McDonald's Has Been Closing Locations For This Reason
For the past few years, McDonald's has been shrinking in size. But strategically cutting hundreds of restaurants loose has done wonders for the fast-food titan's bottom line.
Since it began franchising its locations in 1955, McDonald's has been a poster child for savvy business and American entrepreneurship. And this year's report on the state of the quick-service industry, published by Technomic, shows that America's #1 fast-food chain continues to shrewdly maneuver the challenges of the ever-shifting industry landscape.
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At a glance, it may seem like McDonald's has struggled with post-pandemic recovery, considering the chain had closed 239 restaurants in 2021. However, the closures didn't impact its sales growth, but rather boosted it, according to Restaurant Business.
Currently, the average McDonald's location generates $3.4 million in revenue per year, which is among the highest numbers in fast food. By shrinking its U.S. footprint, the chain was essentially able to increase sales at its remaining locations. Underperforming units bringing its store averages down, like those located inside Walmart stores, were ones that got the boot.
Restaurant Business reports that in the past five years, the chain has lost about 5% of its total locations, but its average sales per restaurant have risen by 32%.
Instead of mass traffic, McDonald's is now targeting customers willing to spend more per restaurant visit. The chain has introduced more premium menu offerings, like the new chicken sandwiches, and has been raising its prices in order to cover a rise in labor and commodity costs.
"We are still seeing [6% increases] and that's pretty much the level we expect for the full-year 2021 over 2020 . . . And that's really to cover both labor cost pressures and commodity cost pressures," said CEO Chris Kempczinski, in response to an investor question about menu prices in 2021.
Additionally, hugely successful celebrity meal collaborations have proven to be a winning move with McDonald's younger audience—boosting Mickey D's success during the pandemic even further.