McDonald's to offer free chicken strips

Fast-food giant hopes to lure bigger Feb. sales

February 17, 2005|By John Schmeltzer | John Schmeltzer,CHICAGO TRIBUNE

CHICAGO - McDonald's Corp. today will begin a four-day sampling of chicken strips and a new fat-free barbecue sauce at its 13,000 U.S. restaurants, apparently in an effort to avert a slowdown in sales.

The fast-food giant estimated yesterday that it would give away 4 million chicken strips during the four-day sampling.

Although the company says sales of Chicken Selects are exceeding its expectations, analysts wonder if the first nationwide giveaway in the company's history is an indication that the meals might not be as big a hit with customers as the company had hoped.

"That would be the obvious reason to do a sampling," said Janna Sampson, co-manager of the AmSouth Select Equity Fund and director of portfolio management at Oakbrook Investments LLC in Lisle, Ill. "They get you in to try it."

But company spokeswoman Heather Oldani said the sales of Chicken Selects have been doing well. "We wanted to kick the year off by introducing our chicken selections to people who may not have tried them," said Oldani, who added that the event will also highlight that McDonald's has more to offer than just hamburgers.

About a third of McDonald's U.S. menu is now chicken-based, according to Ralph Alvarez, president of McDonald's North America.

Sampson said customers are not likely to be satisfied with the one chicken strip they will receive. "Are you going to leave, or are you going to eat lunch?" she asked. "My theory is they will buy lunch."

The promotion could cost McDonald's $2 million, but it also might provide a boost in February sales. Most analysts are projecting that the company will report a decline of as much as 2 percent this month, partly because last year was a leap year and February had 29 days.

McDonald's has posted 22 straight months of same-store sales gains in the United States, but the rate of growth slowed to 4.1 percent in January, down from 13.4 percent in January 2004 and the smallest increase since April 2003. Same-store sales, or sales at restaurants open at least 13 months, are considered the best indicator of a retailer's health.

For all of 2004, the company reported that U.S. same-store sales increased 9.6 percent, its best performance in 30 years.

"I don't think they will get 12 percent and 15 percent growth again," said Sampson. "Four percent to 6 percent would be a real reasonable number."

Carl Sibilski, a Morningstar analyst, said a sales slowdown isn't necessarily a negative for McDonald's.

"They are cutting at the bottom, and if they keep reinvesting in the stores, they will get quite a bit of sales growth," he said, noting that the company renovated 1,100 stores in 2004 and is planning to renovate 1,300 this year.

Increasing sales is a key issue for James A. Skinner, who was named chief executive in November, the company's third CEO in less than a year.

McDonald's endured almost two years of sluggish domestic sales until then-CEO James R. Cantalupo took a back-to-basics approach in 2003. He also introduced two new products - fresh salads and a breakfast sandwich - that helped boost sales in 2003 and throughout 2004.

But analysts and fund managers who follow the company say single-digit increases are likely to be the norm for the future, and even the company is now attempting to talk down expectations. Skinner said last month that McDonald's is targeting "systemwide sales and revenue growth of 3 percent to 5 percent" for the year.

Of course, the Chicken Selects promotion could help. It is limited to the lunch hours, 11 a.m. to 2 p.m.

But customers using the drive-through will not receive a free sample. Instead, they will receive a coupon good for free medium fries and a medium drink with a future purchase of a chicken strip meal.

The Chicago Tribune is Tribune Publishing newspaper.

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