said government restrictions on restaurant hours, dine-in capacity and dining rooms since September are hurting its operations, particularly in markets outside the U.S. such as France, Germany, Canada and the U.K.

While restaurants have been hit hard by the pandemic, well-capitalized chains are in many cases performing better than independent restaurants. Companies with drive-through and delivery, including McDonald's, have had an advantage.

McDonald's reported a 4.6% year-over-year increase in same-store sales in the U.S. for its latest quarter. It said bigger orders and dinner business helped overcome lower total customer tallies. Drive-through service and a promotional partnership with the musician Travis Scott drew customers, McDonald's said.

Burger King, owned by Restaurant Brands International Inc., reported a 3.2% drop year-over-year for its U.S. same-store sales for the quarter ended Sept. 30.

McDonald's recently set a plan for closed dining rooms in the U.S. to reopen if cases of Covid-19, the illness caused by the new coronavirus, fall locally over time. McDonald's said it would focus on improving core menu items such as its burgers, as consumers have gravitated toward familiar food during the pandemic. McDonald's had introduced customizable burgers and other higher-end options in recent years before removing some of those items to simplify its operations.

"It's a clear reminder that each product must earn its place on our menu, " said Ian Borden, McDonald's president, international.

One item McDonald's does plan to add is a crispy chicken sandwich on a toasted potato roll, due to arrive in the U.S. early next year. Competitors, particularly Popeyes Louisiana Kitchen, have notched big sales increases through chicken sandwiches. McDonald's also said it would introduce a loyalty program, starting with tests in the Phoenix area in coming weeks. Starbucks Corp. and other big chains have run loyalty programs for years and attracted millions of regular users.

For its 2021 and 2022 fiscal years, McDonald's said it expects sales growth in the mid-single-digit percentages, similar to 2019 levels. It expects capital expenditures of roughly $2.3 billion, about half going to new restaurants. The company expects much of its 2021 spending to go to hundreds of new restaurants, particularly in China and other global markets.

Revenue for the quarter totaled $5.4 billion, in line with expectations from analysts polled by FactSet. Profit rose to $1.8 billion from $1.6 billion a year earlier. Profit was aided by the sale of part of its stake in its Japanese business. Analysts had expected profit of $1.4 billion for the quarter.

For its third quarter ended Sept. 30, McDonald's reported earnings per share adjusted for one-time items of $2.22, up 5% from the prior year. Analysts had expected $1.91.

Jacob Bunge contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

November 09, 2020 18:22 ET (23:22 GMT)

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