McDonald's $1 Billion Store Makeover
The fast-food king is in the middle of a push to spend billions on upgrading its store interiors, an…The fast-food king is in the middle of a push to spend billions on upgrading its store interiors, and has announced plans to "reimage" more than 1,600 locations this year.
Here's an example of the type of look that the company is after:
McDonald's plans to spend around $1 billion of its $3.2 billion capital investment budget this year on store facelifts like this. The sheer size of that investment is one of its biggest competitive advantages. Rival Yum! Brands, for example, comes the closest to McDonald's annual spending, but still only manages to invest $1 billion -- hardly one-third of Mickey D's total outlay.
This year's makeover pace is actually a bit slower than last year's, when the company reimaged 2,400 restaurants. Still, McDonald's has achieved a significant chunk of its store reboot already, upgrading interiors for over 60% of its 34,000 global locations.
There are some good financial reasons for the design changes. At a presentation for the global consumer conference this week, McDonald's said that the new interiors can increase sales by 6% to 7% in the year after they're completed. That boost -- combined with menu improvements, new store openings, and expanded hours -- is how McDonald's plans to achieve sales and profit growth this year despite a tough market for fast food.
The company's first-quarter results reflected that market weakness. McDonald's comparable sales were down 1%, while customer traffic fell by nearly 2%. Yum! Brands saw weakness in its U.S. business, too. Sales growth slowed from 5% to just 2%, and was entirely dependent on Taco Bell's improvements to make up for KFC's and Pizza Hut's slips.
However, McDonald's more recent results suggest its menu tweaks and huge capital investments may be starting to pay off. Sales were up a solid 2.6% in May. The company credited strong breakfast business as the major revenue driver last month. But the billions of dollars it has invested into store redesigns played a role, too.
