McDonald’s just made a very big announcement, and these 13 words mattered most

I’ve read a lot of business memoirs . One I keep coming back to is Grinding It Out by Ray Kroc —the man who built McDonald’s into the global giant it is today. Kroc was 52 before he even heard of the McDonald brothers who originally started the company. That fact alone says a lot about how he thought: Success comes eventually, but only to those who keep showing up. Which brings me to McDonald’s third-quarter earnings call Wednesday. McDonald’s reported solid results : global comparable sales up 3.6 percent, U.S. sales up 2.4 percent, revenue of $7.08 billion. The company is outperforming most competitors, but in a brutal environment: Fast-food traffic is down 2.3 percent industry-wide this year, worse than the 1.6 percent drop across all restaurants, according to market-research firm Black Box Intelligence . McDonald’s Extra Value Meals now account for about 30 percent of U.S. transactions, the company reported. And, McDonald’s spent $40 million this quarter on marketing and expects to provide $90 million in total support to franchisees this year to discount those meals. That’s real money coming out of margins. Wall Street has noticed. But McDonald’s CEO Chris Kempczinski said McDonald’s will measure its success “first by gaining share of lower-income consumer traffic, and second by improving value and affordability experience scores.” Traffic first. Profits later. And why is that? Well, I’ve written before about how McDonald’s is the undisputed champion of nostalgia marketing . It brought back the Hamburglar. It made Grimace’s birthday go viral. It launched Adult Happy Meals. It returned the Snack Wrap after fans petitioned for years. Every one of those campaigns was about unlocking core memories in customers. It’s a strategy that’s paid off, but you can’t unlock core memories if they were never created in the first place. A 7-year-old who comes to McDonald’s with her family today because they can afford the Extra Value Meal won’t be profitable for decades. But 20 years from now, when she’s shopping for her own kids and feeling nostalgic? That’s when the investment pays off. Brutal truth: The U.S. economy has split in two. Lower-income consumers are feeling pressure from rising rents, food bills, and childcare, Kempczinski explained. Add uncertainty around SNAP food assistance, and these customers will keep pulling back “ unless they feel their incomes begin to grow .” Meanwhile, higher-income consumers are visiting quick-service restaurants much more often. So while McDonald’s is gaining relative share with both groups, the lower-income segment—the future nostalgia customers—is disappearing from the industry. This is where Ray Kroc’s philosophy matters once more. Because grinding it out sometimes means having the resources to keep going when others can’t. And McDonald’s truly has advantages that most competitors don’t. First, international markets are carrying their weight, and then some. Comparable sales rose 4.3 percent in International Operated Markets (led by Germany and Australia) and 4.7 percent in International Developmental Licensed Markets (led by Japan). Both outperformed the U.S. That geographic diversification gives McDonald’s room to breathe while...

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